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SINGAPORE: The World Bank is projecting a 7.8 per cent economic growth for East Asia and the Pacific next year.
Its definition for Developing East Asia comprises China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Mongolia, Papua New Guinea, and the island economies in the Pacific.
The organisation believes the services sector is the region's next growth engine because the sector is relatively less developed now, with the current bias towards an export-driven model.
The World Bank also said on Wednesday that the region should tighten its monetary policies sooner rather than later, amid rising concerns over asset price bubbles.
Consumption in developed economies is expected to remain weak as uncertainty over a sustained global recovery lingers on. This is part of the reason why the World Bank believes Asian countries, which rely on exports, should look for new sources of growth.
In a global video conference on Wednesday, the organisation said the services sector holds enormous potential because it is considerably underdeveloped in the region.
Vikram Nehru, chief economist, East Asia & Pacific Region, World Bank, said: "I believe with some carefully considered, carefully planned deregulation in the services sector, and with greater liberalisation of trade and services, East Asia could potentially have an engine of growth which could match what the manufacturing sector used to be over the last 30 years.
"I dare say that there is a reservoir of efficiency gains which East Asia can still tap for the future."
The World Bank expects many countries to start reconsidering development strategies, such as withdrawing subsidies for export businesses in order to level the playing field for other sectors to grow.
It said many Asian countries should begin looking at tightening monetary policies to remove excess liquidity in the financial system – a view shared by many analysts - amid increasing signs of asset price bubbles forming.
Joseph Tan, Asian chief economist, Credit Suisse, said: "There are a few aspects when we talk about monetary policy. Number one, I think it is worth to recall that the crisis began as a sub-prime crisis and evolved into a credit crisis. A lot of government, of course, were in panic mode and had to inject a massive amount of liquidity in the economies.
"This liquidity, with the recovery, is finding its way into asset price inflation. Primarily in Asia's case, of course, that will be in equity markets and property markets. And I think it's worthwhile to start to withdraw this liquidity because we are no longer in crisis mode. We're in the nascent stages of a recovery, which is why we need to keep the fiscal stimulus in place."
Analysts believe the first movers in Asia to do so will be South Korea, Indonesia and India as they were among the first countries to cut their interest rates aggressively during the crisis, and have signalled a readiness to raise borrowing costs.
At the upcoming APEC meetings, the World Bank hopes there will be a recommitment to resist protectionism and progress towards a more integrated regional economy.
There are concerns that there is rising political pressure within the US to protect its own industries with its unemployment rate close to 10 per cent.
The World Bank said risks for a sustainable recovery remain, with potential double dips in economic activity among advanced countries once stimulus measures and inventory restocking cycles wear off.
- CNA/so
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