(EnergyAsia, May 25 2012, Friday) — East Asia’s developing countries including China will see a further slowdown in economic growth this year to follow on last year’s 8.2% expansion after a near 10% rise in 2010, said the World Bank.

With the Eurozone in meltdown mode and the global slowdown expected to continue, developing East Asia is expected to grow by 7.6% will have to reduce its reliance on exports and find new sources of growth, said the World Bank’s latest East Asia and Pacific Economic Update report.

Excluding China, the region grew by 4.3% last year, and 7% in 2010. The bank expects the Chinese economy to grow by 8.2% this year, down from 8.4% previously.

The combined economies of the EU, the US and Japan absorb more than 40% of the region’s exports, and European banks provide one-third of trade and project finance in Asia.

Praising the region’s “impressive performance”, the World Bank said its 2011 growth was about two percentage points higher than the developing world average, and helped reduce the poverty rate.

“The number of people living on less than US$2 a day is expected to decrease in 2012 by 24 million. Overall the number of people living in poverty has been cut in half in the last decade in East Asia and Pacific,” said Pamela Cox, World Bank East Asia and Pacific Regional Vice President.

But the war on poverty is far from over as the region still counts about one-third of its people or roughly half a billion men, women and children as being poor.

The bank said developing East Asia was affected by a slowdown in manufacturing exports as well as supply disruptions caused by the earthquake and tsunami in Japan, and severe flooding in Thailand. This was only partially offset by the strong growth in domestic demand and investment aided by loosening of monetary policy in some countries.

For 2012, the report projects that the region will grow by 7.6% due to slower expansion in China. But without China, East Asia’s developing countries will grow by a slower 5.2%.

The bank said commodity exporters, which experienced a boom in 2011, may be vulnerable in the event of a faster than anticipated slowdown in China, which could trigger an unexpected drop in commodity prices.

“Most East Asian economies are well positioned to weather renewed volatility. Domestic demand has proved resilient to shocks. Many countries run current account surpluses and hold high levels of international reserves.

Banking systems are generally well-capitalised,” said Bert Hofman, the World Bank’s chief economist for the East Asia and Pacific region.
“Still, risks emanating from Europe have the potential to affect the region through links in trade and finance.”
Bryce Quillin, the World Bank’s economist and lead author of the report, said:

“Some countries will need to stimulate household consumption. In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth provided this does not exacerbate domestic demand pressures.

“With a changing financial sector in the aftermath of the financial crisis, new ways to finance higher levels of infrastructure investment need to be developed. Governments would need to focus on accelerating the preparation of infrastructure projects.”