Published December 20, 2012

Growth window slams shut on open economies

Hope surges in home-driven Indonesia and Malaysia while external shocks may hurt S'pore, Hong Kong

By Anthony Rowley In Tokyo

SOUTH-EAST Asia has become an island of hope in a sea of global economic troubles, according to a World Bank report.

The report echoes an earlier one by the Asian Development Bank lauding the success of much of Asean in achieving domestic-led economic growth that is helping insulate it from outside problems. The outlook is less happy for open economies such as Singapore and Hong Kong, which will be hit by external setbacks.

In contrast, buoyant domestic demand - especially in Indonesia, Malaysia, Thailand and the Philippines - is compensating for weak external demand from Europe, the US and Japan and in the face of a slowdown in China, the World Bank said in its latest East Asia and Pacific Update published yesterday.

As a result, growth in what it refers to as Developing East Asia (excluding China) will rebound to 5.6 per cent this year from 4.4 per cent in 2011. Continuing strong performances by Indonesia, Malaysia, and the Philippines will boost the region's growth further to 5.7 per cent next year and 5.8 per cent the following year, the bank said.

"Another bright spot in the region is Myanmar's re-engagement with the international community. The Myanmar economy continued to accelerate in fiscal year 2011-12, with GDP growth at 5.5 per cent, and expected to reach 6.3 per cent in fiscal 2012-13."

What stands out in developments over the past year is that while the overall trade balance in Developing East Asia has stayed in surplus this year, "trade as a whole did not contribute to the region's growth".

Instead, robust growth in domestic consumption and investment along with a recovery in manufacturing provided the main dynamo.

In contrast to the domestic demand-driven buoyancy in the principal Asean countries, the open economies of Singapore, Hong Kong and South Korea will see growth slump sharply from last year because of their greater vulnerability to external demand slowdowns, the bank suggested. All three should improve in 2013 and 2014, however, it added.

The bank's optimism about economic prospects in South-east Asia echoes that expressed earlier this month by the ADB which upgraded its forecasts for the region, mainly on the basis of domestic demand-driven buoyancy in Indonesia, Malaysia, the Philippines and Thailand.

Likewise, the ADB warned of "meagre growth" this year in Hong Kong, South Korea and Singapore as well as in Taiwan, improving slowly from next year onwards.

With weak demand for exports from global markets, domestic demand has remained the main driver of growth for most economies of the Developing East Asia region, the World Bank said. The region's performance in 2012, it said, was affected by China's economic slowdown.

China's growth is projected to reach 7.9 per cent this year - 1.4 percentage points lower than last year's 9.3 per cent and the lowest growth rate since 1999.

"Weak exports and the government's efforts to cool down the overheating housing sector slowed down China's economy in 2012, but recovery has set in the final months of the year. In 2013, China's economy is expected to grow at 8.4 per cent, fuelled by fiscal stimulus and the faster implementation of large investment projects."

The East Asia and Pacific region, meanwhile, is "becoming increasingly important for the world economy, and is expected to contribute almost 40 per cent of global growth in 2012", said World Bank chief economist for East Asia and Pacific Bert Hofman.

"With high growth rates sustained in the region, we expect poverty to continue to decline.

"The share of people living under US$2 a day in the region is forecast to reach 23.3 per cent by the end of 2014, down significantly from 28.8 per cent in 2010."