Rising currencies a risk: WB
East Asia is leading the global recovery, but its success has attracted a surge of capital that has inflated currencies, posing a risk to exports and future growth, the World Bank said Tuesday.
While the rebound is sluggish in the United States, EU and Japan, emerging East Asia, led by China, is growing at near pre-2008 global crisis levels, with expected real economic growth of 8.9 percent this year, it said.
"East Asia remains the fastest growing world region," said the bank, pointing out that sales of flatscreen TVs, automobiles and even Bordeaux wines in East Asia are now the largest of any region in the world.
The report on East Asia's developing economies -- which excludes Japan, South Korea, Singapore, Hong Kong and Taiwan -- said China remains the region's economic powerhouse, with projected growth of 9.5 percent in 2010.
However, confidence in developing East Asia has triggered a flood of liquidity in search of higher yields, said the World Bank in its latest East Asia and Pacific Economic Update report.
Foreign cash has flooded into East Asian bonds, real estate and equity, with the Agricultural Bank of China posting the world's largest initial public offering to date at 22.1 billion dollars, the bank said.
In addition to China, the report covers Mongolia, the Southeast Asian economies of Cambodia, East Timor, Indonesia, Laos, Malaysia, the Philippines, Thailand and Vietnam, as well as Papua New Guinea and islands in the Pacific.
Last week Thailand moved to rein in its currency with a package of measures aimed at easing the pain of exporters as the baht hovers near a 13-year high. The measures included a tax for foreigners investing in Thai bonds.
"The large increase in inflows, driven by abundant global liquidity and low yields in advanced countries... has been mainly responsible for a substantial appreciation of exchange rates" in the region, the report said.
The surge in capital has "caused exchange rates to appreciate strongly," it added, pointing out that in real effective terms, regional exchange rates are 10-15 percent stronger than before the crisis.
"So far, export growth has remained robust, but with continued real appreciation of East Asian currencies, this growth could slow."
However, in China -- the world's top exporter, which has come under growing pressure to let its currency appreciate at a faster rate -- a World Bank economist said a stronger yuan "is probably in China's interest".
"It can at the margin help in dealing with inflation by lowering the price of imported goods... and can be part of the arsenal in dealing with capital inflows," the lead economist for China, Ardo Hansson, said in Beijing.
The yuan has increased "more modestly" than other units in the region, the World Bank said -- far weaker language than that used by critics in the United States and Europe who claim the currency is grossly undervalued.
The World Bank report came as fears are rising of a "currency war", in which nations, seeking to export their way out of the downturn, are trying to cap or lower their currencies to make their exports more competitive.
While the dollar, the global reserve currency, has fallen, Japan, Switzerland and other countries have sold their local units to keep them from strengthening, while Brazil had also intervened, the report pointed out.
Group of 20 finance ministers and central bankers, meeting in South Korea Friday, are expected to discuss the issue ahead of a G20 summit next month.
The report also urged debate at a Hanoi summit this month, saying "the issues need to be discussed in the context of ASEAN and ASEAN+6, where member countries could fashion a common approach to these regional challenges."
The bank's East Asia chief economist Vikram Nehru also said there is now "an effort by developing East Asia to deal with large amounts of liquidity, driven in very large part by monetary easing in the United States".
The average real estate property price index for eight East Asian countries is about 17 percent above its level in early 2007, it said.
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