According to the World Bank, policy makers in Asia’s emerging economies could provide more fiscal incentives as China’s downtrend drags the region’s growth to an estimated 11-year low in 2012.
The Washington-based lender noted in a report today that growth in developing East Asia, apart from Japan and India, will probably drop to 7.2 percent from 8.3 percent in 2011. World Bank figures indicate that this is the slowest pace since 2001, and lower than a forecast in May of 7.6 percent.
The International Monetary Fund most probably will lower its global forecast for this year tomorrow at an annual meeting in Tokyo where officials will discuss a slowdown caused by the sovereign-debt slump of Europe. Central banks are trying to protect the worldwide recovery with the U.S. expanding monetary easing, the Bank of Japan increasing its asset buying, and the Bank of Korea forecast to downgrade interest rates this week.
Bert Hofman, World Bank chief economist for East Asia and the Pacific, said in an interview with Bloomberg Television today that interest rates are quite low and liquidity is relatively high. He also added that, on the fiscal side, deficits are low while debts are not very high.
Asian stocks and commodities dropped before European finance ministers meet today, with the MSCI Asia Pacific, apart from Japan, Index decreasing 0.9 percent at 1:33 p.m. in Hong Kong. Australia’s dollar reached its three months low before a report this week that may indicate higher unemployment, while the yuan reached its strongest level since 1993 because speculation policy makers will take more steps to boost the Chinese economy.
India’s central bank didn’t change interest rates last month while unexpectedly lowering the amount of deposits lenders must set aside as reserves. At the same time South Korea revealed 5.9 trillion won ($5.3 billion) of spending and tax relief as officials attempted to protect their economies.
Production from Europe to China shrank in September, and the Asian Development Bank last week slashed its inflation and expansion predictions for the region apart from Japan for this year and next.
World Bank figures indicate that growth in developing East Asia was 7.5 percent in 2009 during the global financial recession.
After expansion dropped to a three-year low in the second quarter, Premier Wen Jiabao said that China will use “preemptive policy” to support growth in Asia’s biggest economy.
The World Bank noted that the slowdown of China this year has been significant. It added that economic momentum is expected to be slight during the next months with limited policy easing, a property market correction, and fluctuating external demand.
The exports of Asia have dropped as slower global growth reduces demand for the region’s goods. China’s shipments abroad increased less than estimated in August. At the same time Thailand, Singapore and Malaysia have reported declines.
At this week’s meeting of the IMF, which supervises worldwide trade and finance imbalances, it will be discussed how soon the global economy can recover. Delegates will be greeted by the news that the lender expects even lower growth this year than the 3.5 percent it predicted in July.
Economists at HSBC Holdings Plc led by Qu Hongbin said in a report last week that China may reveal more tax cuts and spending on infrastructure, public housing and social welfare to increase domestic demand and counter external weakness.
They wrote that the recent disappointing data, especially the slowdown in export growth and growing pressure on the labor market, has been a wake-up call to Beijing policymakers, triggering the acceleration of easing policy.
A survey of economists revealed that a government report may indicate that the unemployment rate Switzerland increased to an 18-month high of 3 percent from 2.9 percent in August. The median forecast in a Bloomberg survey showed that German industrial manufacturing probably dropped in August from July, when it unexpectedly hiked.
According to HSBC Holdings Plc and Markit Economics, China’s service industries expanded at a faster pace in September as production rose at the quickest pace since May, with the purchasing managers’ index jumping to 54.3 from 52 in August. SouFun Holdings Ltd said that new home prices grew for a fourth month in September.
The World Bank announced that crude oil has dropped about 9 percent this year, additionally easing inflationary pressure. Price gains in the Philippines surprisingly slowed their pace in September. At the same time, in Indonesia they eased for the first time in four months.
According to the World Bank, global food-price growth is not such a big risk now after good rice harvests in Cambodia, Vietnam and the Philippines. Anyway, renewed monetary incentives in Europe, Japan and the U.S. could trigger capital inflows into the region, causing again inflationary pressures and increase in asset prices.
The World Bank revealed that growth in developing East Asia will reach 7.6 percent next year, with China expanding 8.1 percent, as domestic demand is stimulated by accommodative policies.