According to the Asian Development Outlook, released today by the Asian Development Bank, economic growth is slowing in Asia, with the nightmare of inflation raising its head. China’s 6 per cent rate of inflation could provoke social unrest. The government in Beijing is trying to respond, but with little success so far.

Beijing (AsiaNews) – The world’s financial crisis and natural disasters have slowed down but not stopped economic growth in Asia, which is expected to reach 7.8 per cent this year. Inflation remains a problem however, especially in China. In fact, “High inflation is a direct threat to stable and inclusive growth since rising domestic prices can lead to social tensions”, this according to the Asian Development Outlook 2011, presented today by Changyong Rhee, chief economist at the Asian Development Bank (ADB).

If one excludes Japan, which is faced with post-earthquake reconstruction, growth in Asia is expected to hit 7.8 per cent in 2011 and 7.7 per cent in 2012, down from 9 per cent in 2010 when the region rebounded strongly from the global financial crisis, especially in banking.

As for Japan’s triple crisis (tsunami, earthquake and nuclear threat), it should have a minimal effect on the region as a whole.

Some countries could in fact benefit in terms jobs and natural resources development from increased demand from Japan as the country begins to rebuild the areas devastated by the quake.

"Under the assumption there is no further deterioration in the nuclear situation, I really don't think the impact will be that great," Rhee said.

Despite enduring the greatest impact, China and India should continue to drive the global and regional economic recovery, he added.

Economic growth in China is expected to moderate this year to 9.6 per cent, down from 10.3 per cent in 2010.

India's economy is expected to expand by 8.2 per cent in the year to March 2012, down from an expected 8.6 per cent in the year to March 2011.

Inflation remains the greatest danger. Inflation in the 45 Asian economies covered by the report is forecast to rise to 5.3 per cent in 2011, from 4.4 per cent in 2010.

"Developing Asia is home to two-thirds of the world's poor and it is they who are most vulnerable to the effects of price increases," said Mr Rhee.

The report warned that inflation, especially if driven by food prices, could exacerbate inequality and lead to social tensions.

This is particularly worrisome in China where the gap between rich and poor is huge.

The authorities in Beijing know the problem very well but are unable to stop it.

In fact, China’s fourth interest-rate increase in less than six months was announced yesterday. The People’s Bank of China yesterday boosted its benchmark one-year lending rate by a quarter point to 6.31 per cent, showing its determination to “front-load” monetary tightening in an effort to defuse overheating risks.

When the international crisis hit a few years ago, the government adopted an easy money policy to fight its effects, but with negative consequences for consumer prices.

The problem is such that the official China Securities Journal sounded the alarm. Mainland inflation may in fact top an annual rate of 6 per cent in the coming months, one of the highest in recent history.

“Under severe controls from the central bank, monetary conditions fuelling price rises have clearly been curbed. But inflationary pressure still cannot be overlooked,” the newspaper said in a front-page commentary.

• china
• asia
• inflation
• economic
• growth
• social
• unrest