The growth of the economies of developing East Asia countries will slow down to 6.7 percent in 2009 and 7.8 percent in 2010, from 8.5 percent in 2008 as the impact of the financial crisis reaches the region, the latest economic update of the World Bank said.

The Global Economic Prospect (GEP) 2009 said that the 6.7 percent real gross domestic product (GDP) growth of the region next year is the weakest since the dot-com recession of 2001 and the East Asia crisis of 1997-1998.

“The 6.7 percent is not as good as it sounds because a huge part of it is China,” Vikram Nehru, World Bank’s regional chief economist in the East Asia region told reporters.

Developing East Asia includes the China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Mongolia, Papua New Guinea and the island economies in the Pacific.

The latest six-monthly assessment of the region said that while the East Asian countries are better prepared than they were for the 1997 Asian financial crisis, none of them is immune to the impact of the global economic financial crisis.

“While decline in oil and food prices will support external positions and provide some relief in the inflation front, reduced investment spending is expected to contribute to a substantial slowdown in regional growth to 6.7 percent in 2009,” the report said.

Regional export volumes, the report added, are expected to fall from 8.3 percent in 2008 to 2.6 percent in 2009 while investment is expected to ease to 7 percent.

The report, however, forecast a recovery to 7.8 percent regional growth by 2010 due to recovery in foreign markets that will boost exports and production.

The GEP said that the ripples of the financial crisis are now being felt in the region.

“The region was spared significant fallout during the early stages of the financial crisis in 2007, because outside of China, holdings of securities backed by US mortgages were quite small,” it said. “With the intensification of the crisis, effects within the region are spreading.”

The report gave a bleak forecast for 2009 and 2010 because of the ongoing global economic slowdown. Slower investment growth in the region, it added, is expected to spill over into weaker production, employment, household spending and GDP growth.

“The global banking crisis has had little direct effect on the region, but several countries are more vulnerable to spillovers in the form of higher corporate spreads, reduced capital flows and plummeting domestic equity markets,” the report said.

Ivailo Izvorski, lead economist in the East Asia region of the WB, said that the counries that will be worst hit are those that are most reliant on external demand and those that have small domestic sector.

The report forecast the Philippines will register a 3 percent GDP growth in 2010, down from an estimated 4 percent for 2008. Thailand, it added, will grow by 3.6 next year down from 2008 estimated growth of 4.6 percent while Malaysia’s growth will decline from an estimated 5.5 percent this year to 3.7 percent in 2009. (abs-cbnNEWS.com/Newsbreak)

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