The developing economies of East Asia will grow less rapidly this year than previously expected, the World Bank said on Monday, but domestic demand and economic stimulus measures will allow growth to accelerate again next year.
The Euro zone crisis and a looming “fiscal cliff” in the United States continue to pose “considerable risks” to the global outlook, but in East Asia and the Pacific — a region that includes countries such as China, Thailand and Indonesia but not Japan and India — robust domestic demand is helping growth remain well above that in other parts of the world, the bank said in its latest report on the region. The World Bank cut its forecast for the region to 7.2 per cent this year, from a previous projection, made in May, of 7.6 per cent.
The number is also sharply lower than the 8.2 per cent expansion the region managed in 2011.
The bank also lowered its forecast for 2013 to 7.6 per cent from the 8.0 per cent it had projected in May. The reduced forecasts are the latest in a string of such cuts by economists around the world as they assess the impact of slowing demand for Asian goods in the West’s struggling economies.
Last week, the Asian Development Bank said it expected emerging Asia — a wider grouping of countries than those included in the World Bank’s report on Monday — to expand just 6.1 per cent this year, and 6.7 per cent in 2013.
Still, resilient domestic demand looks likely to compensate for the drop-off in external demand, and combined with stimulus measures announced by governments across the region, should lead to slightly faster growth again next year, the World Bank said.
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“Weaker demand for East Asia's exports is slowing the regional economy,” Pamela Cox, World Bank east Asia and Pacific regional vice president, said in a statement Monday. “But compared to other parts of the world, it’s still growing strongly, and thriving domestic demand will enable the region’s economy to bounce back to 7.6 per cent next year.”
Most major central banks in Asia have sought to prop up growth by lowering interest rates; some, including the Chinese central bank, have also lowered the reserves that banks need to hold against deposits, which frees up more cash for them to lend. For China, the World Bank now expects growth of 7.7 per cent — a downward revision from its previous forecast of 8.2 per cent, and a sharp slowdown from the 9.3 per cent expansion recorded last year.
Gross domestic product data for the third quarter of this year, due out on October 18, are expected to further underline China’s slowdown; economists polled by Reuters expect the economy to have expanded just 7.4 per cent compared with the same period last year. The second-quarter figure was 7.6 per cent. The World Bank noted Monday that ambitious investment plans announced by some local governments could face funding constraints, “not least because governments are feeling the pinch of a cooling real estate market, which lowers land sales revenues.”
Moreover, it said, Chinese policy makers are having to balance support for growth with concerns of a rebound in housing prices — a balancing act that is reducing their ability to take more forceful stimulus steps. On a more positive note, the World Bank said that recent economic data for China “suggest some rebound in activity,” while recent efforts to step up investment project approvals could support the recovery in investment in the coming quarters.
“We therefore believe that the risk of a ‘hard landing’ remains small,” the World Bank said. The bank expects growth in China to pick up to 8.1 per cent next year, as the impact of stimulus measures kicks in and global trade rallies.
© 2012 The New York Times News Service