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Dec 11, 2008

World Bank Paints A Bleak Picture For Asia In 2009

East Asian economies will expand at their slowest pace in eight years in 2009, said the World Bank Wednesday (10 Dec).

It predicted that growth in East Asia, excluding Japan, will hit 5.3%, down from 7% this year, which would be the worst since the 2001 bust.

But the projected slowdown is still far less than the hits Europe, Central Asia and Latin America are expected to take.

"The dangers in East Asia are immense," said Vikram Nehru, the World Bank's East Asia regional chief economist, Wednesday. "The coming crisis is at least as bad as anything we've seen over the last 20 to 30 years.

"It's very possible that things could be much worse."

Nehru said the challenge for East Asian economies is to ensure they develop the physical and human capital and provide demand stimulus, so when the crisis ends they will be better placed to seize opportunities in a global recovery.

Excluding China, where growth is projected to moderate to 7.5%, East Asia would grow at just 4%, according to the bank's semi-annual report for the region.

Singapore is predicted to expand at 1.2% next year, one of the slowest in the region, behind other open economies such as Hong Kong and South Korea, at 1.4% and 2% respectively.

The study comes a day after the release of the World Bank's latest Global Economic Prospects report, which tipped that world growth would slow to just 0.9%, its slowest in almost 40 years.

East Asia is expected to be especially hard hit by a slowdown in world trade, which is expected to shrink by 2.1%, the first contraction since 1982. But the region is better prepared than it was for the 1997 financial crisis.

Swift and effective policy action by regional governments had averted the worst impact, the World Bank said, but it warned that near-term downside risks are substantial and a deeper and longer contraction in the developed world would significantly delay recovery in East Asia.

Slowing growth in the region will weaken further, it said, on the back of slower export activity, lower private consumption, declines in foreign direct investment, and slower remittance flows.

The lower growth rate will result in 5.6 million fewer people being taken out of poverty in the region from 2005 to 2009.

The report highlighted that many East Asian governments have already lined up sizeable fiscal stimulus packages for next year to compensate for slowing exports.

But to create domestic demand and jobs, such packages must be well-targeted, such as infrastructure projects and expanding targeted social safety nets.

Falling commodity prices also raise the prospect of deflation but that likelihood is modest at present, the report said.

Source : SinChew
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