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World Bank: Europe, US might hurt Asian growth; China slowing down

East Asia's developing economies could face a shock from China's slowdown and need to boost domestic demand to offset weak exports due to a sluggish U.S. recovery and Europe's debt crisis, the World Bank said Wednesday.

Overall growth for East Asian economies should decline from last year's 8.2 per cent to a still-robust 7.6 per cent, the bank said. The group includes China, South Korea and Southeast Asia and excludes Japan.

"As external demand is likely to remain weak, countries in developing East Asia and Pacific need to rely less on exports and more on domestic demand to maintain high growth," the bank said.

Excluding China, regional growth should accelerate from last year's 4.3 per cent to 5.2 per cent, propelled by Thailand's rebound from flooding, the bank said in its "East Asia and Pacific Economic Update."

China's rapid growth fell to a three-year low of 8.1 per cent in the first quarter from the previous quarter's 8.9 per cent due to anemic global demand and government controls imposed to cool overheating and inflation. Growth in factory output in April plunged to its lowest level since the 2008 global crisis, jarring hopes the slowdown has bottomed out.

The World Bank left its growth forecast for China unchanged at 8.2 per cent and said that should rise to 8.6 per cent in 2013. Some private sector analysts have trimmed their outlooks, though to still-healthy levels of about 8 to 9 per cent.

Asian commodities suppliers such as Indonesia that have benefited from China's boom are especially vulnerable to a slowdown, which could "trigger an unexpected drop in commodity prices," the bank said.

Many countries are trying to reduce reliance on trade but need to do more, the bank said.

"Some countries will need to stimulate household consumption," said the report's chief author, World Bank economist Bryce Quillin, in a statement. He said others can pump money into their economies through spending on building public works.

In China, authorities responded to the slump in global demand late last year by reversing course after spending two years tightening lending and investment curbs to cool inflation and steer growth to a manageable level.

Analysts expect Beijing to move cautiously after its huge stimulus in response to the 2008 crisis fueled inflation and a wasteful building boom.

On Sunday, Premier Wen Jiabao, China's top economic official, promised to give "more priority" to boosting growth but gave no indication what Beijing might do. The government has promised more bank lending for small businesses but says controls imposed to cool surging housing costs will stay in place.

The region also is vulnerable to shocks from Europe's debt crisis, the World Bank said.

It said the European Union, along with the United States and Japan, accounts for more than 40 per cent of regional exports.

"Prospects for East Asia are, as in other developing regions, weighed down by the persistent tepid recovery of the U.S. and, most particularly, the uncertainty in Europe," the bank said.

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