Developing East Asia faces a sharp slowdown in economic growth and a “painful surge” in unemployment that will prevent millions of people from escaping poverty, the World Bank warned yesterday.
A precipitous drop in global demand is slashing exports from the region, resulting in widespread factory closures, rising layoffs and lower wages, the Washington-based multilateral lender said in a report.
There are some glimmers of optimism, however, with China likely to begin recovering in the second half of this year, giving a boost to the region as a whole, it added.
How long the rebound lasts will depend on the health of ailing major economies such as the US, Europe and Japan, which are major buyers of Asian products.
Economic growth in developing East Asia is expected to slow to 5.3 percent this year, down from 8.0 percent last year and 11.4 percent in 2007, the bank said. In December it had forecast growth of 6.7 percent this year.
Excluding China, “the deceleration is even more stark,” said Vikram Nehru, the World Bank’s chief economist for the region.
China’s economy is expected to expand 6.5 percent this year, marking a sharp slowdown from the double-digit growth it had been enjoying before the global economic downturn began.
The bank said there were tentative signs that the Chinese economy may be almost over the worst thanks to Beijing’s huge stimulus spending package, with a recovery “likely to begin this year and take full hold in 2010.”
“We now see early signs of stabilization,” Nehru said.
That was good news for the rest of the region “because China is a very important market for developing East Asia,” he said.
Some private sector economists already were forecasting that China would pull out of its slump by late this year. They pointed to higher bank lending and demand for steel and power as tentative signs of economic activity.
“It’s not a question of whether it will get better. It’s already getting better,’” said Frank F.X. Gong, chief China economist for JPMorgan. “The question is whether something would happen to disrupt that kind of recovery.”
Gong said potential problems include public expectations of a fall in prices, which could discourage spending and investment, a fall in demand for housing or further declines in trade.
Moreover, any recovery in Asia is likely to come too late to spare many people from losing their jobs, the World Bank said.
Officially an additional 1 million people entered unemployment in the region over the year to January, leaving about 24 million without work. In reality the situation is even worse, the bank said.
“Recent numbers are likely to be only the beginning of a painful surge in unemployment throughout the region,” the report warned.
The crisis means that 10 million more people in the region will remain in poverty this year than was expected just a year ago, it said.