East Asia's growth to slow down in 2005

East Asia's growth to slow down in 2005

Bernice Han, Agence France-Presse, Singapore

Growth in East Asia's emerging economies is projected to slow to 6.0 percent in 2005 as it moves into a phase of more moderate, sustained expansion, the World Bank said on Wednesday.

For 2006, the region is expected to also grow by 6.0 percent, after 7.2 percent in 2004, the Washington-based lender said in its twice-yearly outlook on East Asia.

Weaker expansion in global trade, especially in the electronics sector, which is a major industry for East Asia, as well as a moderation in China's booming economy and the impact of high oil prices will be the key drags on the region's growth this year, it said.

"Although we envisage growth to be somewhat slower this year, there are signs that it is more sustainable with exports, consumption and investment all contributing," Milan Brahmbhatt, principal author of the report, said in a video conference from Washington.

The Dec. 26 Asian tsunami disaster that struck 11 Pacific Ocean countries, with Thailand and Indonesia among the worst affected, is projected to have little impact on the region's 2005 growth prospects.

"The tragic tsunami disaster, while it had a horrendous impact in terms of loss of life, is not expected to have a significant impact on growth in two of the most seriously affected East Asian economies, Indonesia and Thailand," the report said.

"Overall then, the most likely scenario is still one where the regional economy moves from cyclical recovery into a phase of more moderate sustained expansion."

Although the bank said economic growth this year was more sustainable than 2004, when it was at its fastest pace since the 1997-98 Asian financial crisis, policymakers will face many challenges associated with the slowdown.

"Much of the region's expansion has been bolstered by robust global and regional demand growth, supported by low real interest rates.

"However, uneven growth across countries is also associated with the emergence of some sizable imbalances in the world economy, including rising oil prices and skewed balance of payments' positions," it said in an apparent reference to the massive US current account and budget deficits.

On the impact of skyrocketing oil prices, the World Bank said fallout on the region was "quite diverse" with crude exporters benefiting but importing nations such as China and South Korea feeling the pinch.

In its breakdown of the outlook for the respective East Asian economies, the World Bank said China's gross domestic product (GDP) was projected to expand 8.3 percent in 2005 after 9.5 percent last year.

The slower growth reflects efforts by Beijing to avert potential overheating in Asia's second largest economy.

"For China, we expect further easing in domestic demand growth, notably investment, on the back of limited credit growth and sliding profits," it said.

The Indonesian economy is projected to grow 5.5 percent after 5.1 percent in 2004 as the flood of financial aid promised by the international community helps to limit the Asian tsunami fallout on the country.

"The pick-up in GDP growth will be based on the current economic and investment momentum and a relatively supportive external economic environment," the report said.

In South Korea, 2005 growth is projected to ease to 4.2 percent from 4.6 percent as exports slow, while Hong Kong's economic expansion will drop sharply to 4.6 percent from 8.1 percent.

For two of Southeast Asia's most open economies, Malaysia and Singapore, growth will weaken from 7.1 percent to 5.3 percent and from 8.4 percent to 4.2 percent, respectively.

In the Philippines, growth will moderate from 6.1 percent last year to 5.0 percent in 2005 and in Thailand, it will slow from 6.1 percent to 5.2 percent.

Vietnam will record the fastest growth in the region after China, at 7.5 percent this year following 7.7 percent in 2004.