World Bank forecasts trying times for Asian economies in 2008

Developing economies in East Asia, including Indonesia, Malaysia and Thailand, will grow at their slowest pace in six years in 2008, according to the latest forecast from the World Bank.

It said growth is being dragged down by the US sub-prime mortgage crisis and a drop in exports to the US.

The World Bank also warned that governments in the region need to be watchful over rising inflation.

Trade with the US is key for most economies in East Asia, which is defined by the World Bank to include Southeast Asia and most other countries in the region, with the exception of Japan.

World Bank said these economies will be hurt by falling exports to the US and reduced spending in the wake of the sub-prime mortgage crisis.

Following the 10.2 percent expansion last year, the World Bank now expects developing East Asian economies to grow by 8.6 percent in 2008 – the slowest pace since 2002.

Growth in Indonesia is seen moderating to 6 percent and in Malaysia to 5.5 percent. But the World Bank warned that soaring food and fuel prices is now East Asia’s biggest challenge. Economists said rising costs will hurt developing economies the most.

Joseph Tan, Senior Strategist, Fortis, said: “I think if you look at the problem with food inflation, it is certainly a lot less severe in Singapore, compared to some of the other countries. Obviously in Singapore, we have a fairly even income distribution pattern as compared to some of the other poorer countries in Asia.

“(With regards to) what the World Bank said about the regressive nature of subsidies, we don’t have that problem quite as badly here in Singapore as compared to some of the other countries. The poor will certainly feel it a lot more when food prices start to go up because it is a much bigger part of their consumption basket, and I think that is going to affect the countries that are a lot poorer.”

In its report, the World Bank also noted that Asia is more diversified, with economies like China becoming global growth poles, cushioning the impact from a US slowdown.

The World Bank expects the US economy to grow between 0.5 and 1.4 percent this year, while China is expected to expand at below 10 percent, down from 11.4 percent in 2007.

Source : Channel NewsAsia – 1 Apr 2008

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