The Asian Development Outlook 2008, published by the Asian Development Bank, provides the silver lining to an otherwise bleak global economic scenario. The developing countries in the region are expected to grow at a healthy 7.6 per cent during 2008 and 7.8 per cent in 2009. The region posted its highest growth rate in two decades in 2007, averaging 8.7 per cent. The projected rates would still be a commendable achievement, considering that the major industrial economies of the world are also slowing down. The world’s biggest economy, the United States, is slipping into a recession. The growth rate in Japan continues to be sluggish. Already, these have had major negative consequences for world trade and investment flows. In turn, global economic growth is bound to slow down this year, a forecast widely endorsed by other institutions such as the World Bank and the IMF. Developing countries including India and China would offset, but not fully compensate for, the developed world’s slower growth. Moreover, at the current juncture, there are two major developments that can inhibit growth. The serious crisis in the U.S. financial sector shows no sign of abating. Given that global financial sector linkages are more pronounced than even trade linkages, the problems of the U.S. banks and institutions are bound to affect the rest of the world. Liquidity is drying up and with credit and country risks getting re-priced, there is a marked shift, for instance, in capital flows. For India, foreign capital has helped in bridging the current account deficit in the balance of payments, and their moderation is causing some concern.

The second major worry is inflation. Like India, many other countries including China are grappling with rising prices of a variety of goods. Most of the developing countries have had similar experiences while pursuing price stability. The ADB report warns that, despite a slew of administrative measures and subsidies that are seeking to rein it in, inflation is expected to spike in 2008 and could hit a decade long regional high. Urging policy makers to tackle the problem at its root, the report advocates a range of measures for the countries to adopt. These include flexible exchange rates, fiscal rectitude, and targeting supply side pressures. The report, which predicts a solid 10 per cent growth for China in 2008, is by no means pessimistic about India. A GDP growth rate of 8 per cent, though lower than previous years, will still be commendable. Asia will not be immune to the global slowdown. Nor will it be hostage to it, as the report says.