Moderating Growth, Rising Inflation Beset Developing Asia

    Economic growth in developing Asia this year will pale in comparison to recent years' robust expansion as the region, home to the majority of the world's poor, comes to grips with soaring prices, according to the Asian Development Outlook 2008.

    The flagship report of the Asian Development Bank projects moderate growth in Asia at 7.5 percent this year and 7.2 percent in 2009, a stark contrast to the 9 percent achieved in 2007.

    Inflation across Asia is projected to rise to 7.8 percent this year from 4.3 percent in 2007, and it is not due to the usual suspects. In what may greatly surprise many, demand-pull rather cost-push factors are driving up prices in Asia.

    "While higher oil and fuel prices have added fuel to the fire, the genesis of the problem is high and excessive growth rates in the past accompanied by accommodative monetary policies," Ifzal Ali, ADB chief economist, said during the report's release on Sept. 16.

    Tighter monetary policy and more prudent fiscal policy will be crucial if Asia is to overcome these challenges, Ali stressed. "Reining in inflation and the consequent lowering of growth is inevitable. Basically short-term pain for long-term gain," he added.

    ADB's forecast is not exactly painting a rosy picture for the region. Thomas Crouch, deputy director general of the Southeast Asia department, admitted during a forum in Manila that Asia's overarching goal to improve the lives of its people has just become a tad tougher.

    "[Recent events have] probably prolonged the time that is going to be needed to make the rapid and deep inroads that we want to make. It has complicated our task and it's probably prolonged the time horizon but it has not derailed the efforts," Crouch emphasized.

    About the author

    • Josefa Cagoco

      Sef Cagoco served as one of Devex's international development correspondent from mid-2008 to mid-2009. Her writing focused on social entrepreneurship and multilateral agencies such as the U.N. and Asian Development Bank. She previously worked as senior reporter for the national daily BusinessWorld and a production journalist for the Financial Times.