An upward revision in China has prompted Credit Suisse to raise its GDP growth forecast for non-Japan Asia to 7.9 per cent from 7.7 per cent for 2008.

In its recently released Emerging Markets Economics Quarterly report, Credit Suisse warns about the rise of inflation across the emerging markets world, largely driven by mounting food prices.

In China, Dong Tao, Credit Suisse Chief Economist for non-Japan Asia says that GDP growth momentum will be sustained in spite of the credit crisis, high oil prices and the recent natural disaster.

Credit Suisse has revised its 2008 GDP growth forecast up from 9.7 per cent to 10.1 per cent, reflecting better net trade. Mr Tao also believes food price inflation should decline on a yearly basis over the next two quarters, thanks to a rising statistical base and better supply, but remains cautious on the inflation outlook for next year.

Although the impact of rising oil prices on the Chinese economy remains relatively small, Credit Suisse thinks that the risk to growth posed by energy costs is increasing. China fixes domestic gasoline and diesel prices at around 40 per cent below the international benchmark, which has protected consumers but caused losses for refineries, even in spite of the subsidies and tax rebates.

In Hong Kong, the Swiss bank expects that crude oil prices will exert greater pressure on inflation, leading it to revise its 2008 CPI forecast upwards from 4.9 per cent to 5.7 per cent. With the lowest unemployment rate in 10 years, soaring nominal wages are also fuelling inflation. However, Credit Suisse has also increased its 2008 GDP growth forecast for Hong Kong from 3.9 per cent to 4.4 per cent because of stronger than expected trade and consumption momentum.

In India, Credit Suisse's economists expect that crude oil prices will drive higher inflation and slow down GDP growth. Oil at current or higher prices will also widen trade deficits and create a heavier fiscal burden for the government, says the bank.

In the context of current price pressures, Credit Suisse has revised its average FY2008/09 WPI inflation forecast upwards, from 4.4 per cent to 7.2 per cent year-on-year. Credit Suisse economists also expect the Reserve Bank of India to continue its monetary tightening, amid rising inflation pressure, creating a negative impact on credit growth and consumption demand.