Singapore, 4 May 2011: Reuters

Soaring food and energy prices may temper Asia's economic outlook this year, putting central bankers in a tight spot as they try to cap inflation without choking off growth, Reuters polling data shows.

Economists have marked down 2011 growth forecasts for India and Australia since the start of the year, while they pushed up both growth and inflation forecasts for China. Growth estimates also brightened a bit for countries including Indonesia, Malaysia and Taiwan.

The polls, which covered Asian economies excluding Japan, showed price pressures building throughout the region despite a round of interest rate hikes and other inflation-fighting measures. Indeed, inflation forecasts rose for 12 of the 13 countries which Reuters surveyed.

Graphic for the poll

Sanjay Mathur, an economist with RBS in Singapore, said cost containment was emerging as the single most important issue for the region. "Policymakers have two choices to deal with this situation: maintain status quo and let inflation accelerate or intervene decisively to contain costs and slow down growth," Mathur said.

"As unpalatable as the second choice may sound, it will extend the durability of the business cycle and almost certainly obviate the need for a cold turkey response further out," he said.

In China, the median forecast from 19 economists polled showed growth of 9.5 percent this year, up slightly from January's prediction of 9.3 percent but slower than last year's 10.3 percent expansion.

China's first-quarter growth of 9.7 percent was considerably stronger than economists had anticipated at the start of the year, which helps explain the brighter forecasts. Economists also saw China's inflation rate remaining stubbornly above the government's 4 percent target, arguing for tighter monetary policy.

For India, economists projected growth at 8.3 percent for the fiscal year which ends next March, a touch softer than the 8.5 percent forecast in January. The inflation rate was seen at 7.7 percent this fiscal year, much hotter than January's forecast for 6.4 percent.

A higher-than -expected rate increase by the Reserve Bank of India on Tuesday also prompted economists to scale up their year-end forecast for the repo rate to 8 percent from 7.5 percent in last week's poll.

Economists nudged up their 2011 growth forecast for South Korea to 4.5 percent from January's estimate of 4.3 percent, but they also saw inflation spiking to 4 percent, considerably higher than they had previously expected.

Australia's resource-rich economy is set to gather momentum this year to next thanks to rebuilding from flood damage and a once-in-a-century mining boom, though a lack of spare capacity will also keep inflation uncomfortably high.

The Reuters poll found 2011 growth forecasts pared back a little to 2.9 percent, from 3.2 percent in the January poll. That reflected damage from flooding in the state of Queensland early in the year, which took a hard toll on coal exports.

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