World Bank: Cambodia may experience the sharpest decline in growth

World Bank forecasts slow growth for Asia

By Hiroshi YamazakiUPI Correspondent
Published: April 07, 2009

Tokyo, Japan — A major surge in unemployment and slower growth rates throughout East Asia and the Pacific region seem inevitable as a result of the global economic slowdown. However, the World Bank expects that China's recovery may offer a ray of hope.
The World Bank’s half-yearly assessment of the regional economy, “Battling the Forces of Global Recession,” released Tuesday, suggests that China's recovery is likely to begin this year and take full hold in 2010, fueled primarily by the country’s huge economic stimulus package.

Considering greatly reduced exports and slower domestic demand throughout the region, the World Bank forecasts that real GDP growth in developing countries in East Asia will reach only 5.4 percent in 2009, down from 8 percent last year and 11.5 percent in 2007.

Though China's domestic production and consumption will be a positive factor, its economy will remain heavily dependent on exports to shrinking world markets, the report warned.

According to China's January trade figures, imports were 43.1 percent less than a year ago, and exports were down by 17.5 percent.

The World Bank document warned that the region's sustainable recovery ultimately depends on improvement in the advanced economies. Imports by ASEAN nations in January were slightly less than half those of one year earlier.

"Region-wide declines in exports and industrial production are triggering widespread factory closures, rising unemployment and lower real wages, with disproportionate effects on the poor and near-poor," the report said.

Thanks to their bitter experiences during the 1997-98 Asian financial crisis, the region's middle-income countries such as Thailand, Malaysia, Indonesia and the Philippines seem capable of withstanding the current financial turbulence rather well.

However, the World Bank said, "A sharp decline in wealth, confidence and credit availability in the advanced economies has led to sharply lower consumption, production and investment."

The low income countries will be among the worst affected by the slowdown, which is essentially beyond government intervention. Especially Cambodia may experience the sharpest decline in growth, owing to the contracting garment and tourism sectors.

The World Bank predicts that Laos, Mongolia, Papua New Guinea and Timor-Leste will also be hard hit due to lower commodity prices.

“Officially registered unemployment is reported to have increased by about 1 million from a year earlier in January to about 24 million for the region as a whole,” according to the document. But these numbers are likely to be just the beginning of a painful surge in unemployment throughout the region, as employment always tends to lag behind slowdowns in economic activity.

Weaker growth is expected to slow the pace of poverty reduction in the region, with over 10 million more people likely to stay below the poverty line this year, compared to the estimates of a year ago. Cambodia, Malaysia, Thailand and Timor-Leste are projected to see absolute increases in poverty this year.

In late 2008, China provided a one-time cash transfer to 74 million people, tax cuts as well as a major health reform package to increase access to healthcare for the poor.

Indonesia has reached out to 19 million poor households in a targeted cash assistance program, while the Philippines increased the number of poor people covered by its conditional cash transfer program.

"There is no doubt that the East Asia and Pacific region is confronting very difficult times," said Vikram Nehru, the World Bank's chief economist for the region, in a press statement issued in Tokyo Tuesday.

"The countries that are able to tackle short-term challenges while staying focused on longer-term priorities will likely emerge better placed after the crisis to resume growth," he added.