Economic growth in developing East Asia this year will slow to less than half its rate in 2007 amid sinking export demand from rich nations, but China is likely to start recovering later this year, the World Bank said Tuesday.
Collectively, the once high-flying region _ which also includes Thailand, Malaysia, Vietnam, Indonesia, the Philippines _ will likely grow 5.3 percent this year, down from 8 percent last year and 11.4 percent in 2007, the bank said in its semiannual report.
Plunging exports _ the region's lifeblood _ are causing widespread factory closures, rising unemployment and wage cuts across the region, it said. A sustainable recovery in the region will ultimately depend on a recovery in developed economies, the bank said.
"The most worrisome downside risk is that there is another shoe to drop in the financial sector of a developed economy," Vikram Nehru, the bank's chief East Asia economist, said during a video conference from Tokyo. "There might be another event that takes place that, through a contagion effect, leads to a withdraw of capital from East Asia."
But the bank pointed to hopeful signs in China, predicting that the world's third largest economy behind the U.S. and Japan will likely start to recover later this year. That recovery should take hold next year, and could help lift the entire region.
"Our baseline scenario is that China will recover this year and help pull the region forward," said Ivailo Izvorski, a World Bank economist and author of the report. "In the event that China and the rest of the world don't recover, we're going to see a very depressing picture over the near term."
The bank predicts China's economy will grow 6.5 percent this year, down from 9 percent in 2008 but still the strongest rate of any major economy.
"There are signs that China is beginning to turn the corner," the report said.
Regional governments, led by China, have responded quickly to the downturn by lowering interest rates and boosting spending, the Washington-based bank said.
The overall poverty rate for the region will still decline this year, but at a slower rate than projected. About 10 million more people will remain in poverty _ defined as living on $1.25 a day _ than the bank had predicted in April 2008.
"In most cases these measures will only mitigate, not overcome, the contractionary forces operating on their economies," the bank said.
The most worrisome downside risk is that there is another shoe to drop in the financial sector of a developed economy. there might be another event that takes place that, through a contagion effect, leads to a withdraw of capital from East Asia."
Cambodia, Malaysia, Thailand and East Timor are projected to experience absolute increases in poverty, the bank said.
The World Bank expects Thailand's economy to suffer the biggest contraction this year among developing East Asian countries, with gross domestic product shrinking 2.7 percent, down from 2.6 percent growth last year.
Economic woes triggered by a plunge in exports were exacerbated when political protesters shut down Bangkok's international airport for a week in November, severely undermining tourism and consumer confidence.
"Significant downside risks remain should political instability resurface and the global decline prove more protracted or steeper than now expected," the bank said.
The bank forecasts Malaysia's economy will contract 1.0 percent while Indonesia should grow 3.4 percent, the Philippines expand 1.9 percent and Vietnam gain 5.5 percent.
Other countries considered part of developing East Asia include Cambodia, Laos, Mongolia, Papua New Guinea, East Timor, and the Pacific islands.
