Asia-Pacific growth prospects seen limited by inflation

Aug 12, 2008, 10:11 GMT

Singapore - Asia-Pacific growth predictions are limited by inflationary pressures, prompting a rating agency Tuesday to revise downwards its expectations for the region in 2008 and 2009.

A key conclusion from a quarterly assessment of the region indicates that the 'main threat to growth has shifted from the slowdown in the United States to inflationary pressures and the efforts by the region's governments and central banks to tackle them,' the Standard & Poor's rating agency said.

'While the outlook has become somewhat more pessimistic, growth momentum will keep the region growing at respectable rates,' it noted.

'With countries allowing domestic fuel prices to increase even partially, there is little question that, as long as oil prices remain at current levels, or even decline moderately, the price adjustments will keep up the pressure on inflation rates,' said Subir Gokarn, chief economist of S&P Asia-Pacific.

A stable first-quarter performance, buoyed by robust domestic demand in countries such as China and India, has shifted the region's monetary-policy priority toward curbing inflation, at the cost of growth, Gokarn said.

'Despite growth slowing down in the second quarter, inflation-controlling measures continue,' he said.

As money-tightening measures begin to take effect, inflation rates are expected to come down in 2009, with a hardening of interest rates into 2009, Gokarn said.

While oil prices may not rise next year, they are expected to remain relatively high, putting pressure on the current accounts of most of the countries in the region, he added.