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SINGAPORE—East
Asian nations must act promptly to ease the burden of
mounting food and fuel prices on the region’s poor, the
World Bank said Tuesday.
Inflation poses a greater challenge to the region’s
economies than the current financial turmoil, the bank
said in its half-yearly update on the region’s outlook.
The
report predicted that growth in developing East Asian
nations would slow this year to 8.5 percent—the lowest
rate the region has seen since 2002. The rate was 10.2
percent last year.
“East
Asian economies will face testing times in 2008,” said
the bank, which based its forecast on expected US growth
of between 0.5 percent to 1.4 percent in 2008.
The bank
said growth in developing East Asian economies could
slip by 1 percentage point to 2 percentage points as the
US credit crisis unfolds, dampening demand for exports.
But it
warned that food and fuel prices that have soared in
recent years are a more pressing problem for governments
to tackle. Since 2003 oil prices have more than tripled
and many other commodity prices have more than doubled.
“While
the subprime crisis will have its impacts—possibly on
some countries more than others—the more immediate
concern is that in virtually every East Asian country,
inflation is climbing to uncomfortable levels,” Jim
Adams, vice president of the World Bank’s East Asia and
the Pacific region, was quoted as saying in a press
release.
The
urban poor and landless rural workers who devote between
one-third to two-thirds of their spending to food are
seeing their real incomes decline substantially, the
report said.
Similarly, “while higher fuel prices hurt everyone, the
poor are hurt disproportionately,” the report added.
East
Asia could suffer an aggregate income loss of about 1
percent of gross domestic product in 2008 because of
higher food prices and additional increases in oil and
metals prices, the bank said.
The
report noted that some economies that are net exporters
of commodities are enjoying gains in overall national
income and that higher food prices do help some farmers.
Small
farmers are usually hurt because they tend to be net
consumers of food, however.
The bank
warned that controlling prices to temporarily curb
inflation distorts market signals and encourages black
markets over the long term.
East
Asian governments have dealt with such challenges in the
past with a variety of solutions that include targeted
subsidies, conditional cash handouts or school-lunch
programs, the report said.
“These
programs now need to be considered again and
reintroduced before the problem becomes too acute,” it
said.
The US
growth rate was 2.2 percent last year, and the bank
predicts a recovery in the 1-percent to 2-percent range
next year.
China’s
growth is expected to dip to 8.6 percent after five
years at rates of above 10 percent, mainly due to lower
export growth.
In
Indonesia, Malaysia, Thailand and the Philippines,
economic growth is expected to ease more modestly to the
range of 5 percent to 6 percent.
Growth
in the economies of
Hong Kong,
Singapore,
Taiwan and South Korea is forecast to slow slightly to
around 4.6 percent, as a group.
Still,
despite the
US
credit crisis, the region’s economies are likely to stay
buoyant as investments in sound macroeconomic policy and
structural reforms over the past decade have brought
greater resilience and flexibility, the bank said.
The
region’s high levels of foreign-exchange reserves,
economic momentum and diversification of trade and
financial flows afford it some room to maneuver in
adjusting to the impending global slowdown, the report
said.
East
Asian exporters have benefited in recent times from
trade both within the region and beyond to markets other
than the US, the report said.
The
World Bank defines East Asia as comprising
China,
Indonesia, Japan, Malaysia, the Philippines, Thailand,
Vietnam, Hong Kong, South Korea, Singapore, Taiwan and
some smaller economies such as Cambodia, Laos and those
of the Pacific islands. AP |
