11/22/2011, 00.00
ASIA
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World Bank: Asian economies to slow down because of Europe crisis

Growth in East Asia should slow to 7.8 per cent (against 8.2 this year). For China, growth will drop to 8.4 per cent from 9.1. Declining foreign demand comes with lower lending by foreign banks. East Asia is told to focus on domestic or regional markets. China feels the first signs of its bursting real estate bubble.
Tokyo (AsiaNews/Agencies) – East Asian economies are destined for lower growth due to a slump in demand in Europe and the United States, this according to the semiannual report by the World Bank (WB) released yesterday. Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea, Singapore and India, will see its expansion moderate to 7.8 per cent in 2012 from 8.2 percent this year. The forecast for China remains upbeat with the country headed for a soft landing as demand shrinks and the real estate market experiences a correction.

For Bert Hofman, WB chief economist for East Asia and Pacific region, lower demand in Europe and the United States are not the only factor for the slowdown. Natural disasters, like Thailand’s floods, and higher bank capitalisation explain the slower pace of growth.

Malaysia in particular could be vulnerable if European banks suddenly curtail lending as it has loans from European banks worth more than 25 per cent of its GDP, the report said.

To offset the slowdown, emerging economies should offer fiscal stimuli and boost domestic and regional markets, the WB said.

China’s economy should grow by 8.4 per cent next year against 9.1 this year, the WB report said. The picture for the Asian juggernaut is thus positive. Domestic consumption should remain strong. Chinese banks should be able to withstand any shock. And even the real estate bubble could be managed with fiscal incentives and the normalisation of the country’s monetary policies.

However, news from China is less reassuring. For most analysts, it is only a matter of time before the country’s real estate bubble bursts, with some predicting prices dropping between 15 and 30 per cent in the next six to nine months.

According to Xinhua, a growing number of government-sponsored land auctions in Jinan, Nanjing and Chengdu have seen land lots either unsold or sold at the minimum prices.

Many small and medium size businesses are going under or relocating abroad because of the credit squeeze. Earnings and salaries are bound to disappear or delocalise.

The government also appears steadfast in its tight credit policy even if property prices were to drop by 50 per cent.
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