The rapid economic growth in Asia will moderate slightly this year, even as policymakers try to keep local currencies from appreciating sharply and fight soaring prices with higher interest rates, according to a quarterly poll conducted by Reuters.
Growth in the majority of the 13 Asia Pacific markets covered in the survey will likely cool this year, as economic recoveries in Europe and the US remain uneven and China intensifies its efforts to combat asset bubbles and inflation.
With higher food and fuel prices, central banks and governments in Asia Pacific will need to tighten monetary policy further or take other measures, even if doing so may curb growth, said economists.
“Later this year, Asian policymakers are going to have to be much more aggressive to get inflation under control and the consequence of that will be weaker growth,” said Robert Subbaraman, Chief Economist Asia at Nomura.
“For Asia, the challenging part is how to deal with inflation at a time when there are still capital inflows to the region.”
“The risk in Asia is policy is either too slow to respond or the micro or piecemeal measures that have been introduced are going to lose their effectiveness overtime,” he said.
China, the second largest economy in the world, will likely see its slowest annual growth in Q1 at 8.7 percent, providing the government more confidence to further intensify policies to curb inflation, said the survey.
China’s GDP will likely grow 9.3 percent this year, stronger than the 8.9 percent median forecast in the October poll.
Capitalising on strong demand from resources, especially from China, Australia’s two-decade long economic expansion will likely moderate, as floods in Queensland rein in consumer demand and coal exports. However, massive rebuilding efforts should add significantly to growth and will likely fuel price pressures for the coming months.
Australia’s GDP growth forecasts for Q1 have been halved to about 0.4 percent from 0.8 percent in the October poll.
Meanwhile, Southeast Asia, Taiwan and Hong Kong will also see increasing prices, moderating growth and risks of asset bubbles, underlining the need for policymakers to act sooner.