Recently Asian Development Bank released its Outlook on Asian Economies for the year 2008. The key factors of the report suggested that although the Credit markets will be working in a sound manner in the Asian Economies, Inflationary risks will keep hovering over these economies lead by spiraling Food and Oil Prices.
Developing Asia registered its highest growth in 20 years averaging around 8.7% in the year 2007. This year the growth is likely to be at 7.6% as per expectations, this will be because of the trend prevailing in the Global markets including surging Food and Fuel prices. The report suggested that the road to success is dependent on how successfully the countries manage these constraints.
Signs of overheating are prevalent in China where the Inflation figures touched a 11 year high in November 2007, India was no different with Inflationary figures reaching to as high as 7%, a three-year high in the week ended March 22 as against 6.68% in the previous week. The WPI for all commodities rose by 0.5% to 224.8 from 223.6 in the week ended March 15, the Commerce & Industry Ministry said. The latest inflation rate was above the average forecast of 6.62% and is the highest reading since Dec. 4, 2004 when it was 7.07%. The annual inflation rate was 6.54% during the corresponding week of the previous year.
Inflation pressures were also very high in Sri Lanka, and inflation accelerated to 20%. Bangladesh and Pakistan also had comparatively high rates of 7.2% and 7.8%, respectively.
Road Ahead:
Commodity market prices have also soared again testing new highs, Food Prices have been on a roll with Rice, Soybean and Wheat all touching new resistances in International markets. Crude Oil is also near to its all time high figure, and with summer driving season in picture the demand is expected to emerge from the US, with Dollar trading near to its lows against the majors is making the traders of Black Gold attracted towards the prices.
Hue and Cry emerged in Rice markets in Asia after the prices touched to as high as $ 20 in Chicago more than double of what it used to be in the year 2007. India, the world's second-biggest rice producer, increased the minimum export price for the grain to boost local supplies and curb inflation. The minimum price for non-basmati rice exports were raised to $1,000 per tonne from $650 per tonne free on board, in a move to slow down exports and to tame rising inflation. Most of the other major’s producers and consumers of Rice have banned the exports of Rice in order to supply the commodity to its hungry economies. Incessant rains in India have damaged the standing crops of Wheat in North and South India and this will adversely affect the prices in the country where the Inflation is as it is on a higher end.
However, the turmoil in Global Financial Markets especially in US, European Union and Japan will bring slowdown in growth prospects of other emerging economies. First half of the financial year 2008 is expected to be weak, but the performance of the second half especially in the US can pick up after the aggressive rate cuts and financial stimulation strategies. Fed is likely to cut interest rates several more times this year but the counter affects will only be clear in the second half of 2008.
Concerns about the outlook for the economy contributed to the Federal Reserve’s latest decision to cut interest rates, according to the minutes of 18th March 2008 Federal Open Market Committee meeting released on 8th April 2008. The minutes showed that most members of the committee determined that a substantial easing in the stance of monetary policy was warranted in light of the belief that the outlook for economic activity had weakened considerably since the January meeting.Some members viewed the downside risks to economic growth as having increased and some believed that a prolonged and severe economic downturn could not be ruled out given the further restriction of credit availability and ongoing weakness in the housing market.
Developing Asia registered its highest growth in 20 years averaging around 8.7% in the year 2007. This year the growth is likely to be at 7.6% as per expectations, this will be because of the trend prevailing in the Global markets including surging Food and Fuel prices. The report suggested that the road to success is dependent on how successfully the countries manage these constraints.
Signs of overheating are prevalent in China where the Inflation figures touched a 11 year high in November 2007, India was no different with Inflationary figures reaching to as high as 7%, a three-year high in the week ended March 22 as against 6.68% in the previous week. The WPI for all commodities rose by 0.5% to 224.8 from 223.6 in the week ended March 15, the Commerce & Industry Ministry said. The latest inflation rate was above the average forecast of 6.62% and is the highest reading since Dec. 4, 2004 when it was 7.07%. The annual inflation rate was 6.54% during the corresponding week of the previous year.
Inflation pressures were also very high in Sri Lanka, and inflation accelerated to 20%. Bangladesh and Pakistan also had comparatively high rates of 7.2% and 7.8%, respectively.
Road Ahead:
Commodity market prices have also soared again testing new highs, Food Prices have been on a roll with Rice, Soybean and Wheat all touching new resistances in International markets. Crude Oil is also near to its all time high figure, and with summer driving season in picture the demand is expected to emerge from the US, with Dollar trading near to its lows against the majors is making the traders of Black Gold attracted towards the prices.
Hue and Cry emerged in Rice markets in Asia after the prices touched to as high as $ 20 in Chicago more than double of what it used to be in the year 2007. India, the world's second-biggest rice producer, increased the minimum export price for the grain to boost local supplies and curb inflation. The minimum price for non-basmati rice exports were raised to $1,000 per tonne from $650 per tonne free on board, in a move to slow down exports and to tame rising inflation. Most of the other major’s producers and consumers of Rice have banned the exports of Rice in order to supply the commodity to its hungry economies. Incessant rains in India have damaged the standing crops of Wheat in North and South India and this will adversely affect the prices in the country where the Inflation is as it is on a higher end.
However, the turmoil in Global Financial Markets especially in US, European Union and Japan will bring slowdown in growth prospects of other emerging economies. First half of the financial year 2008 is expected to be weak, but the performance of the second half especially in the US can pick up after the aggressive rate cuts and financial stimulation strategies. Fed is likely to cut interest rates several more times this year but the counter affects will only be clear in the second half of 2008.
Concerns about the outlook for the economy contributed to the Federal Reserve’s latest decision to cut interest rates, according to the minutes of 18th March 2008 Federal Open Market Committee meeting released on 8th April 2008. The minutes showed that most members of the committee determined that a substantial easing in the stance of monetary policy was warranted in light of the belief that the outlook for economic activity had weakened considerably since the January meeting.Some members viewed the downside risks to economic growth as having increased and some believed that a prolonged and severe economic downturn could not be ruled out given the further restriction of credit availability and ongoing weakness in the housing market.
The Fed acknowledged that the outlook for economic activity has weakened further, with consumer spending and the labor market decelerating in reaction to the slowdown. The central bank also cautioned that the financial market stress, tighter credit conditions and the deepening housing market contraction will weigh on growth over the next few quarters
Outlook:
The anticipations in the report are that the Trade Deficits are likely to move up in the developing nations due to there voracious appetite for the commodities. The subsidies provided to ease the pressure of price rise will keep on hurting the governments in the days to come. Inflationary pressures should recede slightly in 2009. The forecast deceleration in inflation is based on an assumption of some moderation in commodity prices through 2009 and monetary policies that lean against inflation pressures. Current account surpluses are expected to narrow further in 2009, and should help rebalancing, and at an aggregate regional level may fall below 5% of GDP. Even if global demand growth recovers, it is likely to be modest, and real exchange rates are expected to appreciate for many Asian economies.”
Outlook:
The anticipations in the report are that the Trade Deficits are likely to move up in the developing nations due to there voracious appetite for the commodities. The subsidies provided to ease the pressure of price rise will keep on hurting the governments in the days to come. Inflationary pressures should recede slightly in 2009. The forecast deceleration in inflation is based on an assumption of some moderation in commodity prices through 2009 and monetary policies that lean against inflation pressures. Current account surpluses are expected to narrow further in 2009, and should help rebalancing, and at an aggregate regional level may fall below 5% of GDP. Even if global demand growth recovers, it is likely to be modest, and real exchange rates are expected to appreciate for many Asian economies.”
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