Growth in Asia's developing economies should ease to 7.6% in 2007 from last year's 11-year peak as expansion in industrialised nations slows, the Asian Development Bank (ADB) said on Tuesday.
Regional powerhouses are set to lead the pack with China's economy seen expanding by 10.0% this year and India recording 8.0% growth, the Manila-based multilateral institution said in its annual economic outlook.
The region's growth is expected to nudge up to 7.7% in 2008 even as China's expansion is seen slowing slightly to 9.8%, it said. India is likely to grow 8.3% next year.
The ADB said last year's regional growth of 8.3% was the strongest in 11 years, with China and India accounting for about 70% of the expansion.
The development lender said this year's forecasts "imply that growth will move onto a more sustainable footing and that overheating pressures that surfaced in 2006 will begin to abate."
Softer external demand and policy curbs will cool China's growth this year from 10.7% in 2006, the ADB said.
It said Chinese industrial output growth would slow to 11% from about 12% in the last two years, reflecting significant oversupply in some sectors.
Investment growth also slowed as a result of tightening measures and slower growth of exports caused by weaker foreign demand for Chinese goods, the bank said.
In contrast, expansion should pick up in the service sector to 10.4-10.5% from 10.3% because of government efforts to promote consumption as well as spending related to the 2008 Olympic Games in Beijing.
South Korea's export-led economy is likely to cool this year with growth slowing to 4.5% from 5.0% because of a moderate slowdown in the United States, the ADB said. But it predicted an uptick in growth next year.
"As 2007 progresses, the external environment could turn more favorable with the global downturn bottoming in the second half," it said.
The ADB said inflation in India, seen at 5.5% in the current financial year to March 31, was causing concern after two years of above-trend economic growth.
"Steps taken by the Reserve Bank of India to cool inflation are seen slowing India's pace of investment and consumption spending in 2007," it said. "But if inflation proves stubborn, further tightening by the central bank is likely to follow."
Inflation is seen at an annual 5.0% in both 2007/08 and 2008/09 in India, and growth is seen slowing to 8.0% in 2007/2008 from 9.2% before picking up to 8.3 percent in the following year.
In Southeast Asia, growth should broadly maintain its pace from 2006, the ADB said.
Indonesia, the region's largest economy, was expected to grow 6.0% this year and 6.3% next year, accelerating from 5.5% in 2006, as lower interest rates and slower inflation boost domestic spending.
Malaysia was set to cool, stung by the U.S. slowdown while the Philippines were seen growing at a steady rate of 5.4% this year before picking up in 2008.