W.Bank raises E.Asia GDP forecast on China strength

BEIJING, Nov 4 - The developing economies of East Asia and the Pacific will grow by 6.7 percent this year and 7.8 percent in 2010, reflecting China's strong expansion, but other countries in Asia face much weaker growth, the World Bank said.

In its twice-yearly review released on Wednesday, the Washington-based development bank raised its GDP growth forecast for 2009 from the previous 5.3 percent, citing a surprisingly swift rebound on the back of fiscal stimulus and inventory restocking.

But it estimated that, stripping out China, the developing economies of East Asia will grow by only 1.1 percent this year, picking up to 4.5 percent next year.

That means that, despite help from government spending and steady performance in countries such as Indonesia and Vietnam, growth excluding China will be slower on average this year than in South Asia, the Middle East and North Africa, posing risks to a sustainable recovery.

"Some governments in the region will have the fiscal space to sustain fiscal stimulus until recovery is on a firmer footing and private investment has been restarted. Others will be more restrained because of limited fiscal space," the World Bank said.

With China expected to grow by 8.4 percent this year and 8.7 percent in 2010, those countries that export consumer durables, electronics components and raw materials to it are best poised to benefit from the increase in domestic demand there, it said.

Vietnam is seen growing by 5.5 percent this year and 6.5 percent next year; the forecast for Indonesia was raised to 4.3 percent this year, with growth there expected to pick up to 5.4 percent next year.

The World Bank defines Developing East Asia as China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam and some smaller economies.

China's strong fiscal position could allow it to continue with fiscal stimulus for several years if need be, potentially helping other countries in the region that are not able to sustain such stimulus, the World Bank said.

However, to sustain rapid growth over the medium term, countries need to integrate their trade in goods further and liberalise trade in services, while also seeking to rely more on domestic demand, it added.

Monetary policy across the region may need to be tightened sooner rather than later, as growth recovers broadly and inflationary pressures and the potential for asset price bubbles emerge, it said.