UN report: Asia could suffer from US slowdown; food inflation seen hurting region's poor

Associated Press ,  Beijing   |  Thu, 03/27/2008 7:53 PM

Asia's economic growth will slow this year as the U.S. credit crisis hurts demand for exports but robust expansion in China and India should help the region avoid a major slump, a U.N. commission said Thursday.

The region also faces a sharp jump in food prices and governments should do more to protect the poor from such shocks, the U.N. Economic and Social Commission for Asia and the Pacific said in a report.

"Rapidly rising food prices will be the key challenge in the coming year," said Shuvojit Banerjee, an economist for the commission, said at a Beijing news conference. "With the march towards biofuels apparently unstoppable, the region has to prepare for sustained inflation through higher food prices."

The full impact of the U.S. credit crisis, triggered by a spike in defaults on subprime mortgages in the U.S., is still to be seen, Banerjee said. "We cannot rule out a significant slowdown in the U.S. and further financial turmoil," he said.

Economic output for the sprawling region, which streches from Japan to Georgia, should grow by 7.7 percent, down from 8.2 percent in 2007, the commission said. It said regionwide inflation should ease to 4.6 percent, down from 5.1 percent last year, though price rises in countries such as China will be higher.

"The good news is that China and India, the region's growth locomotives, are expected to grow at a robust pace, boosting the rest of the region," Banerjee said.

The forecast is in line with those of economists who expect a U.S. slowdown to depress Asian growth but say rising demand from the region's own consumers, especially in China, should help to fill the gap. China has set a growth target of 8 percent this year, down from last year's 11.4 percent.

The region, and especially higher-technology exporters such as South Korea and Taiwan, could suffer a bigger hit if the U.S. economy slows further and the weak dollar falls against Asian currencies, Banerjee said.

"Countries in the region will face twin blows - lower demand and loss of competitiveness," he said. "In a worst case scenario of a U.S. downturn and a depreciation of the dollar, the impact would be harsh."

The U.N. report warned that the region's poor face a painful rise in food costs.

In China, food costs in February were up 23.3 percent from the same month last year, driven by a 63.4 percent jump in the price of pork and a 46 percent rise for vegetables.

The commission appealed to Asian governments to do more to protect the poor by expanding social welfare and health care programs.

Banerjee cited the examples of Thailand's universal medical care system and a food-for-work program in Bangladesh.

"Extending protection to the majority of citizens is a critical priority," he said. "This means that benefits should be ensured for the most vulnerable workers - the young, women, less-educated
and less-experience."

The commission appealed for more efforts to improve productivity of Asian farming, where it said government neglect has contributed to keeping hundreds of millions of people in poverty.
Agriculture employs 60 percent of Asia's workers, according to the commission.

"We find persistent poverty and widening economic inequalities due to the neglect of agriculture," Banerjee said. "Improving agricultural productivity would have a profound impact on poverty." (**)

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