World Bank: East Asia to see slower growth in 2009

The bank praised the region's policy makers for reacting promptly to the crisis, saying the moves should help East Asia stabilize global economic growth.

Amid falling exports and slowing business investment, real gross domestic product growth in East Asia - a region that includes China but excludes Japan - will slow to 5.3 percent in 2009 from an expected 7.0 percent this year, the bank estimated in a new regional report. Six months ago, the Bank forecast East Asian growth next year to reach 7.4 percent.

The developed economies of the U.S., euro zone and Japan are all projected to contract in the coming year.

Vikram Nehru, the World Bank's chief economist for East Asia and the Pacific, warned that with conditions changing so quickly, the outlook for the region could easily worsen.

"We are frankly in unknown territory at this stage," Nehru said. "This is not something the world has seen in a very long time."

Despite the slowdown, East Asia will contribute about a third of total global growth in 2008, according to the World Bank.

"Thanks to the quick action of policy makers from virtually every East Asian country, banking systems have been able to deal with the crisis so far and in a number of countries, economic stimulus packages are being put in place," said Jim Adams, World Bank vice president for the East Asia and Pacific region, in a statement. "These actions are helping East Asia continue to play a key stabilizing role and act as a growth pole for the global economy."

Central banks throughout East Asia have responded aggressively since September by introducing various monetary measures, including liquidity injections and interest rate cuts.

Individual governments are now following up on the fiscal front, with China, South Korea, Malaysia and Thailand announcing major economic stimulus steps.

China's $586 billion package "underlies the authorities' efforts to reduce reliance on external demand and rebalance the economy toward less capital- and energy-intensive growth and more environmentally sustainable investments," the bank said.

The region has managed to hold its own so far largely through reforms made in the wake of the Asian financial crisis of 1997-98, the bank said. Public finances, external balances and corporate balance sheets are more sound due to to smarter macroeconomic policies, tighter bank supervision and better risk management systems.

"These countries clearly have taken to heart the lessons of the 1998 East Asian financial crisis." Nehru said. "But virtually every country has been affected whether they entered well positioned or not."

The slower pace of growth will in turn affect Asia's most vulnerable populations. The World Bank now estimates that roughly 114 million people will escape poverty between 2005 and 2009, down from the 119.6 million forecast in its previous report.

About 1.4 billion of the world's people live below the bank's poverty line of $1.25 a day, it estimates.

To navigate the current crisis, Asian countries should work to maintain macroeconomic stability, shift exports to faster-growing regions, strengthen domestic demand, and continue structural reform efforts, the report said.

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