Sat, May 31, 2008 page11

• Inflation the biggest concern: PECC

  • AFP
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  Soaring energy and food prices will help increase the Asia-Pacific inflation rate to a forecast 3.6 percent this year from 2.7 percent last year, a regional think tank said yesterday.

  At the same time, growth is tipped to slow to 3.7 percent from 4.9 percent last year, the Pacific Economic Cooperation Council (PECC) said.

  It said inflation is the biggest worry for the region at a time of slowing growth in the US, the world’s largest economy and a major market for the region’s export-reliant economies.

  “While the slowdown in growth weighs heavily on policymakers’ minds, it is the specter of inflation that is causing the biggest headaches,” PECC said in its most recent outlook for the region.

  “Combined together, there is very little room for monetary stimuli,” it said in the forecast for 16 Asia-Pacific economies including the US, Japan and China.

  Consumers are paying more for food and gasoline throughout the region, it said.

  The pain is particularly acute in Indonesia and China, the report said. Inflation in Indonesia is projected at 11.7 percent this year, nearly twice that of 6.6 percent last year, while in China it is seen at 6 percent compared with 4.8 percent last year, it said.

  For Southeast Asia as a whole, overall inflation this year is projected at 6.2 percent, up from 3.2 percent last year, PECC said.

  “Even with appreciating currencies, Asia-Pacific economies are starting to feel the pinch of higher energy and commodity prices,” said Yuen Pau Woo, coordinator of the PECC report.

  “The recent spike in food prices has not helped. Indeed, it has exacerbated the adverse impact on vulnerable groups who spend a high proportion of their incomes on rice and other staples,” he said.

  The slowing US economy, which some economists say is already in a recession, is the key reason behind the downward growth revisions for the Asia-Pacific region, PECC said.

  Most of Asia is expected to feel the impact of the US slowdown, with China’s economic growth seen weakening to 9.6 percent this year from 11.4 percent last year. In Japan, this year’s growth is projected at 1.6 percent from 2.1 percent last year, PECC said.

  Real GDP growth in the US is tipped to slow to 1 percent this year from 2.2 percent, but is expected to bounce back next year with expansion of 2.5 percent, the report said.

  “The revision to our forecast comes from increased pessimism about the health of the US economy, which is forecast to grow at only 1 percent this year,” the report said.

  “The knock-on effects of the slowdown in the US economy and the turmoil in financial markets are seen in downward revisions for growth in most Asia-Pacific economies,” it said.

  PECC is a partnership of business, government and academics serving as a regional forum for cooperation and policy coordination.
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