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BEIJING : China and other East Asian economies are likely to remain robust in 2008 despite the US sub-prime mortgage crisis and soaring global oil prices, the World Bank said on Thursday.
China is expected to see growth of 10.8 percent next year, just down from a projected 11.3 percent this year, the World Bank said in its half-yearly analysis of the region.
"The impact of the US sub-prime crisis and the renewed surge in oil prices have clearly increased downside risks," said Milan Brahmbhatt, the lead author of the analysis.
"Nevertheless we expect that the stronger growth momentum in the region (will) carry through 2008," Brahmbhatt said.
The World Bank said it expected growth in what it calls Emerging East Asia - roughly the entire region excluding Japan - to reach 8.2 percent in 2008, down moderately from 8.4 percent in 2007.
The US sub-prime crisis, which has triggered a credit squeeze as losses have piled up on securities backed by mortgages to home-buyers with patchy credit histories, will only have a slight ripple effect on Asia, the bank said.
For example, China's banks are unlikely to see a major direct impact from the sub-prime assets on their balance sheets, argued Brahmbhatt.
"Given the very rapid growth in profits of these banks at the present time, the general assessment is that it will not have a huge impact on either profitability or on balance sheets," he said.
"If one looks over the history, it's quite striking that the correlation between US recessions and Chinese economic growth is very little."
Analysis of earlier US recessions, in 1982, 1991 and 2001, was helpful in providing clues about the likely reaction this time in East Asia, if another recession is coming up, he argued.
On average during the three previous recessions, East Asian growth fell by roughly a half percentage point for every one percentage point decline in US growth, he said.
"That would suggest that a fall in US growth, say zero in 2008, which should be a two-percentage-point decline, might be accompanied by a one percentage point fall in medium east Asian economy growth," he said.
"(This) would be significant, but not a disaster in the case of economies that are growing at five, six, seven percent or higher."
Complicating the outlook, the sub-prime woes are not the only problems looming on the horizon.
Just as important are prices of oil, which are lingering at record levels of over 90 dollars per barrel, since East Asia is a net energy importer.
"We estimate that higher oil and other energy prices have caused the region an income loss of a little bit under one percent of GDP on average each year over the last three or four years," said Brahmbhatt.
"If the oil prices stay at 90 dollars next year, we calculate it could represent an additional income loss of somewhat more than one percent of GDP for East Asia taken as a whole."
In the absence of a major downturn in global demand for the high-tech products that are key exports for some East Asian economies, the impact is unlikely to be especially severe and protracted, the World Bank said.
And while East Asian exports to the United States have already started to slow, more buoyant investment and consumption in China and elsewhere have allowed growth to remain strong this year, the bank said.
"The new challenge for China's East Asian neighbours will be in making the transition from supplying inputs for China's exports to also supplying its domestic market," said Brahmbhatt.
The countries defined as Emerging East Asia by the World Bank include China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, as well as Hong Kong, South Korea, Singapore and Taiwan and some smaller economies. - AFP/de
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