MANILA, Oct 17: East Asia’s economic slump is likely to last well into next year with the terrorist attacks in the United States slowing efforts to reduce the region’s sprawling poverty, the World Bank said on Wednesday.
The bank’s half-yearly regional update predicts real gross domestic product (GDP) growth in developing East Asia would fall to 4.6 per cent this year from 7.3 per cent in 2000.
Output in the industrializing economies of Hong Kong, South Korea, Singapore, and Taiwan as a group would contract by 0.6 per cent, having grown 8.0 per cent last year. Japan’s economy is seen to slip by 0.8 per cent from 1.5 per cent growth last year.
The attacks, at a time when East Asia was already suffering from the sudden end of the technology boom, will slow investment decisions, dampen consumer confidence in export markets, and reduce tourism, the World Bank’s Manila office said in a statement.
The recovery is at least six months further off, perhaps nine months, 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, he said. The outcome will certainly be bad news for the region’s poor.
In a separate report Wednesday, Moody’s Investors Service warned a US recession will most likely drag down exports and thus slow GDP growth across the region.
But it said the credit rating outlook for most East Asian economies remains steady, owing to the regional drive to improve economic conditions ever since the 1997 Asian financial crisis.
The World Bank said East Asia will recover only mildly to about 5.0 per cent next year in what would be the region’s weakest year since it recorded zero growth during the Asian financial crisis in 1998.
Japan’s GDP would grow only 0.1 per cent while East Asian tigers would expand by 3.6 per cent.
The past year was already shaping up to be a difficult one for the region, with cyclical downturn in the IT sector hurting a number of countries across the region, pushing some to recession and others below levels of growth which would maintain employment, Kharas said.
Hardest hit have been the “open, middle and upper-income economies” of Singapore, Taiwan, Hong Kong, and South Korea, as well as Malaysia, the Philippines and Thailand.
China and Vietnam were less affected, and Indonesia was reaping the benefits of greater political stability.
For these reasons, the impact on poverty would likely be less severe than in other parts of the world because those most affected have low poverty levels and have the strongest financial systems and public sector management, the bank said.
The proportion of people in developing East Asia living below the two dollars a day line is still expected to edge down from an estimated 47 per cent in 2000 to a forecast 46 per cent in 2001 but this reduction in poverty is at a much slower rate compared to the trend in the region before the 1997 crisis.
The bank said China’s continued pace of growth 7.1 per cent this year and 6.8 per cent next year will be crucial.
Poverty levels are expected to remain fairly static in Indonesia, the Philippines and Thailand, and perhaps increase slightly as workers in export sectors are laid off.
The World Bank said lower US interest rates as well as tax cuts and higher government spending may translate into more rapid recovery.
Kharas urged East Asian governments to stick reform programs begun after the Asian crisis.—AFP