China and other large economies in Asia are not just struggling to get out of the recession. They are racing away from it at light speed.
The Asia Development Bank raised its GDP forecast for the region which included a prediction that China will expand at a rate of 8.2% in 2009. The ADB had formerly said the world’s most populous nation would expamd GDP only by 7%.China is not the only large nation in the region that will do well. The ADB also has high hopes for India and Indonesia.
Somewhere below the headlines about growth is a statement that inflation in the region will rise to 3.4% next year. That number is hardly realistic. Economies that are expanding at what approaches double digits are likely to cause prices increases in commodities and consumer goods. Hyperinflation in China has been a concern among economists for more than a decade. There is no reason for those concerns to abate.
The other reason that the ADB does not give much ink is the effect that a rapid expansion in Asia will have on energy prices. China is world’s second largest consumer of crude after the US. Oil is critical to the nation’s expansion. Even with the most modest growth in the Asian region over the last year, global crude prices have risen above $70.
China and other large Asian economies may be able to weather higher energy prices if their GDP expansion is robust enough, but the growth of the US, Japanese, UK, and EU regions is still in its earlest stages. The shock of rapidly rising oil and metal prices could push what is the most modest recovery back into a recession.
Asia may be growing, but it could come at the cost of another recession in the West.
Douglas A. McIntyre
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