World Bank: East Asia to lead 2003 growth


East Asia will be the fastest growing region next year, the World Bank says

(CNN) -- East Asia will be the world's fastest growing economic region next year, the World Bank says, with growth likely to hit 5.2 percent.

The bank says that after the sharpest global slowdown in almost 30 years last year, economic recovery has started, beginning in the United States and East Asia.

But it warns that even with this recovery, growth in 2002 will still be "very limited", before peaking in 2003.

The bank's views are outlined in its Global Development Finance 2002 report, released in Washington Wednesday.

It projects global GDP growth of 3.6 percent in 2003 -- an improvement over 2001 and 2002, but still below the strong 3.9 percent performance of 2000.

Developing countries' output this year is likely to rise 3 percent, while for rich countries the figure will be just 0.8 percent, the bank says.

Domestic stimulus

"Recovery in 2003 is likely to be strongest in East Asia, where countries have benefited from domestic stimulus and where strong dynamics in the high-tech sectors could once again work in their favor," it said.

Hans Timmer, manager of the bank's global trends team, told a press briefing in Washington that the recovery would be driven by inventory-investment cycles, but was now being fuelled by low interest rates and an expansionary policy in the U.S.

He said the general global picture would be of a simultaneous upturn, "where developing countries are affected by the business cycle in the industrial world, through trade flows, through commodity prices and through financial markets."

Japan, now in the grip of a recession that will likely see its economy shrink by 1 percent this year, remains problematic.

Banking problems

Timmer singled out Japan's troubled banking sector, which is struggling with billions of dollars in bad loans, as the country's main structural reform problem.

Timmer said there were "not a lot of options left" for Japan to solve the problem.

"Clearly, what has to happen is the restructuring of the banking sector itself," he said.

He urged the Japanese government to reduce deflation, noting that it was hard for any banking system to manage debts in a deflationary situation.

Despite Japan's considerable problems, the bank projects its economy could rebound next year, with growth of 1.7 percent.

That is more optimistic than most regional economists. Sydney-based analyst IMA Asia, in its March global outlook, opted for a growth prediction of 0.9 percent for Japan next year, and for Asia ex-Japan to grow at 6.3 percent.

China is a big component of this, with IMA Asia forecasting a 7.9 percent growth rate in 2003 for China.