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POLITICAL ECONOMY
China inflation slows in March
by Staff Writers
Beijing (AFP) April 9, 2013


Developing Asia to rebound but recovery fragile: ADB
Hong Kong (AFP) April 9, 2013 - The Asian Development Bank said Tuesday the region's emerging economies would pick up this year but warned that the recovery remained fragile due to the eurozone crisis and tensions in Asia.

The Manila-based lender said in its latest forecast that the uptick in China's economy and "robust growth" in Southeast Asia would lead expansion, which would be also boosted by strong domestic consumption.

The ADB estimated that gross domestic product (GDP) for developing Asia, which covers 45 nations, was set to grow 6.6 percent this year before edging up to 6.7 percent in 2014.

Growth slowed to 6.1 percent last year -- the lowest since 2009 when it saw 6.0 percent expansion.

"Developing Asia's recovery phase remains vulnerable to shocks," the bank said in its Asian Development Outlook report.

"Strong capital inflows could feed asset bubbles. Political discord surrounding fiscal debates in the United States, austerity fatigue in the euro area, and border disputes in Asia could jeopardise macroeconomic stability."

"Continued sluggishness in the United States, euro area, and Japan suggests that developing Asia must continue to shift toward more domestic demand and trade with emerging markets," the ADB said.

The ADB forecast China's economy to expand 8.2 percent this year, up from 7.8 percent last year, thanks to strong domestic demand and a better export performance.

South Asia's growth would turn around after two years of softening, it said, with India tipped to see GDP rise 6.0 percent this year from last year's 5.0 percent.

"India has considerable potential, but its future performance relies on resolving contentious structural and policy issues that inhibit investment," the bank said.

The stronger economic activity expected for this year however would spur renewed price pressure, with inflation expected to rise from 3.7 percent in 2012 to 4.0 percent this year and 4.2 percent next year.

"These pressures remain manageable for now, but will need to be monitored closely, especially as strong capital inflows raise the spectre of potential asset market bubbles," the report said.

Southeast Asia would continue to shine on robust private consumption and increased intra-regional trade. Its GDP is set to expand 5.4 percent this year.

An ambitious plan by the Association of Southeast Asian Nations regional bloc to create a common, barrier-free market by 2015 would encourage even higher growth and help to diversify its market, the ADB report noted.

The bank also warned that Asia's growth ambitions could be jeopardised unless the region secures enough supply of clean and affordable energy to support its rapid expansion.

Asia's consumption in energy could rise from barely a third in 2010 to more than half by 2035, when the high polluting coal consumption is set to rise by a whopping 81 percent.

ADB said the region could face "costly and devastating environmental impacts" unless radical changes to the way it uses energy is carried out.

Inflation in China slowed faster than expected in March, official data showed Tuesday, indicating that the recovery in the world's second-largest economy is still weak.

The news will allow the central People's Bank of China to hold off tightening monetary policy further for the time being, boosting share markets, analysts said, but they warned problems remained for the economy.

China's consumer price index (CPI) -- a main gauge of inflation -- came in at 2.1 percent last month, the National Bureau of Statistics (NBS) said, down from 3.2 percent in February when prices spiked during the Lunar New Year holiday.

Last month's reading was lower than the median forecast of 2.4 percent in a poll of 16 economists by Dow Jones Newswires.

The easing CPI figure and a 1.9 percent fall in the producer price index, a leading indicator showing how much manufacturers are paying, underscored that recovery in China remained fragile, analysts said.

"We have yet to see a surge in final demand ripple throughout the economy," IHS Global Insight analysts Alistair Thornton and Ren Xianfang said in a research note.

"The recovery... has been largely government-driven, and has been underpinned by property froth and rampant shadow finance... This is not a healthy recovery."

Month on month CPI fell 0.9 percent, the NBS said. In the first three months of the year inflation stood at 2.4 percent year-on-year, it added.

Food prices remained a leading driver of inflation in March, rising 2.7 percent year on year, although easing from a 6.0 percent increase in February.

The cost of pork declined 5.5 percent from a year ago, apparently as consumers turned away from the meat after more than 16,000 dead pigs were found in a river that flows through Shanghai.

The scandal highlighted China's troubles with food safety, adding the country's most popular meat to a growing list of food items rocked by controversy.

China has set its inflation target for this year at 3.5 percent, lower than last year's goal of 4.0 percent but higher than the final rate for 2012, which stood at 2.6 percent.

Bank of America Merrill Lynch economists said they expect inflation to remain below 3.0 percent before mid-year, adding that concerns were overdone after price rises hit a 10-month high in February.

"Calling for imminent monetary tightening in the past month also turns out to be premature as inflation pressure is not high, growth momentum is not strong and external conditions are still volatile," said Lu Ting and Zhi Xiaojia in a report.

Beijing is expected to keep its monetary policy neutral in the first half of this year after an easing in the last six months of 2012 to boost growth, they said.

Traders welcomed the data, with the Shanghai composite index 0.44 percent higher and Hong Kong up 0.92 percent.

Chinese shares have suffered in recent months owing to concerns about the world's number two economy, while the recent spike in inflation fuelled expectations the government would tighten monetary policy to prevent runaway prices.

Inflation is a key issue for the ruling Communist Party as it brings with it the risk of popular discontent and the threat of social unrest.

The Chinese economy grew at its slowest pace in 13 years in 2012, with gross domestic product expanding 7.8 percent in the face of weakness at home and in key overseas markets. Its target for 2013 is 7.5 percent, the same as last year.

China's President Xi Jinping said Monday the days of "ultra-high speed" growth in the economy -- which many hope can spur a global recovery -- are probably over, partly as a result of official efforts to transform the country's growth model.

Chinese leaders have repeatedly vowed to retool the economy to emphasise consumer demand as the key growth driver rather than investment and exports.

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POLITICAL ECONOMY
Asian economies to rebound but recovery fragile: ADB
Hong Kong (AFP) April 9, 2013
The Asian Development Bank said Tuesday the region's emerging economies would pick up this year but warned that the recovery remained fragile due to the eurozone crisis and tensions in Asia. The Manila-based lender said in its latest forecast that the uptick in China's economy and "robust growth" in Southeast Asia would lead expansion in the region, which would be also boosted by strong dome ... read more


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