World Bank cuts back its forecast for East Asia

By Arijit Ghosh
Bloomberg News Service

TOKYO — East Asian economic growth may falter next year as a fall in stock markets and rising oil prices cut demand for exports from the region, the World Bank said in its semi-annual outlook.

The bank lowered its growth forecast for East Asia's most-developed countries, excluding Japan, to 2.1 percent for next year from an earlier estimate of 3.3 percent. It also warned of a "double-dip" recession in the region.

For this year, the World Bank had forecast 4.7 percent growth.

"The external environment for East Asia is weaker than it appeared six months ago," Jemal-ud-din Kassum, the World Bank's vice president for East Asia, said in a statement. "A rise in world oil prices will sap income in the majority of East Asian countries, while recent terrorist attacks in Bali and elsewhere will depress tourism and business confidence."

Countries such as Thailand and Malaysia have been counting on economic recovery in the United States and Europe to spur growth. Those expectations are threatened by signs of a slowdown in the United States, which buys a quarter of Asia's exports. Orders for durable goods in the United States fell 4.9 percent in September, the largest drop in almost a year, while consumer confidence dropped to a nine-year low.

A 26 percent rise in the price of Brent crude, the benchmark for two-thirds of the world's oil, will also hurt East Asian economies, the World Bank said.

"The external environment is more challenging," said Donald Hanna, head of Asian economic research at Salomon Smith Barney Hong Kong Ltd. For countries such as Thailand, where "exports account for two-third of gross domestic product, it will put more pressure on growth."

Hanna said he expects Hong Kong, Singapore, South Korea and Taiwan to grow at an average of 1.7 percent next year, while growth in Indonesia, Malaysia, Thailand and the Philippines will average 6.1 percent.

The World Bank expects the terrorist attack in Indonesia to cut business confidence in the region. The Bali blast, blamed on terrorists linked to al-Qaida, killed at least 190 people and injured hundreds more. After the attack, the World Bank cut its economic growth forecast for Indonesia to 3.2 percent for 2003 from 4 percent.

The bank said governments in the region should strengthen financial-market regulation, boost private investment, and improve law and order to stimulate growth.