ADB: rising oil, food prices threaten growth

 
AseanAffairs     26 April 2011

The Asian Development Bank (ADB) weighed in today with its concerns that rising food and oil prices pose a serious threat to the Asian economy.

The bank says that regional growth may drop as much as 1.5 percentage points if the food and oil prices continue through 2011. The bank says that domestic food inflation has averaged 10 percent this year and may throw 64 million people into extreme poverty.

The ADB this month raised its 2011 economic growth forecast for the region and said policy makers should consider capital controls and more flexible currencies as part of their inflation-fighting strategies. Asia excluding Japan will grow 7.8 percent in 2011, it predicts.

“Food prices had been expected to continue a gradual ascent in the wake of the sharp spike in 2008,” the ADB said. “Fast and persistent increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded rapidly and strongly from the global economic crisis.”

“For poor families in developing Asia, who already spend more than 60 percent of their income on food, higher food prices further reduce their ability to pay for medical care and their children’s education,” ADB chief economist Rhee Chang Yong said. “Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia.”

Rising consumption in more populous and wealthier developing countries, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields will also spur prices, the ADB said.

The region’s growth may be reduced by as much as 1.5 percentage points should the pace of gains in oil and food prices seen so far this year persist for the rest of 2011, the Manila-based lender said in a statement today. Domestic food inflation in many Asian economies has averaged 10 percent this year, an increase in prices that may push an additional 64 million people into extreme poverty, defined as living on less than $1.25 a day, it said.

Policy makers from China to India and Singapore are stepping up the fight against inflation through interest rate increases or currency appreciation as political unrest in the Middle East boosts crude oil prices. The pattern of “higher and more volatile” food prices is also likely to continue in the short term amid declining grain stocks, the ADB said.

By

Paul A. Ebeling, Jnr