http://www.bangkokpost.net/Business/02Apr2008_biz34.php
Wednesday April 02, 2008
High commodity prices to hurt Asia more than sub-prime
PARISTA YUTHAMANOP
Rising commodities prices will affect the poor in Asia more than the US
sub-prime crisis, according to the World Bank. Vikram Nehru, the World Bank's
chief economist for the East Asia Pacific, said the ongoing turbulence in the
US financial markets would have only a minimal impact on Asian exports. China
and East Asian countries were now the world's new growth engines, he said.
The World Bank, in its latest East Asia economic update, projected regional
economic growth to slow to 8.5% in 2008, down from the decade-high 10.2% last
year. It forecast the Thai economy to grow 5% in 2008, albeit with significant
downside risks.
''There will be a fairly significant decline, but the region will remain the
fastest developing region. The existing forecast has a high band of
uncertainties,'' Mr Nehru said.
The World Bank expects the United States, Europe and Japan to slow to a range
of 1.1% to 1.6% growth from 2.5% in 2007, causing global trade volume to
decline to 4-5% from 7.5%. However, import demand from the US is expected to be
stronger compared to the economic recession in 2001.
At that time, US demand for Asian high-technology products dropped, leading to
a significant decline in the region's overall exports.
''US imports from the region have begun to be broad-based since 2004, and the
trend continued in 2007. Broadly, the decline in US import demand from Asia
would not be as sharp as in the past,'' he said.
Meanwhile, strengthening intra-regional trade and financial market linkages in
East Asia would help reduce the impact of the US turmoil.
Exporters's diversification away from the US would help reduce the fallout from
an economic slowdown in the US.
''The region's export share to the US has grown less than 70% from 1990 to
2007, whereas shares of developing countries in East Asia, [trade with other
developing economies], Japan and Australia have risen rapidly,'' Mr Nehru said.
''I would rather say there is a rebalancing of growth than a decoupling in the
East Asian economies. There are new growth poles in the world like China and
Europe, whereas the US dominated 10 years ago.''However, the US financial
turmoil has affected the region's equities markets as investors reassess risks.
Some countries would suffer from rising external borrowing costs because of
higher premiums on dollar-denominated bonds. But the region's banking system
remains sound as it had little exposure to sub-prime assets and a low level of
bad loans.
''Rising commodities prices, both food and fuel, will affect income
distribution in the region as it increases the hardship of the poor. Net
producers of food will benefit from price increases, but net consumers will be
hurt,'' Mr Nehru said.
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