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East Asia faces slower growth: World Bank
Reuters (Business Times) - 02 Apr 2008
SINGAPORE: East Asia faces challenging times in 2008 as falling exports and reduced business spending result in slower economic growth at a time when rising food prices push up inflation rates, the World Bank said. In its semi-annual report released yesterday, the World Bank predicted 7.3 per cent growth for East Asia, excluding Japan. Developing Asia, which also excludes Singapore, Hong Kong, South Korea and Taiwan, would expand 8.6 per cent, which will be its lowest growth rate since 2002, and down from 10.2 per cent in 2007, the fastest pace since the early 1990s. Given the high level of uncertainty about the global outlook, spawned by the US subprime mortgage financial turmoil, the World Bank said it was assuming a range of outcomes for the external environment in making these forecasts. It assumes the US economy could grow anywhere between 0.5 and 1.4 per cent this year, down from 2.2 per cent in 2007. The Eurozone could see growth in a 1.3-1.7 per cent range, compared with 2.7 per cent in 2007. The World Bank predicts China's growth would dip below 10 per cent in 2008 after five years of double-digit rates. "The near-term outlook for the region will depend to a large extent on the robustness of domestic demand in the face of slowing exports," the World Bank said. Exports to markets outside the US and domestic demand had propped up Asia in the latter half of 2007, it said. Private consumer spending picked up and business spending was strong in China, Indonesia and Vietnam. While business investment spending could slow this year, it could prove more resilient than in the 2001 recession, due to higher levels of capacity utilisation and stronger corporate balance sheets, it said. Moreover, domestic banks appeared to have had minor exposure to the subprime mortgage crisis and credit flows remained healthy despite the volatility in equity and bond markets. "Current account surpluses and large foreign reserves should provide a buffer that will enable economies to accommodate volatility in international capital flows without forcing the kinds of sudden large adjustments in domestic demand that became inevitable during the 1997-98 financial crises," the bank said. It said that in 2007, net current account surpluses totaled close to nine per cent of regional GDP, while net capital inflows were worth an additional percentage point of regional GDP. The World Bank said Asia's export growth seemed to be either gradually easing, or even recovering in parts, unlike in 2001 when a US downturn caused export momentum to plunge, and that supported the case for a soft landing for the region.