World Bank forecasts strong Asia -- Are your finances?

December 20, 2006

The Asian economy will slow to a still healthy 8.7% GDP growth in 2007, down from a white hot 9.2% this year, according to the World Bank’s recently released report “Global Economic Prospects 2007”. China (10.7%) and Vietnam (8%) drove the region’s growth, with the rest of the region growing at 5%.

Although still hot, slower growth will be a result of lower exports to a moribund U.S. economy, which will slow to 2.9%. However, the impact of slower U.S. demand will be offset by increased trade among the Southeast Asian countries themselves and increased demand from China.

What the World Banks’s forecast means:

This report is really good news for several reasons:

• Asia, especially China, was headed towards an over-heated economy. Slightly slower growth means less of a chance of a devastating bust, as happened in 1998.
• Southeast Asia is becoming less dependent on exports to the U.S., which means its domestic consumption is increasing and the area is becoming more self-sustaining in terms of trade.
• More moderate, self-sustaining growth in Asia will offset slower growth in the U.S. This lessens the chance of the U.S. tipping the world into a global recession.
• The U.S. current account deficit is financed by Japan and China, who have needed to loan the U.S. money to sustain their own economic recovery. As they shift their dependence to their Southeast Asian neighbors, they will lessen their lending to the U.S. This will help to restore balance, and stability, to the world’s financial markets.

Action steps:
Review your total asset allocation to make sure you have a healthy allocation in Asian mutual funds. These will sustain your personal finances through the next two years, when the U.S. market could slow significantly.

Source: World Bank, “Global Economic Prospects 2007: Managing the Next Wave of Globalization”