Hopes for a recovery in China’s economy later this year to support Asia make it through the global recession, have improved, according to the World Bank.
That’s despite the slowdown cutting growth from last year’s 8% in the region, to around 5%. The region grew at more than 11% in 2007.
Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea, Singapore, the Indian subcontinent and Australia and New Zealand, will expand 5.3% this year, less than the December estimate of 6.7%
The bank said that prospects for South Asia have been marked down to 3.7% growth for 2009, down from 5.6% growth in 2008.
"Though terms of trade have moved in the region’s favor with lower oil prices, weaker export demand is being felt sharply," the bank forecast.
The downgraded forecast was issued by the bank in its semi-annual report late yesterday.
The report has more detail that the statement on March 31 which revealed its bare forecasts ahead of the Group of 20 meeting in London on April 2.
"China remains a bright spot in the region and the global economy amid signs that economic activity may be bottoming out,” the World Bank said.
The bank’s latest East Asia and Pacific Update, says a recovery in China – fuelled largely by the country’s huge economic stimulus package – is likely to begin this year and take full hold in 2010, potentially contributing to the region’s stabilization, and perhaps recovery.
"Unless there is a further intensification of the contraction in global demand, or global financial tensions flare up again, growth in China will pick up in the second half of the year, partly offsetting the weak first half.
"But with China still heavily reliant on exports to world markets that continue to contract, a truly sustainable recovery in the East Asia and Pacific region ultimately depends on developments in the advanced economies."
China is still aiming to grow at 8% this year, but its leaders do admit that will be ‘difficult’.
Urban fixed-asset investment is rising, as are car sales and manufacturing activity is turning positive. But on the downside, the steel sector remains depressed, as do other important sectors, especially exports of consumer goods.
“Unless there is a further intensification of the contraction in global demand, or global financial tensions flare up again, growth in China will pick up in the second half of the year, partly offsetting the weak first half,” the World Bank said in the report.
"Looking ahead, the continued global crisis is bound to contain China’s growth in 2009 and 2010, especially via weaker exports and market-based investment. The forceful stimulus policies will help dampen the downturn.
"Indeed, government-influenced investment is accelerating. Moreover, banks are in a position to lend, after having deleveraged in recent years. And private consumption should continue to grow, although rural consumption is likely to lag.
"However, China cannot escape the external weakness.
"In light of the very weak external outlook, we expect China’s exports to shrink in 2009.
"Although government influenced activity will support growth, it makes up a modest share of the total and will not (and probably should not) offset fully the downward pressures on market-based activity.
"Overall, thanks to the substantial policy stimulus, China’s economy should continue to grow significantly in a very challenging external environment. In all, we project GDP growth of 6.5 percent in 2009.
"In our scenario, government-influenced direct expenditures would contribute 4.9 percentage points to GDP growth, three-fourth of the total.
"Two-thirds of the government contribution will come from government-influenced investment and the rest from direct government consumption, the bank wrote in its section on China."
Reserve Bank Governor Glenn Stevens singled out China in his post board meeting statement after the central bank cut rates yesterday.
The World Bank predicts the global economy may shrink for the first time since World War II, with the World Trade Organisation forecasting an unwelcome 9% fall in world trade in the year.
Growth in Asia, which has been hit by slumping export demand and declining investment, will “‘ultimately depend on the pace of recovery in the advanced economies”, the World Bank said.
Overseas shipments account for about 32% of Asia’s gross domestic product. That’s one of the reasons the region has been huge falls in exports and industrial production. The exports are quite often tied into a bigger production chain built around the Just In Time supply of components across the region, with final export happening from China, Taiwan, South Korea or Vietnam.
“In most countries, fiscal stimulus packages can only partially offset the negative impact of the crisis on growth,” The World Bank said.
“The increased fiscal deficits and sizable principal repayments due will be a burden for some governments in the East Asia and Pacific region.
"The East Asian middle-income countries—Thailand, Malaysia, Indonesia, and the Philippines—withstood this financial turbulence well because they were better prepared for this shock after the 1997-98 Asian financial crisis.
"Economic activity in China is likely to bottom out by midyear, supported by the large fiscal and monetary stimulus now implemented.
"Prospects for recove
