China and India are set for slower but robust economic growth this year although sharply higher inflation looms as a key threat amid soaring global food and oil prices, the OECD said yesterday.
China is set to grow 10 percent, against 11.9 percent last year, as exports slip amid a world slowdown and anaemic US expansion, the Organization for Economic Cooperation and Development (OECD) forecast in its biannual Economic Outlook.
India’s expansion will fall to 7.8 percent this year from 8.7 percent last year, partly owing to higher interest rates, said the report from the grouping of 30 industrialized nations, which does not include the two Asian giants.
“Growth in the emerging markets, while moderating, remains strong, especially in China,” the report said, adding the odds were improving that global financial market turmoil had passed its peak.
Asian stock markets began sliding last year after a ballooning default crisis among so-called “subprime” — or riskier — US mortgages, which has led to huge losses, a global credit crunch and a world economic slowdown.
Exports from Asia to the ailing US economy have slowed but recent official data indicated trade within Asia and shipments to other parts of the world were holding up.
The EU had now become China’s biggest export market, but wage and price inflation were set to erode its export competitiveness, the OECD said.
Buoyant incomes were also helping Chinese consumers, supporting the economy this year and next year, when growth is forecast at 9.5 percent, it said.
“The Chinese economy is slowing to a more sustainable pace and there are early indications that the pattern of growth is beginning to rebalance away from net exports to domestic demand,” the OECD said.
But rising inflation posed a key risk in India and in China, where the devastating earthquake in Sichuan Province, a key farming area, could push up food prices, the OECD added.
Annual inflation in both countries is more than 8 percent as the prices of staple foods and crude oil soar, forcing India to announce a hike in subsidized fuel prices yesterday.
The OECD expects Indian growth to speed up next year, but said the principal risk to its forecasts was “inflation not moderating” despite hikes in borrowing costs and other steps by the Indian authorities to cool prices.
For China, the body said that the “longer inflation is allowed to persist, the higher the risk of rising inflation expectations, necessitating more of a slowdown than currently projected.”
There are fears rising inflation across Asia will hit consumer spending, squeeze business profits and force up interest rates, slowing growth.
Key numbers from a batch of Asian nations have shown unexpectedly strong economic expansion in the first quarter of this year, but many experts predict worse to come.
Australia became the latest nation to post surprisingly good figures, growing at an annual rate of 3.6 percent in the three months to March, prompting Canberra to warn that borrowing costs could rise to tame prices.
But the OECD said growth was likely to slow to below 3 percent in Australia this year and next year in the wake of higher borrowing costs and the global slowdown.
The Paris-based institution projects growth in South Korea will slow to 4.3 percent this year before rising to 5 percent next year. It sees New Zealand growth slowing sharply to 1.3 percent from more than 3 percent last year.
Japanese growth is forecast to slow to 1.7 percent this year from more than 2 percent last year, and to slip further to 1.5 percent next year.
Japan, Australia, South Korea and New Zealand are all OECD members.
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