Faced with a decelerating global economy, turbulent nancial markets,and elevated commodity prices, the region o developing Asia is expectedto experience a slowdown in growth in 2008 and 2009. Tis
Asian Development Outlook 2008
), published in April thisyear, marginally revises down the orecast or the region’s growth or2008 to 7.5% rom the earlier 7.6%.In most economies in the region, growth has slowed. In the People’sRepublic o China, expansion moderated to 10.4% in the rst 6 months o 2008 rom the robust 11.9% seen in the same period o 2007. Tis stemsrom the soening o external demand and the cumulative impact o monetary tightening in recent years. India, in the rst quarter o FY2008(April–June), saw its slowest growth since 2004 as ination and higherborrowing costs damped consumer spending and investment.Regional growth in 2009 is expected to urther decelerate to 7.2%,lower than the previous projection o 7.8%. Tis assessment, however, isless certain, primarily because the outcome depends both on the durationand extent o the current global downturn and the runup in commodity prices, as well as on how Asian economies respond to domestic andexternal shocks.Ination orecasts are revised signicantly upward as risingglobal prices o ood and uel have added to ination pressures acrossdeveloping Asia. Price increases started to accelerate in the second hal o last year. Te increases have not been limited to ood and uel prices, asrising raw materials costs pushed up manuactured goods prices as well.Wage pressures are also building up in many Asian economies. It is nowanticipated that the region will register an average ination o 7.8% in2008 and 6.0% in 2009.Te
presents our thematic essays discussing the recentglobal commodity price rises and their impacts on developing Asia. Tey suggest that high international commodity prices are here to stay. Pricesare also expected to remain volatile, a combination
aecting the region’sgrowth prospects. One important nding is that in many countries,demand-pull rather than cost-push actors are causing high prices. Terole o monetary policy is thus still relevant in containing price pressures,and monetary authorities should impose requisite tightening measures toprevent ination rom becoming entrenched.However, monetary tightening is not without risks. Since theslowdown in the leading industrial economies will hit developing Asia’sexport and growth perormance, tightened monetary policy couldreinorce a contraction in the region even aer demand has already begunto slacken. Still, these risks should not be overstated. Te more urgentpriority or monetary authorities is to contain ination expectations.Te region’s growth prospects remain undamentally sound, evenaer the G3 slowdown is actored in. Tereore, these risks do notdiminish the broad policy messagethat there has to be a reshiing o the basic monetary stance toward tightening throughout developing Asia.