While East Asian countries have entered the current crisis substantially better prepared than they were for the 1997 Asian financial crisis, none have been spared the full fury of the global economic storm, says the World Bank's latest six-monthly assessment of the East Asia & Pacific region's economic health.

In the face of weakening export growth and reduced levels of investment and consumption, the latest East Asia & Pacific Update forecasts that real GDP growth in developing East Asia will slow to 6.7 percent in 2009 from 8.5 percent in 2008. And the GDP growth forecast for East Asia as a whole (that includes all developing economies as well as Korea, Singapore, Hong Kong and Malaysia) will be down to 5.3 percent in 2009 from 7.0 percent this year.

The report notes that the downside risks to East Asia are substantial in the near term but highlights that countries will be better positioned to deal with the crisis if they are able to maintain macroeconomic stability, shift exports to faster growing regions in the world, substitute external with domestic demand, and continue with structural reforms to strengthen competitiveness.

World Bank Vice President for the East Asia and Pacific region Mr. Jim Adams applauded East Asian governments for their swift and effective policy interventions to avert the worst impacts of the global crisis so far.

"Thanks to the quick action of policy makers from virtually every East Asian country, banking systems have been able to deal with the crisis so far and in a number of countries, economic stimulus packages are being put in place," Mr. Adams said. "These actions are helping East Asia continue to play a key stabilizing role and act as a growth pole for the global economy."

Mr. Adams said despite the global downturn, the World Bank projects that East Asia will contribute about a third of total global growth in 2008.

While sobering in its forecast for 2009, the report states that the countries which have entered this crisis with low debt burdens, surpluses in their fiscal and external current accounts and large external reserves will have the most room to maneuver as the crisis unfolds.

"Despite the difficult road ahead, those countries that sustain the sound policies pursued thus far and tackle new challenges decisively will be the ones to emerge in a strengthened position when the global economy begins to recover," said Vikram Nehru – the World Bank's Chief Economist for East Asia and the Pacific.

The report warns that the region's most vulnerable countries are those with more open capital accounts, large non-resident holdings of equities, and a strong reliance on foreign portfolio investment. Low income countries (Lao PDR, Cambodia, PNG, Timor-Leste, and small island states in the Pacific), on the other hand, have not been affected as much from the financial turbulence because their banking systems are less exposed to global markets, but they too will be impacted by lower commodity export earnings, tourism receipts, and remittances from overseas workers.

Poverty rates are likely to fall further in 2009, declining to 10.68 percent for developing East Asia as a whole, compared with the 10.36 percent projected earlier this year. While the number of poor people in the region will continue to decline, an estimated 5.6 million more people would have emerged from poverty next year if not for the slump.

(China Development Gateway December 10, 2008)