World Bank downgraded Developing East Asia's growth outlook as China's expansion slows and external demand is set to remain weak for the foreseeable future.
The lender urged the countries in the region to reduce the reliance on exports and concentrate on domestic demand to spur growth.
Developing East Asia and Pacific growth remains robust, but it has moderated from post-crisis peaks, the World Bank said in its latest East Asia and Pacific Economic Update published Wednesday.
The moderation in 2011 growth reflects lower than expected expansion in manufacturing exports as well as supply disruptions in the wake of the earthquake and tsunami in Japan and also severe flooding in Thailand.
Going forward, the lender projects that region's growth will slow to 7.6 percent in 2012 from 8.2 percent last year, with slower expansion in China pulling down the regional aggregate. The forecast for this year was trimmed from the 7.8 percent growth previously seen.
The EU, along with the U.S. and Japan, accounts for more than 40 percent of the region's exports. A faster than expected slowing of the Chinese economy could trigger an unexpected drop in commodity prices, which could force some commodity exporters to adjust rapidly, the bank assessed.
Excluding China, the region's growth will rise to 5.2 percent this year from 4.3 percent in 2011 led by Thailand's rebound, it said.
China's growth alone is estimated to ease to 8.2 percent from 9.2 percent in 2011. Weakness in the euro area and a sluggish U.S. recovery is likely to limit the contribution of net exports to growth. The 2012 outlook was trimmed from 8.4 percent previously forecast.
According to the World Bank, most East Asian economies are well positioned to weather renewed volatility from Europe. Domestic demand coupled with investment helped central banks to loosen monetary policy in some nations.
The region's monetary authorities seek to advance growth with policy loosening, but the lender says inflation risks such as those from higher energy prices cannot be overlooked.
Moreover, an uptick in activity, aided by accommodative monetary policies, also poses an upside risk to inflation, so policy-makers should be prepared to reverse recent easing.
Malaysia's growth is seen at 4.6 percent this year and 5.1 percent in 2013. The Philippines' growth of about 4.2 percent and 5 percent in 2012 and 2013 will hinge on domestic demand, investment and government spending, if global slowdown persist, the lender said.
The Thai economy will rebound this year from a number of shocks in 2011, the report said. The growth is forecast to pick up to 4.5 percent this year and to 5 percent in 2013. Indonesia's growth in 2012 is forecast to remain robust at 6.1 percent, and to move back up to 6.4 percent in 2013.
Developing East Asia as used in this report includes China, Indonesia, Malaysia, Philippines, Thailand, Cambodia, Lao People's Democratic Republic, Mongolia, Papua New Guinea, Timor-Leste, Vietnam, and the island economies in the Pacific. It excludes Japan and India.
by RTT Staff Writer
For comments and feedback: firstname.lastname@example.org