NEW YORK (Reuters) - East Asia’s economy may need to slow to address inflationary pressures but the region will likely continue to lead the globe in economic activity, World Bank Chief Economist Justin Yifu Lin said on Monday.
High growth in the China and India is an important force for global recovery from the financial and economic crisis that left the developed world in a vice of high debt and slow economic growth, Lin said.
“But certainly, East Asia, now they face some concern about inflation rate and so they may have to slow down a little bit and that is another reason why we need to look beyond East Asia,” Lin said during a presentation to the Council on Foreign Relations in New York.
“I am still confident East Asian, South Asian, will still be the highest growth region in the world. But if we want to generate enough demand for investment goods in the world, we need to have growth in high income countries, as well as other regions,” he said.
Lin reiterated the global economic growth outlook for 2011 was 3.3 percent versus a 3.9 percent rate last year.
“Certainly recovery is on the way, however there are several uncertainties,” he said.
Lin highlighted high unemployment in developed countries such as the United States, Europe and to a degree, Japan ; Europe’s sovereign debt crisis and the municipal debt crisis in U.S. states, cities and towns; the short-term capital inflows into middle-income emerging markets fueling currency appreciations, equity and real estate bubbles.
“A fourth one is the high food, commodity, fuel prices. That can cause some kind of social tension as well as slow down the recovery for the growth in the middle-income countries,” Lin said.
“Those are the clouds.... if it turns into rain or (a) storm, certainly, it can derail the recovery,” he said.
Lin remarked that high-income nations are still running about 10 percent below capacity utilization rates seen in 2008.
But with fresh investment made in developed nations to create the demand to digest their excess capacity, something he calls a “new new normal”, they will be helped back to normal growth rates and at the same time enhance the growth in developing nations.