World Bank raises E. Asia GDP forecast

November 5, 2009
Reuters and AP

BEIJING -- The developing economies of East Asia and the Pacific will grow by 6.7 percent this year and 7.8 percent in 2010, reflecting China's strong expansion, but other countries in Asia face much weaker growth, the World Bank said.

In its twice-yearly review released on Wednesday, the Washington-based development bank raised its GDP growth forecast for 2009 from the previous 5.3 percent, citing a surprisingly swift rebound on the back of fiscal stimulus and inventory restocking.

But it estimated that, stripping out China, the developing economies of East Asia will grow by only 1.1 percent this year, picking up to 4.5 percent next year.

That means that, despite help from government spending and steady performance in countries such as Indonesia and Vietnam, growth excluding China will be slower on average this year than in South Asia, the Middle East and North Africa, posing risks to a sustainable recovery.

“Some governments in the region will have the fiscal space to sustain fiscal stimulus until recovery is on a firmer footing and private investment has been restarted. Others will be more restrained because of limited fiscal space,” the World Bank said.

The World Bank raised its 2009 growth forecast for China from 7.2 percent to 8.4 percent but warned Wednesday a sustained recovery will require a shift in the economy to emphasize consumer spending instead of industry and investment.

The bank said its higher outlook for China reflects the government's stronger-than-expected stimulus. But it said the impact of the stimulus would fall sharply next year and manufacturing industries will be under pressure as excess capacity at home and abroad holds down prices. Ultimately, the World Bank said China can no longer count on exports and investment to drive growth and needs to encourage its own consumers to spend more.

“We think that now that the government has basically succeeded in dampening the impact of the global crisis, it's a good time to concentrate and focus effort on rebalancing the economy and getting more growth out of the domestic economy,” said Louis Kuijs, the bank's chief China economist, at a news conference. “This calls for more emphasis on consumption and services and less emphasis on investment and industry.”

Beijing's 4-trillion-yuan (US$586 billion), two-year stimulus has helped China to rebound even as the United States, Europe and Japan struggled with recession. Growth accelerated in the latest quarter to 8.9 percent over a year earlier.

Economists expect China to be the first major economy to emerge from the worst global slump since the 1930s. The hike in the World Bank's growth outlook followed a June increase from 6.5 percent to 7.2 percent.

China's rebound has helped to power other Asian economies as its consumers and factories buy imports.

Indonesia and Vietnam are doing well but output is contracting in Cambodia, Malaysia and Thailand and barely growing in Mongolia, the bank said. Industrial production in Singapore and Taiwan is 15 percent below pre-crisis levels 18 months ago.

With China expected to grow by 8.4 percent this year and 8.7 percent in 2010, those countries that export consumer durables, electronics components and raw materials to it are best poised to benefit from the increase in domestic demand there, it said.

Vietnam is seen growing by 5.5 percent this year and 6.5 percent next year; the forecast for Indonesia was raised to 4.3 percent this year, with growth there expected to pick up to 5.4 percent next year.

By contrast, Malaysia's economy is seen shrinking by 2.3 percent this year, a sharper contraction than the World Bank expected in April. Thailand is seen contracting by 2.7 percent this year, and growing 3.5 percent next year.

The World Bank defines Developing East Asia as China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam and some smaller economies.