WORLD BANK CUTS ASIA GROWTH FORECAST

The World Bank cut its growth forecast for Asia on Monday in a new sign of the impact of weakening global demand and warned China’s cooling economy faces the risk of a “more pronounced slowdown.”

The bank cut this year’s growth outlook for developing Asia-Pacific economies to 7.2%, down from its May forecast of 7.6%. The bank cut its forecast for China, the region’s biggest economy, to 7.7% from May’s 8.2%.

“In a fragile external environment, the economy in the East Asia and Pacific region continues to slow down,” the bank said in a report. “The risk remains of a more pronounced slowdown in China than currently expected, while commodity exporters are at particular risk of a global slowdown.”

The bank cited weak global demand due to the lackluster U.S. recovery and Europe’s recession. It said Europe’s debt crisis still is a “major risk,” followed by the U.S. “fiscal cliff”—a mix of tax and spending cuts due to take effect at year’s end that might depress growth.

Growth in China has slowed largely due to government controls imposed to cool an overheated economy and inflation but also has been hurt by weak demand for Chinese exports. Growth fell to a three-year low of 7.6% in the quarter ending in June and officials including President Hu Jintao say it might decline further before recovering.

“China’s slowdown this year has been significant, and some fear it could still accelerate,” the World Bank said.

Commodity exporters could be most at risk in case of a renewed global slowdown, the report said. They include Mongolia, Laos, Timor Leste, Fiji and Papua New Guinea.

The region is relatively well-positioned to weather a European crisis or global slowdown, the bank said. It noted most have well-capitalized banks, modest government deficits and large financial reserves.

Excluding China, the region’s economic output should grow 5.5% this year, the bank said. It forecast world-wide growth of 2.3% this year, rising to 2.6% in 2013.

Indonesia should achieve 6.1% growth this year, while Malaysia grows 4.8% and the Philippines by 5%, the bank said. It forecast Thailand’s growth at 4.5% and Vietnam at 5.2%.

“For 2013, growth is expected to pick up in most of the region’s other developing economies, where domestic demand remains robust,” the bank said.

Trade-driven Asian economies need to rebalance away from reliance on foreign demand for their exports and encourage consumer spending, the World Bank said.

“The subdued outlook for advanced economies continues to put a premium on domestic demand, and thus rebalancing remains important for most countries in the region,” the report said.

GDP growth projections:

(previous forecasts in parenthesis)

2011 2012 2013

(actual)

East Asia 7.1 6.0 (6.3) 6.6 (7.0)

Developing East Asia 8.3 7.2 (7.6) 7.6 (8.0)

China 9.3 7.7 (8.2) 8.1 (8.6)

Indonesia 6.5 6.1 (6.1) 6.3 (6.4)

Malaysia 5.1 4.8 (4.6) 4.6 (5.1)

Philippines 3.7 5.0 (4.2) 5.0 (5.0)

Thailand 0.1 4.5 (4.5) 5.0 (5.0)

Vietnam 5.9 5.2 (5.7) 5.7 (6.3)

Cambodia 6.9 6.6 (6.6) 6.7 (6.7)

Fiji 2.0 2.2 (1.5) 2.2 (1.7)

Laos 8.0 8.2 (8.3) 7.5 (7.5)

Mongolia 17.3 11.8 (17.2) 16.2 (11.8)

Myanmar 5.3 5.5 (na) 6.2 (na)

Papua New Guinea 9.0 7.5 (7.0) 4.0 (5.0)

Solomon Islands 9.0 6.0 (6.0) 4.0 (4.0)

Timor Leste 10.6 10.0 (10.0) 10.0 (10.0)

Developing East Asia 4.3 5.3 (na) 5.5 (na)

excluding China

(Reporting by Kevin Lim; Editing by John Mair)

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