World Bank Cuts GDP Outlook For China And East Asian Economies

Oct. 08, 2012 2:00 PM ETEWM, IDX1 Comment
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In our earlier article on MIST nations, we had highlighted the weakness in BRIC nations, China in particular, which was being viewed as a major force in the revival of the global economic engine. The latest East Asia and Pacific Monitor from the World Bank reveals that China's slowdown will accelerate. The bank revised its initial GDP outlook for the country. At the start of the year, the bank had forecasted a growth rate of 8.2% for 2012 and 8.6% for the next year. As of now, the revised figures stand at 7.7% for this year and 8.1% for the following. Concerns about a weak domestic demand and faltering exports, in response to a weak economic outlook of Europe in particular, have led to the recent decision.

China depends on exports and investments as drivers of growth, both of which are falling. We highlighted before that there exists a fundamental imbalance in the composition of China's growth, and it needs to devise policies that increase the proportion of domestic demand. Therefore, private enterprises should be encouraged, and the market share of state-owned companies should be reduced. Analysts predict the lowest full year growth for China in two decades. The World Bank report also notes that plans by local governments to boost the economy were at risk of funding constraints, as the real estate market cools off and revenues from sales of lands falls.

Forecasts for the East Asia region were also revised downward, from 7.6% this year and 8% for the next to 7.2% for the current year and 7.6% for the following year. Forecasts for Indonesia and Thailand remain intact, while they were revised upwards for Malaysia. Investors interested to play the upside in Malaysia can buy MSCI Malaysia Index Fund ETF (EWM). Earlier, in another

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