World Bank expects little drag on growth in developing regions
November 16, 2007
By KAREN LANE
The Wall Street Journal
SINGAPORE -- The economies of emerging East Asia should grow strongly this year and next, with few signs of any sharp acceleration in core inflation or other imbalances in the region, the World Bank said Thursday.
The Washington-based body forecast in an East Asia and Pacific update that gross-domestic-product growth in the region, which excludes Japan, Australia and New Zealand, would be 8.4% this year and 8.2% in 2008.
The new forecasts are higher than those it issued in April of 7.3% and 7%, respectively, because of "unexpected and large domestic demand-led acceleration of growth in China," it said.
Strong domestic demand in the region should continue into next year as high capacity-utilization levels and healthy corporate balance sheets provide a favorable footing for investment.
Nevertheless, the World Bank warned the difficulty of managing high balance-of-payment inflows raises concerns about central banks losing control of monetary policy, which could lead to overheating of markets and economies and vulnerabilities in the financial sector.
"Although the signs of such problems are limited at present, they could grow into significant concerns," it said, noting that spare capacity in most economies has been largely used up while equity prices have surged to highs in many countries.
Much of the region also has seen headline inflation rates tick up, largely because of high food and energy prices.
China, in particular, has suffered from costlier food, but the World Bank said price pressures there have been largely confined to that sector. It forecast that inflation will start to ease late this year and continue to subside next year.
Slower demand for Asia's exports, because of the U.S. subprime-mortgage crisis, should have only a modestly negative effect on the region.
Like its sister organization, the International Monetary Fund, the World Bank warned of increased downside risks to the regional economy if there is a sharper-than-anticipated downturn in the U.S. and other major economies.
Soaring oil prices also are a risk. The organization calculates that an average oil price of $90 in 2008 would result in an income loss in the region equivalent to about 1.1% of GDP. The bank now forecasts an average price of $72 a barrel in 2008 and slightly less than $70 a barrel in 2009.
In the event that Asia's economies are threatened, the World Bank said central banks have room to ease monetary policies while governments could undertake supportive fiscal measures.
The World Bank forecast China's economy will expand 11.3% this year and 10.8% in 2008. These new projections are up from April forecasts of 9.6% in 2007 and 8.7% next year.
Vietnam will be the next-fastest-growing economy, with forecast growth of 8.3% this year and 8.2% next year.
The World Bank said China is experiencing faster inflation and a surging trade surplus that is pumping excessive liquidity into the financial system. But it said of the potential problems that "none appears serious enough at present to derail the current momentum of growth, or to cause the authorities to make major policy changes that would lead to a marked slowing in the near term."
However, the organization warns that China alone will be unable to offset a sharp slowdown in global demand, as Chinese growth couldn't be much faster than it already is and the country's share of world imports is still small compared with its share of the world's GDP.
For the World Bank, emerging East Asia includes China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam and some smaller economies like Cambodia and Mongolia, plus the so-called newly industrialized economies of Hong Kong, South Korea, Singapore and Taiwan.
Write to Karen Lane at karen.lane@dowjones.com
November 16, 2007
By KAREN LANE
The Wall Street Journal
SINGAPORE -- The economies of emerging East Asia should grow strongly this year and next, with few signs of any sharp acceleration in core inflation or other imbalances in the region, the World Bank said Thursday.
The Washington-based body forecast in an East Asia and Pacific update that gross-domestic-product growth in the region, which excludes Japan, Australia and New Zealand, would be 8.4% this year and 8.2% in 2008.
The new forecasts are higher than those it issued in April of 7.3% and 7%, respectively, because of "unexpected and large domestic demand-led acceleration of growth in China," it said.
Strong domestic demand in the region should continue into next year as high capacity-utilization levels and healthy corporate balance sheets provide a favorable footing for investment.
Nevertheless, the World Bank warned the difficulty of managing high balance-of-payment inflows raises concerns about central banks losing control of monetary policy, which could lead to overheating of markets and economies and vulnerabilities in the financial sector.
"Although the signs of such problems are limited at present, they could grow into significant concerns," it said, noting that spare capacity in most economies has been largely used up while equity prices have surged to highs in many countries.
Much of the region also has seen headline inflation rates tick up, largely because of high food and energy prices.
China, in particular, has suffered from costlier food, but the World Bank said price pressures there have been largely confined to that sector. It forecast that inflation will start to ease late this year and continue to subside next year.
Slower demand for Asia's exports, because of the U.S. subprime-mortgage crisis, should have only a modestly negative effect on the region.
Like its sister organization, the International Monetary Fund, the World Bank warned of increased downside risks to the regional economy if there is a sharper-than-anticipated downturn in the U.S. and other major economies.
Soaring oil prices also are a risk. The organization calculates that an average oil price of $90 in 2008 would result in an income loss in the region equivalent to about 1.1% of GDP. The bank now forecasts an average price of $72 a barrel in 2008 and slightly less than $70 a barrel in 2009.
In the event that Asia's economies are threatened, the World Bank said central banks have room to ease monetary policies while governments could undertake supportive fiscal measures.
The World Bank forecast China's economy will expand 11.3% this year and 10.8% in 2008. These new projections are up from April forecasts of 9.6% in 2007 and 8.7% next year.
Vietnam will be the next-fastest-growing economy, with forecast growth of 8.3% this year and 8.2% next year.
The World Bank said China is experiencing faster inflation and a surging trade surplus that is pumping excessive liquidity into the financial system. But it said of the potential problems that "none appears serious enough at present to derail the current momentum of growth, or to cause the authorities to make major policy changes that would lead to a marked slowing in the near term."
However, the organization warns that China alone will be unable to offset a sharp slowdown in global demand, as Chinese growth couldn't be much faster than it already is and the country's share of world imports is still small compared with its share of the world's GDP.
For the World Bank, emerging East Asia includes China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam and some smaller economies like Cambodia and Mongolia, plus the so-called newly industrialized economies of Hong Kong, South Korea, Singapore and Taiwan.
Write to Karen Lane at karen.lane@dowjones.com
