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Massive Stimulus In East Asia-Pacific May Prove "Counterproductive": World Bank


The World Bank on Monday warned against many large economies in East Asia and Pacific adding more and more stimulus to boost economic growth. The bank is of the view that these measures may prove "counterproductive" due to their inflationary impact.

Releasing the latest edition of the East Asia and Pacific Economic Update, the lender said it now expects developing East Asia region to grow 7.8 percent in 2013, faster than the 7.5 percent growth last year.

The forecast is slightly below the 7.9 percent growth projected in December. The growth is forecast to ease to 7.6 percent in 2014.

"Most countries in developing East Asia are well prepared to absorb external shocks, but continued demand-boosting measures may now be counterproductive, as it could add to inflationary pressures," World Bank East Asia and Pacific Chief Economist Bert Hofman said.

"A strong rebound in capital inflows to the region induced by protracted rounds of quantitative easing in the U.S., EU and Japan, may amplify credit and asset price risks," Hofman said.

Meanwhile, the World Bank cut its 2013 growth outlook for the Chinese economy to 8.3 percent from the previously projected 8.4 percent. Chinese GDP is set to expand 8 percent in 2014, according to the World Bank report. The nation's growth eased to a 13-year low of 7.8 percent in 2012.

The report also said as the global economy recovers, an emerging issue is the risk of overheating in some of the larger economies. The latest numbers suggest that, if global demand continues to revive, some major economies may reach the limits of their current production capacity, as the output gap has closed in those countries, it said.

The report suggested that the policymakers in the East Asia-Pacific countries should be prepared to withdraw stimulus as the world economy recovers, while at the same time remain vigilant to respond to economic shocks.

Also, the report pointed out that movements in high-income country currencies, such as the yen, will likely affect trade and investment flows in the region in the short-term. However, a return to sustained growth in Japan would benefit the region as a whole, it said.

The 2013 GDP outlook for Indonesia was lowered to 6.2 percent from the 6.3 percent estimated previously. The forecast for the next year was also cut to 6.5 percent from the previous projection of 6.6 percent. At the same time, the lender lifted its 2013 GDP projections for Malaysia and Thailand.

by RTTNews Staff Writer

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