W.Bank says East Asia must step up inflation fight

BEIJING  (Reuters) - Inflation is the major  short-term challenge for East Asia, and tighter monetary policies are needed across the region, the World Bank said on Monday.

 In a semi-annual report about the region, it nudged up its 2011 growth forecasts, but said the big picture was that the  fight against inflation would weigh on economies from China to  Malaysia after their sharp rebound from the global financial  crisis.

 The World Bank also said that while Japan would suffer

short-term economic damage from its devastating earthquake earlier this month, the impact on the broader region was likely to be limited.

 The developing nations of East Asia will grow 8.2 percent in  2011, it said.

 Although faster than its 7.8 percent forecast made six months earlier, this would mark a clear deceleration from the region’s estimated 9.6 percent growth in 2010.

 “The outcome in 2011 is likely to be more subdued as

fighting inflation becomes a short-term priority,” the report said.

 It warned that central banks were at risk of falling behind the curve in combating price pressures, afraid of making a  decisive break with the loose policies that powered East Asia to recovery from the global crisis.   “Despite buoyant growth last year and the resumption of strong private-sector-led expansion, governments in East Asia  have moved only gradually away from their emergency monetary and fiscal measures and back to their pre-crisis policies,” it said.

 “Tighter monetary policies, including higher policy rates,

are needed across the region in varying degrees to pre-empt the  recent rise in food and other prices from exacerbating inflation expectations,” it added.

 The World Bank said East Asian governments had been reluctant to raise interest rates and let their currencies appreciate, waiting to see whether increases in food and commodity prices would subside.

 “Evidence that price shocks are not temporary is now

 plentiful,” it said.

 “Other factors that suggest monetary policy needs to be

tightened across the region include stronger growth in credit  than before the crisis in most countries in East Asia and  sustained increases in asset prices,” it added.

 Excluding China, developing East Asia will probably expand

5.3 percent this year, down from a 6.7 percent expansion last  year, the report said. China, the world’s second-largest economy, is likely to grow 9.0 percent this year, slower than last year’s 10.3 percent pace, it added.

 Following are details of the World Bank’s forecasts for

gross domestic product growth (percentage change from previous year).

 

 

 Prev f’cast

 Forecast     (Oct ‘10)

 

    2010~    2011-2012    2011

Developing East Asia*     

       9.6    8.2  7.9    7.8

China    10.3    9.0  8.5    8.5



Indonesia      6.1    6.4  6.7    6.2



Malaysia        7.2    4.8  5.7    4.8



Philippines          7.3    5.0  5.4    5.0



Thailand      7.8    3.7  4.2    3.2



Vietnam    6.8    6.3  6.7    7.0



Developing E.Asia ex-China       6.9    5.3  5.7    5.1