Southeast Asia's economic growth will suffer from the worst floods in a decade compounded by weak export demand from the debt-hit United States and Europe, the World Bank warned Tuesday.
Most of the Southeast Asian nations were affected by floods recently, including Cambodia, Vietnam, Thailand, the Philippines, Burma and Laos.
"The effects of flooding in several countries are likely to take a toll on growth this year," the Washington-based World Bank said in its "East Asia and Pacific Economic Update—Navigating Turbulence, Sustaining Growth."
In Cambodia, where floods have killed at least 250 people with three-quarters of the entire country swamped, economic growth in 2011 has been downgraded by the bank—to 6.0 percent from 6.8 percent.
The Lao economy's growth has been slashed to 8.0 percent from 8.6 percent due to "the adverse impact on agriculture" by recent typhoons, the bank said.
Because of widespread flooding, gross domestic product growth in Thailand, where more than 600 people have died in floods, has been sliced to 2.4 percent in 2011 from 7.8 percent last year.
"Losses in production are being felt in the entire region, as the impact of the disaster is spreading through the industrial supply chains," the bank said.
"While reconstruction after the flood in 2012 is likely to contribute to growth, the resilience of East Asia’s production networks is being tested once more," it said.
Earlier in the year, after the March 11 earthquake and tsunami in Japan, East Asian countries suffered production losses from disrupted supply chains in electronics and automotive industries.
They returned to their pre-disaster growth rates and production levels shortly after Japanese industry recovered in June. But they were hit hard again by the deadly floods.
Farm sector hit
Cambodia's agriculture sector, which accounts for a third of the economy, experienced strong growth over the past five years but the expansion could be interrupted by the floods in September and October, the World Bank said.
The floods damaged hundreds of thousands of hectares of rice seedlings, paddy rice plantations, and other agricultural crops. More than a thousand livestock also perished.
The Cambodian farm sector was previously expected to grow by nearly 4.0 percent, but is now projected to expand by a mere 1.5 percent for 2011 on the assumption that floods will recede fast enough to allow some flooded areas to be replanted quickly.
According to authorities’ reports, the bank said, 390,000 hectares (963,710 acres) of rice seedlings and paddy rice plantations were inundated, threatening some 13.5 percent of the country’s total paddy rice production.
The bank said however that Cambodia's growth prospects for 2012 and 2013 remain strong–with expansion tipped at 6.5 percent per year on the back of mainly exports amid greater market access granted by the relaxing of the EU’s rules of origin.
The World Bank said the GDP growth rate for Vietnam, which reported at least 100 deaths due to floods in southern and central parts of the country, is expected to fall to 5.8 percent this year from 6.8 percent in 2010.
But Vietnam has bigger problems on its hands.
Its banking sector is expected to be hit hard amid the slowing economy and soaring inflation, at 23 percent year-on-year in August 2011–the highest level in nearly three years–from 11.7 percent in 2010.
The state Bank of Vietnam has supported weaker banks through
greater liquidity but it has hinted that some consolidation may be needed if the weaker banks do not perform up to industry standards.
"However, given the tenuous macroeconomic environment, bank regulators are reluctant to force consolidation or allow bankruptcy to occur in the banking sector," the World Bank said.
"The unresolved problems in the banking sector are likely to remain a source of concern for Vietnam in the coming years," it warned.
The World Bank also pointed out that "deep, structural" reforms needed to beef up Vietnam's economy will require "strong leadership, careful implementation, support from development partners and foreign investors, and some short-term pains."
For Asia's largest economy China, the bank said growth is expected to slip to 9.1 percent in 2011 and 8.4 percent in 2012 and roughly similar rates thereafter from 10.4 percent last year.
Inflation is likely to recede but will remain elevated—at 5.3 percent in 2011 and 4.1 percent in 2012, it said.
"Policymakers will need to walk a fine line guarding against the short-term risks to growth and the lingering vulnerabilities associated with a still buoyant, if not overheated, economy," the bank said.
The World Bank also warned that the eurozone debt crisis could lead to renewed financial outflows from East Asia as banks shore up their capital coverage.
Credit outstanding from European banks to developing East Asia amounts
to US$427 billion, or six percent of GDP, the bank said.
But it added that high reserves and current account surpluses protect most East Asian countries against the impact of possible renewed financial stress.