ADB chief sees US escaping recession despite slowdown

Published March 10, 2008

ADB chief sees US escaping recession despite slowdown

Asian growth will slow moderately, he adds; inflation will be biggest concern

By ANTHONY ROWLEYIN MANILA


THE US economy should be able to escape recession this year despite accelerating signs of a slowdown there and continuing turmoil in financial markets, according to Asian Development Bank (ADB) president Haruhiko Kuroda.

In an interview with The Business Times, he also predicted that growth in Asia would slow only moderately this year while inflation would be the most serious concern for policymakers.

The ADB head delivered a strongly upbeat assessment of prospects for the region's 'emerging' economies (excluding Japan), arguing that domestic demand is likely to remain robust even as external demand from the Group of Seven (G-7) industrialised economies continues to slow.

And he urged central banks in emerging Asia to maintain tight monetary conditions, or even tighten further, in the face of growing upward pressure on prices.

Mr Kuroda dismissed the idea that Asia could encounter another crisis on the scale of that which occurred 10 years ago. 'At this stage, I don't see any of our developing member countries as likely to be seriously hit by the problems in the global economy or financial turmoil,' he said.

And, 'if necessary, we can shift priorities and reshuffle projects and programmes so as to match with new needs which might arise'.

'I do think that America can escape recession,' said Mr Kuroda, 'although in the first half of the year the growth rate will be very low, maybe one per cent or less. But in the second half of the year, the US economy will recover, with probably 1-2 per cent growth,' he predicted, adding that overall US growth of around 1.5 per cent for the year should be possible. 'This is a significant slowdown, but it is not a recession.'

While being more positive than many others in his assessment of US economic prospects, the former vice-finance minister for international affairs in Japan also rejected suggestions that emerging Asian economies could slow sharply in the wake of the US sub-prime mortgage crisis and associated financial and currency turbulence.

'Domestic demand in developing Asia is still very strong,' Mr Kuroda noted. 'As intra-regional trade has increased substantially in the last several years and domestic demand has also been very strong, developing Asia as a whole can sustain relatively high growth.'

The baseline trend is still very strong, he said, and overall growth is likely to moderate only to 7.5-8 per cent this year compared with 8-8.5 per cent last year. This will still be a 'respectable' rate of growth similar to that enjoyed by developing Asia in 2006, Mr Kuroda said.

'I am more concerned about inflationary pressures in some countries in Asia,' Mr Kuroda told BT in his office at the ADB headquarters in Manila.

'In some countries, inflation has accelerated in recent months and in other countries, asset price inflation has accelerated,' citing the cases of China and Vietnam in particular.

'The global commodity boom and external factors have increased inflationary pressures in many countries including China,' he pointed out. 'But some domestic overheating exists and a slowdown in the Asian economies could help in containing inflationary pressures.'

Nevertheless, 'central banks will be well advised to maintain tight monetary conditions and, if necessary, they should tighten further'.

ADB chief economist Ifzal Ali also told BT in Manila that rising food prices in Asia are likely to be a major, ongoing contributor to inflation in the region from now on. Growing demand for food coupled with inadequate investment in the region could see prices continuing to rise by 5-6 per cent a year on average, he suggested.

'I think we are on the cusp of a major structural shift' whereby more resources will have to be devoted to raising agricultural productivity in Asia from now, Mr Ali added.

So, is it going to be a recession or slow down? Whichever the case I don't think it's going to be relevant anymore. I rather buy now than later when the price suddenly surge again and again.

Play safe. Confirmed.

Quote:

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Originally Posted by Unregistered

So, is it going to be a recession or slow down? Whichever the case I don't think it's going to be relevant anymore. I rather buy now than later when the price suddenly surge again and again.

Play safe. Confirmed.

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No need to preach about what you are going to do. Just go ahead and buy!