East Asian growth robust, capital inflows a concern: ADB

FE Team | Published: July 27, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

HONG KONG, July 26 (AFP): Economic growth in emerging East Asia was stronger than expected in the first half this year but soaring capital inflows have become a big concern, the Asian Development Bank (ADB) said today.
Strong consumption and external demand have led to robust growth in many of the countries in the area, especially China, and this should see emerging East Asia expand 8.1 per cent this year and 7.9 per cent in 2008.
At the same time, soaring capital inflows, which hit a record 269 billion dollars in 2006, make for increasing pressure on currency appreciation and fast-rising asset prices, the ADB said in a semi-annual report on East Asia.
"Authorities in the region are faced with serious challenge as they look for the right policy choices to manage these capital flows and keep the economic expansion on a steady course," said Jong-Wha Lee, head of ADB's office of regional economic integration.
Lee also cautioned on the potential risks for greater-than-expected inflation, especially in Korea, Singapore and China, which reported prices rising at a two-year high of 4.4 per cent for June.
This has prompted the Chinese authorities to further tighten monetary policy, a move welcomed by Lee.
"The (Chinese) government followed the right direction because there are increasing inflation pressures ... the government has been clear in terms of managing assets by showing what they can do," he told reporters.
Lee cited increased financial market volatility, a sharper economic slowdown in the United States and a disorderly adjustment of global payments imbalances as possible risks to the economic outlook for the region.
Nevertheless, the ADB said the region is in a far better position to manage potential financial shocks than they were before the Asian financial crisis a decade ago.
Banking systems in the region have been strengthened and significant progress has been made in cleaning up banks' impaired assets which helped lenders return to robust growth.
Financial systems are now less exposed to changes in debt-related capital flows than a few years ago, it added.
Looking forward, the ADB said economic health will continue to be supported by a strong external sector as resilient consumption in the United States and a strong recovery in Europe feed into robust demand for the region's exports.