East Asia growth, exports to slow in 2007--World Bank Reuters
November 14, 2006
SINGAPORE -- Economic growth in East Asia will slow by about half a percentage point in 2007 as a result of significant weakening in the US economy and a decline in the region's exports, the World Bank said on Tuesday.
Growth in East Asia excluding Japan is likely to be 7.3 percent in 2007, the slowest pace in four years, the World Bank said in a twice-yearly review.
It estimated East Asian economies would expand 7.8 percent in 2006, compared with 7.5 percent in 2005 and 8 percent in 2004.
In its March review, the World Bank had forecast 2006 growth for East Asia at 6.6 percent and next year's growth at 6.3 percent. Robust exports and a decline in poverty had pushed up the growth forecasts, it said.
The composition of growth would change in 2007, it said.
"In some respects, the forces expected to drive the outlook for 2007 are the converse of those that have driven outcomes in 2006, with exports expected to slow and with domestic demand making a bigger contribution to growth than in 2006," it said.
Regional domestic demand would be underpinned by numerous factors, including a gradual decline in oil prices, easier monetary policies, the room for expansive fiscal policies and strong balance of payments in East Asia, the World Bank said.
Its East Asia region comprises China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam and a few smaller economies.
Taiwan would have the slowest growth of 4 percent in 2006, while China's estimated 10.4 percent expansion would make it the fastest-growing economy this year, the World Bank said.
It forecast that growth in the Organisation for Economic Cooperation and Development (OECD) group of 30 rich countries could drop to 2.4 percent in 2007 from some 3 percent this year.
It forecast 2.4 percent growth for the US economy in 2007, highlighting "a greater likelihood of a hard landing and with increased uncertainty about the outlook".
Yet, over the course of 2006, there was evidence of relative demand growth moving from the United States to Europe and emerging Asia, particularly China, the World Bank said.
"A continued rotation in global demand would help ensure that the expected slowing in world growth in 2007 in response to tighter monetary policies should be relatively modest, a "soft landing' with world growth of about 3.3 percent," it said.
That was why it was troubling to see signs of economic weakness in Japan in the second quarter of this year and in the euro zone in the third quarter, it said.
NO DECOUPLING
The World Bank projected world trade growth would drop to 7.3 percent in 2007 from this year's 9.7 percent.
It quoted from investment bank studies to underline its concern that a US slowdown could hurt East Asia, despite the rise of intra-regional trade.
Based on 2005 data, it said goods in two-thirds of intra-Asian trade eventually got incorporated into exports shipped to markets outside the region.
That meant, in reality, that roughly only 14 percent of emerging East Asian exports involved intra-regional trade. Japan, the United States and Europe took 14, 25 and 22 percent respectively of the region's exports.
"Over the past decade, China has overtaken the US and Japan as a destination of East Asian exports," said Milan Brahmbatt, the author of the report.
"However, two-thirds of these exports are processed and re-exported to developed countries so it is premature to claim that China is more important for the region than global markets."
A serious US slowdown or recession would significantly affect East Asia's exports, the World Bank said, adding the impact could be mitigated by a gradual decline in oil prices and the latitude regional authorities now had to loosen monetary and fiscal policies.
