WB sees East Asia growth sliding to 11-year low on China

THE World Bank said policy-makers in Asia’s emerging economies have room to ease monetary and fiscal policies as China’s slowdown drags the region’s growth to an estimated 11-year low this year.

Growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2 percent from 8.3 percent in 2011, the Washington-based lender said in a report today. That is the slowest pace since 2001, according to World Bank data, and lower than a forecast in May of 7.6 percent.

The International Monetary Fund is set to revise down its global outlook for this year tomorrow at an annual meeting in Tokyo where officials will tackle a slowdown triggered by Europe’s sovereign-debt crisis. Central banks are stepping up efforts to protect the worldwide recovery, with the US expanding monetary easing and the Bank of Korea forecast to cut
interest rates this week.

“As external demand has further moderated and inflationary pressures recede, there is some space for accommodative policies in most countries, and in case of a major external slowdown, sufficient fiscal space for stimulus,” the World Bank said. “The latter is likely to be more effective in keeping up demand, as policy rates are already low and liquidity relatively abundant in most East Asia-Pacific countries.”

Growth in developing East Asia was 7.5 percent in 2009 during the global financial crisis, according to World Bank data. The Asian Development Bank (ADB) last week lowered the region’s inflation and growth forecasts for this year and next.

Policy-makers have taken steps to spur expansion, with India’s central bank reducing the amount of deposits lenders must set aside as reserves last month, while Vietnam and China have reduced borrowing costs and South Korea announced 5.9 trillion won ($5.3 billion) of spending and tax relief.

Manufacturing from Europe to China contracted in September as the euro area’s fiscal crisis eroded investor confidence and clouded global growth prospects.

Philippine President Benigno Aquino is increasing spending to a record and seeking more than $16 billion of investments in roads and airports to shield the economy, while Malaysian Prime Minister Najib Razak is also boosting state disbursements ahead of a general election.

China will use “pre-emptive policy” to bolster growth in Asia’s biggest economy, Premier Wen Jiabao said last month, after expansion slid to a three-year low in the second quarter.

“China’s slowdown this year has been significant,” the World Bank said. “Economic momentum is expected to be weak during the coming months with limited policy easing, a property market correction, and faltering external demand.”

Asia’s exports have faltered as slower global growth crimps demand for the region’s goods. China’s shipments abroad rose less than estimated in August, while Thailand, Singapore and Malaysia have reported declines.

How soon the global economy can right itself will be debated at this week’s IMF meeting, which monitors worldwide trade and finance imbalances. Delegates will be greeted by the news that the lender anticipates even worse growth this year than the 3.5 percent it projected in July.

China may announce additional tax cuts and spending on infrastructure, public housing and social welfare to boost domestic demand and counter external weakness, economists at HSBC Holdings Plc. led by Qu Hongbin said in a report last week.

“The recent disappointing data, in particular the collapse in export growth and rising pressure on the labor market, has acted as a wake-up call to Beijing policy-makers, prompting the acceleration of easing policy,” they wrote.

Still, crude oil has fallen about 9 percent this year, helping ease inflationary pressure. Price gains in the Philippines unexpectedly slowed in September, while in Indonesia they eased for the first time in four months.

Global food-price increases pose less of a risk now after bountiful rice harvests in Cambodia, Vietnam and the Philippines, the World Bank said. Still, renewed monetary stimulus in Europe, Japan and the US could trigger capital inflows into the region, reigniting inflationary pressures and increases in asset prices.

Growth in developing East Asia will accelerate to 7.6 percent next year, with China expanding 8.1 percent, as domestic demand is boosted by accommodative policies, the World Bank said. (Bloomberg News)