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UN to Asia: focus on GDP growth, not inflation

Asian governments should keep their feet on the stimulus pedal to help spur economic growth, even at the risk of higher inflation, the United Nations said today.

business Updated: May 06, 2010 11:02 IST

Asian governments should keep their feet on the stimulus pedal to help spur economic growth, even at the risk of higher inflation, the United Nations said on Thursday.

"The overwhelming priority for policymakers should be to continue stimulating economies until the self-perpetuating motors of growth are firmly entrenched," the UN said in an annual economic survey of the region.

"In the balance of risks, Asian and Pacific economies should aim to sustain growth rather than manage inflation." It said premature withdrawal of stimulus spending could have severe consequences for the region's growth and for the livelihoods of its poorest people.

Gross domestic product in developing Asia - the region's 37 countries excluding Japan, Australia and New Zealand - will likely grow 7 per cent this year, up from 4 per cent last year, as export demand rebounds, the UN said.

Despite expected growth of 9.5 per cent this year in China and 8.3 per cent in India, the UN said the region's recovery is still fragile and policymakers should maintain stimulus spending and low interest rates.

The UN also urged the region's policymakers to coordinate monetary policies to avoid spikes in capital inflows to countries where interest rates are higher.

"The recovery cannot be said to have been reignited in full measure as yet," the UN said.

"Growth still depends largely on government spending and investment from stimulus policies."

Asian governments, led by a massive stimulus package in China, boosted spending and loosened monetary policy last year as the global recession undermined demand for the region's exports. So far this year, policymakers have begun to tighten credit conditions as inflation quickens and property and stock prices soar.

The inflation rate for developing Asia will likely rise to 4.1 per cent this year from 3.1 per cent last year as prices for food and commodities such oil increase, the UN said.

The UN said Asia should seek to bolster domestic demand and intraregional trade since demand from developed countries may not soon return to pre-crisis levels.

The UN expects the US economy to grow 2.5 per cent this year, Europe 0.8 per cent and Japan 1.3 per cent.

The UN also warned an increase of trade barriers by governments seeking to protect domestic industries would hurt Asia's economic growth.

"Pressure is growing for protectionist measures in developed countries but also potentially in developing countries, which is of great concern for recovery in Asia," the UN said.