Growth in the economies of East Asia and the Pacific will slow this year because of the financial crisis but China’s multi-billion dollar stimulus will secure their status as the world’s fastest growing region, the World Bank said.
Gross domestic product in developing East Asia will rise 5.3% this year, according to World Bank forecasts released on Tuesday. That is down from its previous estimate for 6.7% growth made in December and lower than last year’s 8% as the crisis crimps exports and domestic demand.
Still, it may take longer for emerging countries to return to high growth, because the financial system in the developed world is still at risk of turmoil, the bank said, highlighting the difficulty all countries face in shaking off the global slump.
“A return to stronger economic expansion in China next year should help support growth among the countries of the East Asia and Pacific region,” the World Bank said in its East Asia Update report.
“But a sustainable recovery will ultimately depend on developments in the advanced economies. There are substantial downside risks for recovery and subsequent growth in developed countries.”
FROM BAD TO WORSE
Vikram Nehru, the World Bank’s chief economist for East Asia said the continent’s economies were engulfed in a perfect storm.
“In the last four months, things have gone from bad to worse in many of the advanced economies. The decline in production, the decline in the availability of credit, all of these factors are now leading to a substantial increase in unemployment,” he told journalists in a conference call.
China will expand 6.5% this year, the World Bank said, down from an earlier forecast for 7.5% growth and compared with 9% growth last year, as export demand weakens in the United States, Europe and Japan.
However, Beijing’s $587 billion stimulus will help it shift growth to personal consumption and spending on services, the World Bank said in its twice-yearly report. Government investment and banks’ small exposure to losses on the US mortgage derivatives that sparked the global slump will also help China grow, it said.
Nehru said that a recovery in the world’s third-largest economy would be reflected in a continued rise in the price of commodities, which, while still declining, had experienced a stabilization. He warned that the sharp economic deterioration had led to millions of job losses across Asia, not yet fully reflected in official unemployment data.
Growth in Indonesia will slow to 3.4% this year, down from a previous forecast for 3.8%, the report said. Indonesia may return to 5% growth as the government fiscal deficit last year was 0.1% of gross domestic product, meaning policy makers have room to launch fiscal stimulus. (Reuters)