East Asia economy slows on global uncertainty - World Bank

22 November 2011 05:06  [Source: ICIS news]

SINGAPORE (ICIS)--Developing economies in east Asia are expected to grow at a slower pace of 8.2% this year from a 9.7% clip in 2010, as industrial production softens amid weakening external demand, the World Bank said on Tuesday.

A further weakening of growth to 7.8% is projected for the region in 2012, it said.

Growth in China, the world’s second biggest economy, is forecast to decelerate to 9.1% in 2011 from 10.4% last year, the multilateral institution said in its East Asia and Pacific economic update for November.

With the exclusion of China, economies in east Asia will just grow at 4.7% in 2011 from a 7.0% expansion recorded last year, it said in the report.

"Lower growth in Europe in the course of fiscal austerity and the banks’ needs to increase capital coverage would affect East Asia," Bert Hofman, World Bank chief economist for the East Asia and Pacific Region, said in a statement.

Developing east Asia includes Indonesia, Malaysia, Philippines, Thailand, Vietnam, Cambodia, Fiji, Laos, Mongolia and Papua New Guinea, according to World Bank’s list.

“Less credit from European banks can also affect capital flows to East Asia, but high reserves and current account surpluses protect most countries in the region against the impact of possible renewed financial stress,” said Hofman.

Western economies are currently stressed - the eurozone embroiled in a debt crisis and the US economy still in a fragile state. This translates to weakness in Asian exports sector.

East Asian economies showed a marked slowing down in industrial production, the World Bank said.

Meanwhile, flooding in a number of countries in the region is also expected to take a toll on economies growth this year, the World Bank said.

Thailand, which experienced its worst flooding in decades, GDP growth was revised down to 2.4%, it said.

Losses in production are felt in the entire region, as the impacts of the disaster are spreading through industrial supply chains.

“While reconstruction after the flood in 2012 is likely to contribute to growth, recovery of production to pre-disaster levels in the region will depend in part on the strength of global demand for electronics and cars,” the World Bank said.

Governments can take this opportunity to refocus on reforms that will enhance growth in the medium- and long- term, said Ekaterina Vostroknutova, senior economist and lead author of the World Bank report.

“Higher investments in infrastructure, education and social security systems can help countries increase productivity and move toward higher value added production,” Vostroknutova said.

"Any possible stimulus programs should be fiscally sustainable, well-targeted and directed at promoting the structural transformation needed for stronger, domestically driven growth."

($1 = €0.74)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Pearl Bantillo
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