East Asia economies are strong, according to World Bank

by Richard Kilner

Story link: East Asia economies are strong, according to World Bank

The World Bank yesterday declared that the economies of East Asia are expected to remain strong in 2008, defying the affects of the American subprime mortgage crisis, and rising oil prices.

Growth in East Asia, excluding Japan, is predicated to exceed 8% in 2007, for the second year running. It is expected to slow down slightly in 2008, the World Bank said.

Japan’s economy is estimated to increase by 2% in 2007 and 1.8% in 2008.

China’s rapid expansion continues, with a predicated economic growth of 11.3% in this year and 10.8% next year.

The middle-range Asian economies are also gaining ground this year. The Philippines and Indonesia increasing their economies by 6-7% and a steady growth of 5% in Malaysia delivered by an increase in consumerism and investment.

The World Bank has stated the subprime mortgage crisis, the credit crunch and rising oil prices would all act as brakes on East Asia’s economic growth.

In East Asia China holds the greatest amount (circa $260bn) of securities backed by American mortgages, most of which is held through international reserve holdings or through commerical bank holdings. The majority of such holdings are backed by American government agencies.

The affect of the subprime situation in East Asia was to contribute to doubts and risk reassessments about the stock market, which has seen falling share prices.

The bank believes that a high degree of market volatility and uncertainty will remain for some time.

Should the credit crunch have a major impact on the US it could trigger an East Asian slowdown, though the effects would be limited by the region’s macroeconomic strength.

In 2001 East Asia was seriously affected by the US recession, but the economies are considered more robust and resilient now.

The resilience of East Asia will be tested in reality next year as oil prices are expected to reach record highs.

Economic growth has cut the proportion of people living below $2 a day from 69% in 1990 and 29.5% in 2006 to 27% (500 million) this year.

Poverty in East Asia now reflects an urban-rural divide and is causing widening income inequality, the World Bank has stated.