Robust growth and rising inflation in East Asia

Olga Pomerantz

National Institute Economic Review, 2008, vol. 205, 18-20

Abstract: Output growth in the economies of East Asia, including Japan, remained firm in the opening months of this year, in line with relatively resilient GDP growth in the US and in Europe. Hong Kong's economy continued to boom despite the cooling-off of China's economy. Real GDP grew at an annual rate of 7.2 per cent, faster than the 6.9 per cent growth in the final quarter of last year, supported by exports which have benefited from the effective devaluation that has come from the fixed link to the US dollar. Domestic demand continued to expand briskly, registering a 7.0 per cent gain on an annual basis. In South Korea, domestic demand growth decelerated somewhat to 3.6 per cent per annum in the first quarter, but strong export performance meant that the economy as a whole grew by a respectable 5.7 per cent on an annual basis. Elsewhere, strong credit growth and rampant infrastructure spending have been supporting domestic demand growth across the region in general. We continue to expect output growth to moderate somewhat but to remain healthy this year in much of East Asia and Australia. Following strong output growth of 3.6 per cent in the first quarter, Australian GDP is forecast to expand by about 3¼ per cent per annum this year, down from 3.9 per cent recorded last year. Korean growth is expected to accelerate partly in response to the recent 10 per cent fall in the effective exchange rate. We expect growth to exceed 6 per cent this year and inflation is expected to accelerate in response to high oil prices and the weak exchange rate. Chinese growth is forecast to moderate only slightly this year, as the last minute preparations for the Beijing Olympics and the event itself are expected to provide a boost to domestic demand in the second half of the year. Output growth in Taiwan is likewise expected to moderate to about 4¾ per cent on an annual basis.

Date: 2008
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