Business

The World Bank says weak demand has hit Asian economies

Growth in the developing economies of East Asia is moderating because of weakening external demand, said the World Bank in a report.

It projects that growth in the region will increase by a strong 8.2% in 2011, and by 7.8% in 2012.

However, it warns that uncertainties in Europe and a slowdown in global growth will affect East Asian economies.

The World Bank said Asian governments must increase domestic demand and productivity.

In a half-year growth report for East Asia, the World Bank said while the region is well positioned to cope with a global downturn, it would not escape unscathed.

"Lower growth in Europe in the course of fiscal austerity and the banks' needs to increase capital coverage would affect East Asia," said Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region.

The World Bank said that the prospects for growth in the region were further constrained by the natural disasters the region has seen recently.

Flooding in several countries, especially Thailand which has seen the worst floods in decades, has caused countries to revise growth downwards.

Image caption The World Bank says Asia must becomes less export-driven and instead boost domestic demand

Production losses are being felt widely as supply chains continue to be affected.

The World Bank said the slowdown in growth was more visible in industrial production sectors, with exports of electronics, for example, starting to decline.

Many Asian economies have traditionally been export-driven, but that now makes them more vulnerable to the downturn in US and European economies.

There has been some shift eastwards, in that China has now become a major player when it comes to global demand, with its share of world imports growing.

However, the World Bank said there must be more of a drive towards domestic and regional demand, if high growth is to be maintained.

"Governments can take this opportunity to refocus on reforms that will enhance growth in the medium and long term," said Ekaterina Vostroknutova who is lead author on the report.

"Higher investments in infrastructure, education and social security systems can help countries increase productivity and move toward higher value added production."

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