Inflation and aging threaten Asia’s development

In its outlook update report, the Asian Development Bank warns that unfavourable demographic structures can cut growth by 1 per cent a year. In China, the proportion of elderly to working age people could quadruple between now and mid-century. Inflation, with its usual trail of social unrest and violence, looms on the horizon.

Hong Kong – An aging population and rising inflation could hurt Asian growth. If governments do not address these issues, economic recession and social spending could jump, this according to the Asian Development Bank (ADB). In its outlook update report, the bank expects lower growth and rising inflation. For this reason, governments must make structural reforms in the coming years.

Specifically, the ADB cut its growth forecast for developing Asia to 7.5 per cent in 2011, from its earlier projection of 7.8 per cent. Excluding Japan, which is still reeling from the tsunami six months ago, the bank attributed the moderating growth of Asian economies to ongoing worries about the health of the US and European economies.

However, the main factor is the continent’s demography. "Asia's population is aging at a speed unprecedented in human history," said Changyong Rhee, chief economist at ADB. China, for example, is expected to see the proportion of elderly to working age people quadruple between now and 2050, surpassing the United States.

In the last three decades, those countries that had favourable age structures added more than 1 percentage point to average annual per capita gross domestic product growth, the ADB said.

However, China’s one-child policy has undermined that favourable condition, increasing the number of elderly in need of government assistance and cutting the number of revenue generating workers.

Inflation is the other major threat, the report found. In fact, the inflation rate for developing Asia is expected to average 5.8 per cent this year. That is higher than an initial estimate of 5.3 per cent in April.

The world’s economic downturn is the cause, especially the United States’ inability to create jobs and Europe’s persistent failure to tackle its debt crisis.

All these factors have prompted South Korea, Indonesia, Malaysia and the Philippines to avoid raising interest rates this month after boosting them earlier this year.

Still, policy makers need to be prepared for greater volatility in capital flows and the persistent threat of rising prices, the ADB said.




(AsiaNews)