We still expect that inflation in the Asia-Pacific will 'moderate,' ADB economist says

Well, we’re still forecasting for inflation to moderate in Asia Pacific from 3.3% last year to 3.2% this year and 3.0% next year. Broadly, despite recent challenges, we still think that both energy and food prices will moderate back to more normal levels. However, in the region, if you exclude China, inflation rates are still a bit elevated higher than pre pandemic levels. And in particular food inflation is contributing 2.7% to inflation, which is about twice as much as it was before the pandemic. We’ve had an issue of very high rice prices recently which have contributed to that. We’re of course also concerned about how the Fed is going to respond to recent data. It looks more likely that they may keep interest rates higher for longer, although we still of course expect them to begin adjusting downward by the end of the year. But higher interest rates for longer in the US will probably lead central banks in Asia to delay their own easing of interest rates. Nonetheless, in the short term, we don’t expect that to hurt growth so much because higher interest rates in the US will lead to some currency depreciation relative to our baseline forecast. And that would actually lead to some slight benefit to exports, at least in the short term. But of course, those immediate effects would turn around next year when the Fed does start reducing rates. Albert, you upgraded the China growth forecast just marginally to 4.8% from 4.5 prior. Is it safe to say that Chinese economy is still in a deflationary environment or is the picture they’re stabilizing? Well, the most recent inflation numbers actually show positive inflation rates in February 0.7% and also core inflation was even a bit higher. We don’t expect deflation in China. As food prices normalize, we think inflation rates will get back to to positive territory. We upgraded our growth forecast for China on the back of aggressive stimulus measures that were announced recently by the Chinese government. And also we’ve seen in the first couple of months many of the indicators for the Chinese economy were quite positive. The one area that continues to be very negative and is a source of downside risk for outlook is the performance of the property sector where we saw investment sales and prices all decline in the early part of the year. Albert, we we have seen a real turn around in India and Indonesia compared to let’s say 2013 when they were castigated as the fragile 5. Structurally, how would you describe the backdrop now in those countries and are they going to continue to benefit from FDI inflows? Well, India has become a more important growth driver for the region. We’re expecting growth above 7% this year and next year. And so for South Asia as a whole, we expect this to be the fastest growing region of Asia above 6%. We’ll also see some of the economies there, Pakistan and Sri Lanka, get back to positive growth after after very difficult adjustment periods.