The World Bank said policy makers in Asia’s emerging economies have room to provide more fiscal stimulus as China's slowdown drags the region’s growth to an estimated 11-year low in 2012.
Growth in developing East Asia, which excludes Japan and India, will probably ease to 7.2% from 8.3% in 2011, the Washington-based lender said in a report on Monday. That is the slowest pace since 2001, according to World Bank data, and lower than a forecast in May of 7.6%.
The International Monetary Fund is set to reduce its global forecast for this year tomorrow at an annual meeting in Tokyo where officials will tackle a slowdown triggered by Europe's sovereign-debt crisis. Central banks are stepping up efforts to protect the worldwide recovery, with the United States. expanding monetary easing, the Bank of Japan boosting its asset purchases and the Bank of Korea forecast to cut interest rates this week.
"As external demand has further moderated and inflationary pressures recede, there is some space for accommodative policies in most countries, and in case of a major external slowdown, sufficient fiscal space for stimulus," the World Bank said. "The latter is likely to be more effective in keeping up demand, as policy rates are already low and liquidity relatively abundant in most East Asia-Pacific countries."
Asian stocks and commodities fell before European finance ministers meet on Monday, with the MSCI Asia Pacific Excluding Japan Index losing 0.8% at 12.58pm in Tokyo. The Australian dollar dropped to $1.0150, the lowest since July 13, while the yuan touched its strongest level since 1993 on speculation policy makers will take more steps to spur the economy.
Adding Stimulus
India’s central bank held interest rates last month while unexpectedly reducing the amount of deposits lenders must set aside as reserves, and South Korea announced 5.9 trillion won (US$5.3 billion) of spending and tax relief as officials acted to shield their economies.
Philippine President Benigno Aquino is increasing spending to a record and seeking more than $16 billion of investments in roads and airports, while Malaysian Prime Minister Najib Razak is boosting disbursements ahead of an election. Manufacturing from Europe to China contracted in September, and the Asian Development Bank last week lowered its inflation and expansion forecasts for the region excluding Japan for this year and next.
Growth in developing East Asia was 7.5% in 2009 during the global financial crisis, according to World Bank data. Most Asian economies are in “good shape” now, with nations dependent on commodity exports more vulnerable to the global slowdown, Bert Hofman, World Bank chief economist for East Asia and the Pacific, said in a briefing in Singapore on Monday.
'Significant Slowdown'
China will use “preemptive policy” to bolster growth in Asia’s biggest economy, Premier Wen Jiabao said last month, after expansion slid to a three-year low in the second quarter.
“China’s slowdown this year has been significant,” the World Bank said. “Economic momentum is expected to be weak during the coming months with limited policy easing, a property market correction, and faltering external demand.”
Asia’s exports have slipped as slower global growth crimps demand for the region’s goods. China’s shipments abroad rose less than estimated in August, while Thailand, Singapore and Malaysia have reported declines.
How soon the global economy can right itself will be debated at this week’s meeting of the IMF, which monitors worldwide trade and finance imbalances. Delegates will be greeted by the news that the lender anticipates even worse growth this year than the 3.5 percent it projected in July.
Social Welfare
China may announce additional tax cuts and spending on infrastructure, public housing and social welfare to boost domestic demand and counter external weakness, economists at HSBC Holdings Plc led by Qu Hongbin said in a report last week.
"The recent disappointing data, in particular the collapse in export growth and rising pressure on the labor market, has acted as a wake-up call to Beijing policymakers, prompting the acceleration of easing policy," they wrote.
China's service industries expanded at a faster pace in September as output increased at the quickest pace since May, with the purchasing managers' index climbing to 54.3 from 52 in August, HSBC Holdings Plc and Markit Economics said on Monday. New home prices rose for a fourth month in September, according to SouFun Holdings Ltd.
In Europe's day ahead, a government report may show Switzerland’s unemployment rate rose to an 18-month high of 3.0% from 2.9% in August, according to a survey of economists. German industrial production probably fell in August from July, when it unexpectedly rose, according to the median forecast in a Bloomberg survey.
Inflation Eased
Crude oil has fallen about 9.0% this year, helping ease inflationary pressure, the World Bank said. Price gains in the Philippines unexpectedly slowed in September, while in Indonesia they eased for the first time in four months.
Global food-price increases pose less of a risk now after bountiful rice harvests in Cambodia, Vietnam and the Philippines, the World Bank said. Still, renewed monetary stimulus in Europe, Japan and the U.S. could trigger capital inflows into the region, reigniting inflationary pressures and increases in asset prices.
Growth in developing East Asia will accelerate to 7.6% next year, with China expanding 8.1%, as domestic demand is boosted by accommodative policies, the World Bank said.