World Bank Cuts 2012 East Asia-Pacific Growth to 7.2%

The World Bank on Monday slashed its 2012 growth forecast for developing countries in East Asia and the Pacific to 7.2 percent, dragged down by China's worst economic performance in 13 years.

It said China's economy would grow just 7.7 percent this year, down from 9.3 percent in 2011 and its slowest rate since 1999, but added that stimulus measures would help push it back above the crucial 8.0 percent mark in 2013.

The 2012 gross domestic product (GDP) projections in a report called the East Asia and Pacific Data Monitor were down from a May forecast of 7.6 percent growth in the region and 8.2 percent in China.

The report comes as the Washington-based World Bank and International Monetary Fund prepare to hold their annual meetings at the end of the week. The Group of Seven advanced economies will also meet to discuss the global outlook.

Despite the downgraded numbers, Bert Hofman, the World Bank chief economist for East Asia and the Pacific, said: "Our main forecast is still that China will have a soft landing."

He also told journalists in Singapore that while there is a risk of a major slowdown, "we think it's small, not least because of the policy space that the authorities still have and the likelihood that they will indeed use it.

"They have enough fiscal space, they still have some monetary space so they could revamp the economy...if and when needed."

Hofman noted that China was being hit by a "double whammy" of an export slowdown and softer domestic demand.

In East Asia and the Pacific, regional GDP growth will be the slowest since 2001, even worse than at the peak of the global financial crisis in 2009, Hofman said.

The bank however said this should rebound to 7.6 percent in 2013, driven by domestic demand. But it warned that a worsening of the eurozone debt crisis, problems in the United States and a further slowdown in China are major risks.

Hofman said East Asia and the Pacific's growth rates are "still the envy of many in the developed world" and its share of the world economy has tripled in two decades to nearly 18 percent of global output.

The region covered by the new forecast comprises China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia, Fiji, Laos, Mongolia, Myanmar, Papua New Guinea, the Solomon Islands and East Timor.

The European Central Bank's pledge vigorously to defend the euro and its pledge of a massive bond-buying program have brought some calm to global markets, but the World Bank said Monday the situation could still worsen.

"With a 'major' crisis, GDP growth could drop by more than two percentage points in 2013," said the report.

Hofman said such a scenario would involve more than one member exiting the eurozone.

About 15 percent of East Asia's trade goes directly to Europe and financial turmoil sparked by a major crisis in the eurozone could dampen risk-taking and dent investments and private consumption, Hofman added.

Violent protests against austerity measures have already racked debt-stricken Spain and Greece.

Spain, the eurozone's fourth largest economy, has insisted it does not need a financial bailout, raising concern in international markets about whether it can continue to function without an injection of funds.

In Greece, Prime Minister Antonis Samaras warned his country would run out of funds next month if no fresh financial infusion is upcoming, and his people could no longer accept further belt-tightening.

While most East Asian countries are in "good shape" given their ample international reserves and healthy banking systems, governments must still prepare for any shock, Hofman said.

Countries must keep domestic credit under control, strengthen social safety nets and prepare to perk up the economy when needed, he added.