ASIA NEWS
Updated October 8, 2012, 1:51 a.m. ET
World Bank Cuts Asia Growth Forecast
By NATASHA BRERETON-FUKUI
SINGAPORE — The World Bank on Monday cut its forecasts for economic expansion in developing East Asia, and warned of the potential for the exit of more than one country from the euro zone to wipe more than two percentage points off growth next year.
The institution tipped the region to grow 7.2% in 2012, down from a projection of 7.6% in May, with that rate picking up to 7.6% in 2013, still lower than an original forecast of 8.0%.
A significant driver behind that was a downgrade of the body's view on China, which it now sees expanding 7.7% in 2012 and 8.1% in 2013, as limited policy easing, property market correction and subdued external demand weigh on the world's second-largest economy.
Most developing East Asian nations are well placed to withstand a crisis in Europe or more subdued global demand, with some scope for policy easing and enough space for fiscal stimulus in the case of a major external slowdown, the World Bank said. It also noted their ample international reserves and low reliance on European banks and wholesale funding.
But in a press briefing Monday, World Bank Chief Economist for East Asia and Pacific Bert Hofman highlighted the importance of beefing up social safety nets, and readying steps to support growth that might be needed down the road.
"Fiscal stimulus doesn't drop from the sky—you actually need to have programs and projects ready to be able to effectuate a stimulus if and when needed," Mr. Hofman said. "So continuing to prepare, making sure that you have the types of program that could help in case of a crisis is very important."
While economic uncertainty, lower interest rate spreads, and apparent declines in the effectiveness of developed economies' monetary stimulus should reduce the potential for the latter to spur capital flows into the region, Mr. Hofman stressed the need to monitor flows and ensure credit growth doesn't get out of hand.
Countries that are dependent on commodities exports could be particularly vulnerable to any renewed global slowdown, the World Bank said. Indonesia and Malaysia will be cushioned to some degree because falling oil prices will shrink their subsidy burden, but they would still be exposed to the lower cost of other commodities.
It also noted that the potential for severe fiscal tightening in the U.S., if lawmakers fail to agree on alternatives to measures that will otherwise automatically come into effect around the turn of the year—the so-called fiscal cliff—posed risks.
The World Bank defines developing East Asia as: Cambodia, China, East Timor, Indonesia, Laos, Malaysia, Mongolia, Papua New Guinea, the Philippines, Thailand, Vietnam and the Pacific island economies.
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