World Bank expects Asia-Pacific growth
The Washington-based lender predicted the region - home to Australia's most important trading partners - would grow at 7.5 per cent this year.
"The East Asia and Pacific region is becoming increasingly important for the world economy, and is expected to contribute almost 40 per cent of global growth in 2012," said Bert Hofman, the World Bank's chief economist for East Asia and Pacific.
China, the region's most important economy, had the slowest pace of growth since 1999. Its GDP growth dropped by as much as 1.4 per cent from last year's 9.3 per cent to a decade-low of 7.9 per cent this year.
The World Bank attributed the slowdown to weak exports and the government's effort to cool the overheating housing sector, but there were signs of recovery in the final months of the year.
The international lender predicts the Chinese economy will grow at 8.4 per cent next year on the back of expected monetary easing, local fiscal stimulus and faster approval of large investment projects.
China's new leadership is expected to maintain a growth target of 7.5 per cent in 2013, according to China International Capital Corp, a leading local investment bank.
"Urbanisation is highlighted as the main engine for expanding domestic demand and the main channel to deepen reform," said Bob Liu, an economist at CICC. "We believe the government will push through reform in areas such as ensuring equal access to public services, the fiscal and tax system, and interest rate liberalisation."
The World Bank report also warns of growing concerns that the loose monetary policies of the US, Europe and Japan could trigger an influx of hot money into Asia that could lead to asset bubbles and excessive credit growth.
Continuing uncertainty over the eurozone sovereign debt crisis, the "fiscal cliff" in the US, and a possible decline in Chinese investment are seen as possible risks for the region's economic growth in the year ahead.
Frequently Asked Questions about this Article…
The World Bank expects the Asia-Pacific region to grow 7.9% next year after an estimated 7.5% growth this year. The lender says the region remains the most important driver of the global economy and was expected to contribute almost 40% of global growth in 2012, making its performance highly relevant for investors with exposure to Asian markets or to countries that trade heavily with the region.
China recorded its slowest growth pace since 1999, with GDP slowing from 9.3% last year to 7.9% this year (a 1.4 percentage-point drop). The World Bank predicts China's economy will rebound to about 8.4% next year, helped by expected monetary easing, local fiscal stimulus and faster approval of large investment projects. Separately, China International Capital Corp expected a 2013 growth target around 7.5%.
The World Bank attributed the slowdown mainly to weak exports and the Chinese government's efforts to cool an overheating housing sector. The report also noted some signs of recovery in the final months of the year.
The article highlights urbanisation as a key engine for expanding domestic demand and deepening reform, including broader access to public services, fiscal and tax reform, and interest rate liberalisation. These structural drivers can support longer-term domestic demand growth across the region.
The World Bank flagged several risks: loose monetary policies in the US, Europe and Japan could trigger an influx of "hot money" into Asia (raising the chance of asset bubbles and excessive credit growth); ongoing uncertainty over the eurozone sovereign debt crisis; the US "fiscal cliff"; and a possible decline in Chinese investment.
Loose monetary policies in the US, Europe and Japan can push global capital into Asia seeking higher returns. The World Bank warns this "hot money" influx can inflate asset prices and encourage excessive credit growth in Asian markets, increasing volatility and the risk of sharp corrections that everyday investors should monitor.
Investors should watch regional growth data, Chinese GDP trends, policy moves such as monetary easing and fiscal stimulus, housing-sector measures, progress on urbanisation and reform, and signs of rapid capital inflows that could indicate overheating. They should also monitor global risk factors highlighted by the report, like eurozone debt developments and US fiscal policy.
Because the Asia‑Pacific region is home to Australia's most important trading partners and is expected to be a major contributor to global growth, stronger regional growth can support Australian exports and corporate earnings tied to Asian demand. However, the report also underscores risks (hot money, global policy uncertainty and China investment shifts) that Australian investors should factor into portfolio decisions.
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