World Bank slashes East Asia-Pacific growth forecast

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The World Bank on Monday slashed its 2012 growth forecast for developing countries in East Asia and the Pacific to 7.2 per cent, down from 8.3 per cent in 2011, due to the fragile global economy.

It will be the slowest growth rate in the region since 2001, even slower than the peak of the financial crisis in 2009, said the bank's chief regional economist Bert Hofman.

Gross domestic product growth should rebound to 7.6 per cent in 2013, driven by domestic demand, but a worsening of the eurozone debt crisis, problems in the United States and a further slowdown in China are major risks, it warned.

"In a fragile external environment, the economy in the East Asia and Pacific region continues to slow down," the bank said in its latest East Asia and Pacific Data Monitor.

The new forecast is down from its projection in May of 7.6 per cent growth for the region in 2012.

"Should conditions in Europe deteriorate sharply, no developing region would be spared," the World Bank said.

"With a 'major' crisis, GDP growth could drop by more than two percentage points in 2013."

The region covered by the new forecast comprises China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia, Fiji, Laos, Mongolia, Myanmar, Papua New Guinea, the Solomon Islands and East Timor.

Domestic demand is expected to drive growth in East Asia and the Pacific next year, making up for muted trade growth as major markets Europe and the United States bought less of the region's exports.

The bank however warned that the projected rebound is fraught with risks, among them the debt crisis gripping the eurozone.

The European Central Bank's pledge to vigorously defend the euro and a massive bond-buying programme have brought some calm to the markets, but the World Bank said the situation could still worsen.

Violent protests have wracked debt-stricken Spain and Greece over austerity measures imposed by their governments.

Spain, the eurozone's fourth largest economy, has insisted it does not need a financial bailout, raising concerns in international markets over whether it can continue to function without an injection of funds.

In Greece, Prime Minister Antonis Samaras warned his country would run out of funds next month if no fresh financial infusion is upcoming and that his people could no longer afford to accept further belt-tightening measures.