East Asia's recovery delayed: WB

East Asia's recovery delayed: WB

Andrew Torchia, Dow Jones, Singapore

Last month's terrorist attacks on the U.S. have pushed East Asia's economic recovery back by at least six to nine months, the World Bank said Wednesday.

In a report, the multilateral lending institution slashed growth forecasts for the region's economies, citing damage to consumer and business confidence in the U.S. and around the world.

The effects of the attacks "are hard to gauge with any precision - other than that they are likely to be large," the report said.

While the global downturn has so far this year focused on the high-technology sector, demand for a wider range of East Asia's consumer products and services is now likely to be hurt, postponing the start of a regional recovery to the second half of 2002, the World Bank added.

"We are talking about a direct impact on the lives of people," said Homi Kharas, the World Bank's chief economist for East Asia and the Pacific. "This delay will mean fewer jobs and less household income."

The World Bank forecast aggregate Gross Domestic Product growth in East Asia including Japan would slump to 0.7 percent in 2001 from a robust 3.6 percent last year, and recover only modestly to 1.7 percent in 2002.

For the "newly industrializing economies" of Hong Kong, Singapore and Taiwan, the World Bank predicted an aggregate shrinkage this year of 0.6 percent, followed by 3.6 percent growth next year.

And in developing East Asia, the World Bank forecast growth would fall to 4.6 percent this year from 7.3 percent in 2000, and recover only mildly to around 5 percent in 2002. That would make this year the area's weakest for a decade, except for near-zero growth in 1998 during the financial crisis, the bank added.

The slump will slow the pace at which poverty in developing East Asia falls, the World Bank said. East Asia's proportion of poor, defined as those living on less than US$2 a day, is expected to edge down only slightly to 46% in 2001 from an estimated 47% last year, it said. "This reduction is at a much slower rate compared to the trend in the region before the 1997 crisis," the report added.

South Korea, Malaysia, Thailand, the Philippines and Indonesia were still expected to achieve aggregate GDP growth of 2% to 3% in 2001, the report said "earlier fears that these countries were ill-equipped to withstand a major external shock because of financial and corporate sector weaknesses appear to be unfounded."