The Asian Development Bank (ADB) has downgraded its economic growth forecast for the Philippines and raised its inflation projections for the country for 2008 and 2009. 

 

The ADB outlook said the Philippine economy would expand by 4.5 percent in 2008 and 4.7 percent in 2009. The projections were below the 6 percent and 6.2 percent projected in April. 

 

The report also forecasts that inflation will reach 10.5 percent in 2008 and 8 percent next year. 

 

The ADB forecast last April was 4 percent and 3.6 percent, respectively. 

 

 

Asia's developing nations, the fastest growing economies in the world, should expand 7.5 percent this year but financial convulsions in the West could drag the region down, ADB said on Tuesday. 

 

The Manila-based international bank's latest 2008 growth forecast, calculated before Lehman Brothers filed for bankruptcy and Merrill Lynch was sold in the worst financial crisis in the United States in decades, was only slightly lower than an estimate of 7.6 percent made in April. 

 

But it is the slowest growth in the region since 2003. The ADB also slashed the 2009 growth forecast to 7.2 percent from the previous 7.8 percent as it said the global slowdown, high inflation and tight monetary policy would cut back on expansion. 

 

The ADB's Asian Development Outlook Update said Asia's financial systems were healthy and had so far been relatively inured to the U.S. credit crunch. 

 

"The one variable that could upset this optimistic assessment is the future course of the U.S. sub-prime crisis," it said. "It is far from clear whether the crisis has run its full course. 

 

"If the sub-prime crisis worsens significantly, Asia is bound to suffer much more serious financial effects, including an abrupt reversal of the capital inflows that have held up well so far." 

    

 

The ADB said average inflation in Asia-Pacific was likely to reach 7.8 percent in 2008, a sharp increase from a forecast of 5.1 percent made in April. Next year, inflation is likely to come in at 6.0 percent, it said. 

 

"Inflation is the greatest risk in emerging economies in Asia," ADB President Haruhiko Kuroda told Reuters last week, adding that while it had peaked in China, South Korea and Thailand, it was accelerating in countries like Vietnam and Pakistan. 

 

"Rather than supporting economic growth, the biggest policy challenge is tackling inflation." 

 

The ADB maintained its 2008 growth forecast for China, the world's fastest growing big economy, at 10 percent but said India was likely to expand only at 7.4 percent against the April forecast of 8.0 percent. 

 

In 2009, China is seen growing 9.5 percent and India 7.0 percent. 

 

"India's very large fiscal imbalance created by the current level of subsidization of oil, fertilizer and food, as well as other off-budget items, sets a daunting task for economic management," the ADB said. 

 

"Cutting these subsidies is a difficult task, but maintaining them would imperil any return to the high-growth path of recent years." 

 

Across the region, the ADB said, growth would be affected by both tighter monetary policy and the slowdown in industrialised nations. 

 

"One key message is that the region of developing Asia remained heavily reliant on G3 economies (United States, Eurozone and Japan) for its major export markets and has not uncoupled from industrial countries' business cycles," it said. 

 

The ADB also said Asian central banks had responded well, albeit late, to sky-rocketing inflation. 

 

"Initially, responses seemed too little and too late," it said. "Recently, central banks have become more aggressive and indeed, policy rate responses have...exceeded market expectations. 

 

"However, if central banks become reticent once more, inflation could become ingrained in economies, eventually undermining long-term growth prospects." With reports from Jesus Llanto, abs-cbnNEWS.com/Newsbreak and Reuters