World Bank warns of risks to East Asia growth

HONG KONG (AP) ― The World Bank held its East Asian growth forecast steady but warned of growing risks including Europe’s sovereign debt crisis and uncertainty about Thai manufacturing’s recovery from widespread flooding.

In a half-yearly report on the outlook for the region, the bank on Tuesday forecast economic growth of 8.2 percent this year and 7.8 percent in 2012, practically unchanged from an earlier prediction in April.

Growth in East Asia’s economic lynchpin, China, is expected to ease to 9.1 percent this year and 8.4 percent in 2012 after a searing 10.4 percent growth in 2010.

The bank cut Thailand’s growth forecast by about 1 percentage point to 2.4 percent for 2011 because of damage to car and electronics factories and their suppliers from months of flooding. Four percent growth is forecast for next year.

Thailand’s worst flooding in more than half a century affected two-thirds of its 77 provinces and killed more than 600 people. More than 1,000 factories in six industrial estates have been disrupted, the report said.

It’s the second major natural disaster to hit East Asia this year, following a devastating earthquake and tsunami that struck Japan in March, killing some 20,000 people. Both disasters have tested Asian production supply chains.

“Losses in production are felt in the entire region, as the impacts of the disaster are spreading through industrial supply chains,” the World Bank said.

The tsunami wiped out a vast stretch of factories in Japan’s northeast, severely disrupting manufacturing for several months but production recovered relatively quickly. The World Bank said it’s unclear whether manufacturing in Thailand can rebound as quickly as it did in Japan.

“Whether the levels of production in Thailand can recover in the coming months remains to be seen, and will depend on demand for electronics and cars, which in turn is linked to global growth,” the report said.

The report, which also covered Indonesia, Malaysia, the Philippines, Vietnam, Cambodia, Fiji, Laos, Mongolia and Papua New Guinea, said Europe’s debt crisis is a growing worry for East Asian growth.

Policymakers in Europe are struggling to come up with a solid plan to contain the continent’s unfolding debt crisis and investors are concerned about the possibility of defaults in weaker countries.

“Should such an event occur, it may well trigger another recession in Europe. Spillovers to developing East Asia will be substantial, through trade, financial flows, remittances and consumer and investor sentiment,” the report said.

While the region’s export-oriented economies were seeing sluggish demand for their goods from their traditional U.S. and European markets, the slack was being taken up by growing domestic demand from China, which is trying to shift its economy away from being heavily dependent on low-value manufacturing for exports to one based on domestic consumption.

“East Asia, and China in particular, continued to grow in importance as a source of global demand,” the report said. China’s imports are closing in on the equivalent of 10 percent of global gross domestic product, and the country now imports almost as much as the European Union, it said.

Economic growth will lift 38 million people out of poverty this year, the report said.