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SINGAPORE: Singapore and other Asian economies are expected to be resilient to potential shocks or equity price corrections, despite slowing global growth.
This is according to World Bank economists in a Global Development Finance report out on Tuesday.
They say the resilience is due mainly to sound capital structures and stable investment flows.
Global GDP and industrial production began slowing from mid-2006 and into 2007.
World Bank economists say this suggests that last year's strong performance could be a cyclical peak.
So they are urging investors to brace for relatively slower growth.
"We're starting a period of adjustment. So growth is very likely to slow throughout the world but also in East Asia. The high rate of growth of capital flows into those countries is very likely to slow.
"You might expect that some of the export markets will change somewhat, especially exports to the United States that have been growing at a very high rate, will slow down," says Hans Timmer, Manager, Global Trends, Development Prospects Group, The World Bank.
But the outlook still seems bright for now, despite the risk of corrections in equity prices.
Last year, global capital flows reached a record level of $647 billion, up 17 per cent from the year before.
And some three-quarters of this was in the form of foreign direct investments or pumped into the equity markets, that was up from two-thirds in 2004.
And that bodes well for regional economies (South East Asia and the rest of Asia Pacific).
Says Douglas Hostland, Senior Economist, Development Prospects Group, The World Bank, "We have confidence going forward that the dependence of private capital flows to the region in the form of equity will be a much more stable form of capital.
"We are going to see equity price corrections in countries throughout the world. But investors have a much better improved capacity to assess risks within the region.
"And hence what will happen around the world is those countries that are most able to correct from equity price adjustments will be unscathed from crises in other countries.
"This region is very solid in terms of foundations. And hence we don't expect fallouts from other regions to have a big effect on South East Asia."
Economies in the region, according to the World Bank, are also being boosted by improvements in capital structure in the last 10 years.
These include more flexible exchange rates, healthy foreign reserves and current account surpluses. - CNA/yy
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