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Growth, price rises seen moderating in next 2 to 3 years

Asian economies face slower growth but are not yet at risk of stagflation despite current high inflation, a senior economist at Standard Chartered Bank said yesterday.

Tai Hui, the bank’s head of South-east Asian economic research, said Asian countries including Singapore are more likely to see both the pace of economic growth and price increases moderate in the next two or three years.

‘The risk of stagflation is relatively low,’ he told an audience of about 150 of the bank’s clients here.

For Asian countries outside Japan, ‘inflation this year will pick up, but the next two years should see inflation moderating’ as growth slows, he said.

Soaring prices and slower growth in most countries in the region have prompted worries that Asian economies could be gripped by stagflation - stagnant economic output combined with a vicious cycle of rising consumer prices and wages that eat into household budgets and company profits.

A stagflationary trap is difficult for policy-makers to escape from without either stifling the economy or pushing inflation higher.

‘The talk of stagflation is probably a bit overstated, but in the short term it is giving central banks a headache,’ Mr Tai said.

Both advanced and emerging economies in Asia are facing the twin problems of higher inflation from rising oil and food prices and a deteriorating economic outlook amid falling demand from major markets in the US and Europe. Until recently, most central banks were reluctant to raise interest rates or allow their currencies to strengthen to fight rising inflation, for fear of hurting economic growth further.

Official data released this week in Singapore, Hong Kong, Malaysia and Vietnam shows inflation is likely to remain a big concern for policy-makers in each of these economies for at least the next few months.

In Singapore, inflation was running at a 26-year high of 7.5 per cent in April-June, as measured by the change in the consumer price index (CPI) from the same month a year earlier.

Economists expect a lower inflation rate for July, as prices in the same month last year were boosted by the hike in Goods and Services Tax from July 1.

Yesterday, the Monetary Authority of Singapore raised its forecast range for inflation this year to 6-7 per cent, from 5-6 per cent previously.

Singapore’s economic output - measured by gross domestic product - grew just 1.9 per cent in the second quarter from a year earlier, according to government estimates published earlier this month.

In Vietnam, the main stock benchmark index has tumbled 9.8 per cent this week after regulators there raised retail fuel prices more than 30 per cent on Monday - an indication of how inflationary pressures can affect financial markets as well as longer-term economic growth. Official estimates published yesterday show consumer prices in Vietnam rose 27 per cent this month compared with a year ago.

Source : Business Times - 25 Jul 2008