World Bank Says China Stimulus to Sustain East Asia

The developing economies of East Asia and the Pacific face slowing growth this year but the region will remain the world's fastest-growing because of the impact of China's multi-billion dollar stimulus on its neighbors, the World Bank said.

Elizabeth Dalziel / AP

Gross domestic product in developing East Asia will expand 5.3 percent this year, according to World Bank forecasts released on Tuesday. That is down from its previous estimate for 6.7 percent growth and lower than last year's 8 percent expansion as the financial crisis crimps exports and domestic demand.

Still, it may take longer for emerging countries to return to high growth, because the financial system in the developed world is still at risk of turmoil, the bank said, highlighting the difficulty all countries face in shaking off the global slump.

"A return to stronger economic expansion in China next year should help support growth among the countries of the East Asia and Pacific region," the World Bank said in its East Asia Update report.

"But a sustainable recovery will ultimately depend on developments in the advanced economies. There are substantial downside risks for recovery and subsequent growth in developed countries."

China will expand 6.5 percent this year, the World Bank said, down from an earlier forecast for 7.5 percent growth and compared with 9 percent growth last year, as export demand weakens in the United States, Europe and Japan. However, China's $587 billion in stimulus spending will help the country shift growth to personal consumption and spending on services, the World Bank said in its twice-yearly report.

Government investment and a banking industry with little exposure to losses on the U.S. mortgage derivatives that sparked the global slump will also help China grow, the World Bank said.

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Growth in Indonesia will slow to 3.4 percent this year, down from a previous forecast for 3.8 percent, the report said. Indonesia may return to 5 percent growth as the government fiscal deficit last year was 0.1 percent of gross domestic product, meaning policy makers have room to launch fiscal stimulus.

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