World Bank Tips Robust Asian Growth; Europe Poses Risks
First Published Wednesday, 23rd May 2012 07:56 am - © 2012 Dow Jones
-- World Bank forecasts healthy East Asian growth in 2012, 2013
-- Highlights Asia's resilience, but warns of risks from Europe
-- Says Asian currencies could appreciate in longer term
(Adds economist comments in fifth to seventh paragraphs.)
By Natasha Brereton-Fukui
Of Dow Jones NEWSWIRES
SINGAPORE -(Dow Jones)- Developing East Asia is set to grow at a robust pace this year and next, but global uncertainties pose significant risks to that view, and public debt levels and inflationary pressures could restrict policy stimulus if global conditions deteriorate, the World Bank said Wednesday.
In its East Asia and Pacific Economic Update, the institution also said Asian currencies could return to a path of appreciation if capital flows picked up, although it noted they were likely to be volatile in the near term on the back of European concerns.
Bert Hofman, chief economist for the East Asia and Pacific region at the World Bank, said most East Asian economies were "well positioned" to withstand renewed volatility. Domestic demand has shown itself to be resistant to shocks, and many countries have current-account surpluses and high levels of international reserves, while banks are largely well-capitalized, he said.
But there are limits to that resilience, with public debt still above pre-crisis levels in many countries--curbing potential for fiscal stimulus--while concerns about overheating could restrict additional monetary easing, the World Bank noted.
"Debt levels across most of the region have come down since the highs after the global financial crisis, however debt levels do remain elevated in some countries like Malaysia, like the Philippines, like Vietnam, like Laos," World Bank Economist Bryce Quillin told reporters at a briefing.
"These countries may need to start thinking about efforts towards consolidating the debt that has been generated as part of the financial crisis and begin to consider other possibilities for addressing a deterioration in growth in the next year or so."
Mongolia and Vietnam are currently facing overheating pressures, so stimulus there wouldn't be wise, Hofman added.
The World Bank defines developing East Asia as: Cambodia, China, East Timor, Indonesia, Laos, Malaysia, Mongolia, Papua New Guinea, the Philippines, Thailand, Vietnam and the Pacific island economies.
It forecast the region to grow 7.6% in 2012 and 8.0% in 2013, below 8.2% in 2011. While that expected weakening is largely due to China--growth excluding the world's second largest economy is tipped to pick up to 5.2% in 2012 and 5.6% in 2013 from 4.3% in 2011--it said improvement elsewhere in the region was mostly linked to a rebound following flooding in Southeast Asia.
The organization noted that some central banks had begun easing monetary policy, and cautioned that potential risks to inflation shouldn't be overlooked. Although oil prices have fallen, sanctions against Iran could cause supply disruption ahead, it said.
"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," the report said.
It urged Asian nations to reduce their dependence on external demand by boosting household consumption or investment.
The World Bank also addressed China's declining current-account surplus. While a gap of less than 3% of gross domestic product suggests the Chinese yuan is closer to equilibrium than previously, it remains to be seen whether the surplus will rebound once global economic growth strengthens, it pointed out.
-By Natasha Brereton-Fukui, Dow Jones Newswires; +65-6415-4044; firstname.lastname@example.org