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NEWS UPDATES Asean Affairs   17  November 2010

Lower exports will lead to greater domestic focus

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Global demand for regional exports will likely decline in the coming years, in line with moderate growth in the large Western and Chinese economies, says the World Bank.

Ivalio Izvorski, the lead economist for East Asia and the Pacific, said the trend makes it necessary for the region to promote growth in their domestic economies by increasing investment. China's economy, which has grown nearly 10% this year, will probably perform more moderately next year, he said.

Beijing's five-year development plan to be announced next April will reportedly include a lower growth target of 7 percent a year. It will increase government spending on social services and call for improved quality in goods rather than promote investment and industry.

"China sees altering the pattern of growth to be more sustainable and inclusive. It will change the economic structure to ensure growth in the new setting rather than focus on what it has traditionally done well. China's economic rebalancing will slow its import demand from East Asia," Dr Izvorski told a forum hosted by the World Bank yesterday.

The level of investment in Thailand, Malaysia and the Philippines is too low at one-fourth the size of their economies and has remained stagnant since the 1997 economic crisis, while Vietnam has performed better.

Dr Izvorski said Asian economies have recorded a slowdown in exports this year, mainly to advanced economies, but still seen almost 10 percent growth on stronger consumption and investment.

But concerns about upward price pressures will increase in 2011, pushed by hikes in world commodity prices and domestic demand.

The World Bank predicts China will grow 9.5 percent this year and 8.5 percent next year. Frederico Gil Sander, the World Bank's Thailand economist, said research and development by Thai companies had fallen behind that of many other developing economies such as Turkey, Mexico, Argentina and Brazil.

"Thailand could benefit from the baht's appreciation, as more than 85 percent of equipment is imported," he said.

But Don Nakornthab, head of the Bank of Thailand's Balance of Payments Division, said the baht may strengthen rapidly next year and hurt small and medium-sized exporters as a result of the US dollar's weakness.

The central bank will in 2011 introduce its capital account liberalisation plan for the coming years, aimed at easing pressure in currency exchange.

The Bank of Thailand will likely consider introducing capital inflows next year. This will be partly due to market panic in the wake of Ireland's public debt woes, as worried investors in emerging markets have weakened the baht during the past few days. In addition, investment activities are expected to be relatively quiet in December.

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