ADB cuts growth forecast for ASEAN

The Asian Development Bank on Tuesday, warning that higher inflation would continue to plague much of Southeast Asia on record-high fuel and food prices, lowered its economic growth forecast for the region by one percentage point and prodded central banks to tighten monetary policy to control price surges.

In the July issue of its semiannual Asia Economic Monitor, the ADB said the region’s slowing yet solid growth outlook remained vulnerable to a higher-than-expected spike in inflation, protracted slowdown in the United States and any further tremor in global financial markets.

The ADB cut its growth projection for the 10-member Association of Southeast Asian Nations (ASEAN) to 5.5 percent this year.

It forecast the same growth rate for the Philippines in 2008 and 5.6 percent in 2009.

The report said economic expansion in three of the four big-population ASEAN countries—the Philippines, Malaysia, Indonesia and Thailand—was expected to slow down.

For the Philippines, which posted a 31-year-high growth in gross domestic product (GDP) of 7.2 percent in 2007, the report said “the outlook has weakened on the deteriorating external environment: softer global demand for exports and soaring rice and fuel prices dampen consumer spending.”

It predicted that Thailand’s economic growth would accelerate to 5.0 percent this year from 4.8 percent in 2007, as fiscal spending and a largely accommodative monetary stance would help curb the slowdown in export growth.

It said Indonesia’s GDP growth would slow down with slackening export growth, but buoyant consumption and strong investment with some fiscal easing were expected to help support growth of about 6.0 percent this year and next.

Malaysian economic growth is projected to slow down to 5.4 percent this year from 6.3 percent last year as industrial activity softens, particularly in the manufacturing sector, undermined by weaker US demand for consumer electronics, the report said.

“In Indonesia, the Philippines and Taipei, China, the 2008 ADB growth forecast for GDP remains higher than the long-term average trend growth in the last eight years,” it said. “However, all of these economies now have higher inflation forecasts for 2008 compared with the latest target/official forecasts, suggesting that inflation risks have been elevated together with heightened inflation expectations.”