(RTTNews) - The World Bank raised its outlook on East Asian economies as timely fiscal and monetary policies as well as the robust performance of the Chinese economy stopped the decline in activity and set in motion the regional rebound.

However, developments remain strongly influenced by China, and if it is taken out of equation, the rest of the region is recovering with less vigor, the lender said in its East Asia and Pacific Update on Wednesday. According to the semi-annual report, developing East Asia is expected to grow 6.7% this year, larger than the 5.3% expansion estimated in April. Further, the growth is seen at 7.8% for 2010.

Raising its estimate again, the World Bank expects the Chinese economy to grow 8.4% this year and 8.7% in 2010. In June, it had raised the 2009 growth outlook to 7.2% from 6.5%. Domestic demand in China is racing ahead of global demand and nations exporting consumer durables and electronic components to China experienced the positive flow-on effects. Further, the large fiscal and monetary stimulus packages in China and Korea acted as the key factors underpinning the rebound in industrial production.

“The authorities in many East Asian countries, moreover, are concerned about losing competitiveness against China, should they allow their currencies to strengthen at a time when China has effectively re-pegged the renminbi to the weakening dollar since mid-2008,” the Washington-based lender added in its update titled Transforming the Rebound into Recovery.

Despite Indonesia and Vietnam performing well, developing East Asia excluding China is projected to grow at around 1% in 2009, the lender added. Output is estimated to shrink in Cambodia, Malaysia and Thailand and barely grow in Mongolia and some of the Pacific islands for the whole year of 2009.

Vietnam’s GDP growth is set to ease to 5.5% this year and to gain momentum by rising 6.5% in 2010. At the same time, the Indonesian economy is forecast to grow at a pace of 5.4% in 2010 after an estimated 4.3% expansion this year. On the other hand, Malaysia’s economy is projected to contract 2.3% in 2009 and to record 4.1% growth next year. Also, decline in Thailand GDP for 2009 is seen at 2.7%. Next year, the Thai economy is forecast to grow 3.5%.

World Bank’s chief economist for the East Asia and Pacific region, Vikram Nehru noted that the countries in the region can grow rapidly beyond 2009 even if growth in the advanced economies slows. However, countries should resist protectionism and remain open to take advantage of the growth potential ahead, he said. The economist warned that risks to a sustainable recovery remain.

Concerns about asset price bubbles are reinforced by the rapid increase in equity and housing prices across the region, the report said. Risks of asset price bubbles and misallocation of resources amidst abundant liquidity should be mitigated and monetary policy will have to be tightened sooner than in developed countries. The recovery can only be sustained by successful rebalancing of the economy.

East Asia might receive a larger share of capital flows because of a combination of investor expectations of stronger growth and the potential for currency appreciation and growing liquidity. Further, premature withdrawal of unconventional measures stands as the key concerns of policy makers in the region. The report’s lead author Ivailo Izvorski said the crisis has helped governments realize that more growth can be extracted from domestic demand if incentives that have limited expansion in private consumption and services are tackled.

The Washington-based International Monetary Fund in its latest regional economic outlook released on October 29 upgraded Asia’s economic growth forecast. The region’s gross domestic product is now projected to grow 2.8% this year and by 5.8% in 2010. IMF forecasts China to log the fastest growth in the region with 8.5% growth this year and 9% in 2010.

According to the World Bank report, developing East Asia includes China, Indonesia, Malaysia, Philippines, Thailand, Cambodia, Lao PDR, Mongolia, Papua New Guinea, Timor-Leste, Vietnam and the island economies in the Pacific.

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