SHANGHAI The prolonged weakness in the US and Europe may be the least of Asia's troubles in 2011, economists say,

, as the region fights potentially destabilizing inflationary pressures. Asia will lead global growth in 2011, with China, now the world's second largest economy, steady at about 10 percent growth, the government-affiliated Chinese Academy of Social Sciences forecasts. With a strong rebound in the US or Europe just as unlikely as a relapse into a "double-dip" recession, Asia is easing its way out of stimulus programs launched during the financial crisis. But the US Federal Reserve's effort to nurture job creation through fresh "quantitative easing" has governments across the Pacific maneuvering to keep price pressures from spiraling out of control. "The inflation outlook is really critical at this point," UBS economist Duncan Wooldridge said in a recent conference call, noting that excluding Japan, consumer price inflation in Asia has been averaging about 5 percent. "From my perspective there's really only one thing that matters at this point: inflation," he said. China's consumer price inflation surged to a 28-month high of 5.1 percent in November. The government raised interest rates in October for the first time since the financial crisis struck and has shifted to a "prudent" monetary policy for 2011 from one that was "relatively loose," signaling its intent to tighten credit as it fights price hikes. Focusing on the politically sensitive food prices that are said to account for up to three-quarters of the latest inflationary spike, the Chinese government ordered a crackdown on commodity speculation, price caps for edible oil and subsidies for the poor. It is already claiming some success in bringing prices for some vegetables and fruits lower. Meanwhile, the weather problemslike drought in south China and floods in Pakistan and Thailand that have pushed food prices higher should moderate by midyear, according to most forecasts. But inflation remains a threat, especially for emerging economies that are attracting large inflows of money from investors seeking higher returns than they can get from US Treasurys and shares. The surging liquidity is adding to pressures on Asian economies to either raise interest rates or let currencies that already have gained substantially against the weak US dollar appreciate further. "Emerging economies can stop inflation if they are determined," says Shanghai-based independent economist Andy Xie. But he figures that an effective strategy would require raising exchange rates by up to 50 percent and interest rates by 10 percent. "There is almost zero chance for them to pursue such a contractionary policy," he says. Those options, while unpalatable, reflect the region's relative strength compared with the US, EU and Japan, says a report by Macquarie Securities. "Treading the fine line between growth undershoot and inflation overshoot is a challenge that is particular to Asia," it says. Japan, now the world's No. 3 economy after it was overtaken by China this year, faces no such dilemma. Though its economy gained momentum in the third quarter, that is fading as slowing overseas demand and the strong yen bite into exports, while deflation continues to stymie growth. With recession-stricken Americans unable to resume the kind of freewheeling spending that powered growth for much of the past two decades, the recovery increasingly hinges on Asian resilience.

"Asia is depending on demand in this part of the world," says David Cohen, a regional economist for Action Economic in Singapore. "That's where it's going to have to come from." So far, China's rebound has largely been powered by massive bank lending in support of government stimulus, backed by steady, double-digit growth in consumer spending. The benefits spill across the region, from coal and iron ore miners in Australia and Indonesia, to semiconductor makers in South Korea and Taiwan. As they launch a new five-year economic plan and prepare for a leadership transition in late 2011, China's leaders have signaled their determination to keep growth at a steady pace with a recent announcement that they will stick to a "prudent" monetary policy for the coming year, says Ye Tan, a popular economic commentator in Shanghai. "In my view, they are sending the message that once the government curbs inflation, it will carry on with another round of investment to ensure it can meet its growth goals for 2011," Ye says.