WB, IMF warn of slower growth

WB, IMF warn of slower growth

Agence France-Presse, Washington

Economic growth in developing Asia is expected to slow down through 2006 after the fastest expansion in a decade in 2004, the World Bank said on Wednesday with a warning that tightening global conditions could test the region's resilience.

East Asian economies are poised to expand by 7.4 and 6.9 percent in 2005 and 2006 respectively after a blistering 8.3 percent last year while South Asian nations could grow 6.2 and 6.4 percent over the next two years after chalking up 6.6 percent in 2004, according to the bank's annual Global Development Finance 2005 report.

The slower growth is in line with global trends.

According to the Washington-based bank, rising interest rates and high oil prices, combined with the waning of the fiscal stimulus that has supported expansion in the recent past, should continue to dampen world growth.

As a result, global economic activity is projected to slow fairly sharply in 2005 before stabilizing in 2006 and picking up somewhat in 2007, it said. Global economic growth hit 3.8 percent in 2004, with developing countries recording their fastest growth in more than a decade, the report said.

Francois Bourguignon, World Bank chief economist, warned of the risks of "disorderly exchange rate movements, or of interest rate increases" that could dampen financial inflows.

"Developing countries need to prepare themselves for adjustments, some of which could be sudden," he said.

In South Asia, the bank said, notwithstanding a less benign external environment, regional growth could expand by about 6.5 percent a year through to 2007.

"The more balanced growth that characterized the region in 2004 is expected to continue with domestic consumption and investment providing the largest contributions to growth," it said.

Southeast Asian economies, whose growth fell from 7.8 percent in 2003 to 6.6 percent last year, are expected to expand at a slower pace of 6.2 percent this year, 6.4 percent in 2006 and 6.7 percent in 2007.

In a separate occasion, International Monetary Fund chief Rodrigo Rato warned on Wednesday that the poor state of U.S. finances coupled with rising interest rates and high oil prices are a menace to global growth.

But it is not for the U.S. government alone to rebalance the world economy, Rato said in a speech at Georgetown University here ahead of the annual spring meetings of the IMF and the World Bank in mid-April.

In particular, Europe and Japan must do more to shore up their legs of the global system to prevent growth being "unduly dependent on the United States and China", the Fund's Spanish managing director argued.

There was also the need for "greater exchange rate flexibility in China and emerging Asia, supported by financial sector reforms", Rato added.

The IMF has joined calls by the United States and EU for China to relax its currency peg to the dollar, to address concerns that Chinese exporters are booming on the back of an artificially cheap yuan.