ADB tweaks 2008 Asia growth forecast; slashes 2009

MANILA, Sept 16 (Reuters) - 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, the Asian Development Bank (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."

INFLATION, TIGHT POLICY

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. (for full interview click on [ID:nT339108])