World Bank cuts East Asia growth forecast
Posted: 01 April 2008 1626 hrs

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SINGAPORE - The World Bank on Tuesday cut its 2008 growth forecast for East Asia, which it said faces "testing times" as the global fallout from a US financial crisis deepens.

In its half-yearly report, the bank said East Asia can now expect 7.3 percent growth this year, down from its previous forecast of a more robust 8.2 percent.

The revised forecast represents a marked slowdown from the 8.7 percent expansion recorded last year in the bank's East Asia grouping, which includes Southeast Asia, China and most other regional countries but not Japan.

"These will be testing times for East Asia and the reality is of course that there is a huge amount of uncertainty, especially given the fact that things are changing so quickly," the bank's acting chief economist, Vikram Nehru, said.

"So do keep in mind that what forecasts you hear today do have a wide band of uncertainty around them," he said in a teleconference from Tokyo.

In its report, the bank said "the crisis in the United States has deepened... further surprises cannot be ruled out".

It said the region's equities markets have already felt many repercussions from the United States turmoil.

Growth this year in what the Bank calls "Developing East Asia" -- all low and middle income economies, including China and Indonesia -- is expected to slow to 8.6 percent from 10.2 percent in 2007, it said.

This will be Developing East Asia's weakest growth since 2002 and is based on expectations of a slowing US economy.

The region's export-led economies have held up since US turbulence began in August with the meltdown of the sub-prime, or higher-risk, mortgage market but it is only a matter of time before East Asia feels the pinch more acutely, the World Bank said.

"The impact from a slowing US economy will take time to feed through trading and financial channels and its full force may only be felt in the second half of this year," it said.

East Asia's exports will likely "turn lower more distinctly in coming months, as US imports themselves begin to fall, and as the US downturn and financial market turmoil begin to affect more decisively other regions that are East Asian export markets."

Many analysts say the United States, the locomotive of the world economy, is likely to see either near-zero or negative growth in first-half 2008 before staging a mild recovery in the last six months of the year.

Sub-prime loans, offered to people with shaky credit, were packaged into securities that were sold to investors around the world.

When defaults hit, banks began to see billions of dollars in losses on their balance sheets. The lenders had to tighten credit, which crimped consumer and business spending and threatened the overall economy.

China has been among the casualties of the US-led slowdown with growth in 2008 tipped to weaken to 9.4 percent from 11.4 percent last year, ending five straight years of double-digit growth, the report said.

Growth this year in Indonesia, Southeast Asia's largest economy, is seen slowing to 6.0 percent from 6.3 percent in 2007, it said.

"Global financial turmoil is beginning to have an effect," it said but added: "Indonesia is expected to weather the global slowdown reasonably well."

Vietnam's expansion is seen at 8.0 percent this year, against 8.5 percent in 2007.

In Malaysia, growth in 2008 is forecast at 5.5 percent from 6.3 percent last year while in the Philippines, the economy will slow to 5.9 percent from 7.3 percent in 2007.

Thailand is the exception, where growth is seen accelerating to 5.0 percent this year from 4.8 percent in 2007, the World Bank said.

It cited an "economic bounce" expected from a return to democracy after December elections that ended more than a year of military rule.

Growth in the "Newly Industrialised Economies", Singapore, Taiwan, Hong Kong and South Korea, is seen falling to 4.6 percent in 2008 from 5.6 percent last year, according to bank forecasters. - AFP/ir