Hong Kong, China (BBN) – Developing Asian economies will revert to a more moderate growth outlook of 7.5 per cent this year and 7.2 per cent next year after posting its fastest growth of 9 per cent in nearly two decades in 2007, the Asian Development Bank (ADB) says in a new report.

The Asian Development Outlook 2008 Update (ADO Update) also warns that inflationary pressures in the region are mounting and could boil over if left unaddressed, an ADB press statement said.

The report projects an inflation rate of 7.8 per cent in 2008 in Asia and the Pacific, up from an earlier estimate of 5.1 per cent. In 2009, inflation could reach 6.0 per cent.

Clouding the outlook for the region, the report notes, are the continued elevated level of international oil and food prices, the persistence of high inflation, and a prolonged slowdown in industrial countries.

The report highlights that a supply shortage will remain a dominant issue in global commodity markets.

The report also warns that the inflation spike now seen throughout developing Asia cannot be blamed solely on cost-push factors, such as high global commodity prices.

Analysis in the ADO Update shows that demand-pull factors, in particular excess aggregate demand and inflation expectations, account for a larger share of variations in domestic price inflation.

The report also urges developing Asian economies to address rising inflation even at the expense of slower growth, adding that the region must learn to adjust to high commodity prices.

BBN/SI/SS/AD-17September08-12:14 PM