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World Bank Report Points to China's Recovery as 'Ray of Hope'

A World Bank report on East Asia says a possible economic recovery in China this year will be a positive sign for regional growth. But the bank also says the economic situation remains a daunting challenge, with a global recovery resting on the major industrial economies in Asia, Europe and the United States.

A new World Bank report says China's stimulus package will help the country's economy expand by about 6.5 percent this year, although that is well off the double-digit gains in recent years.

The report, released Tuesday, says a recovery in China is likely to start this year and will contribute to regional economic stability and growth.

Vikram Nehru, the World Bank's chief economist for East Asia, says the China's economic indicators in recent months have been good, and if sustained they will ripple through the region.

"The evidence on what's happening in China seems so pervasive and seems to cross so many indicators that I think there is now a growing degree of confidence that the stimulus package in China is having impact," he said. "Purchases of inputs have soared, Even consumer confidence is up and of course everybody knows bank lending has accelerated quite significantly."

While a bottoming out in China's economy will benefit Asia, the World Bank says only a recovery in developed economies, such as Europe, Japan and the United States, will sustain a regional expansion.

The World Bank forecast aggregate growth at five-point-three percent for developing Asia. But subtracting China, the average growth would be just over one percent, a "significant decline" from recent years.

The bank expects Malaysia, Thailand, and Cambodia to contract this year. Other economies would see much lower, though still positive, growth.

Nehru says economic stimulus packages and international cooperation are necessary to foster a recovery. He praised the cooperative efforts of the Association of Southeast Asian Nations and their commitment to free trade.

Despite the economic stimulus packages and cooperation, he says the global economic outlook remains daunting.

"We are still in the middle of a perfect storm. For example over the last for months things have gone from bad to worse in many of the advanced economies," he said.

Asia will likely see unemployment continue to rise, as it has in developed markets, and that means hardship for many.

"The current projections imply that about 10 million more people in the region will be left in poverty compared with what would have happened if growth rates projected a year ago would have materialized," said Ivallo Izvorski, a World Bank economist for East Asia. "More people would have been lifted out of poverty, so clearly the implications are quite stark."

The Bank said in the next few years, Asian economies need to develop domestic demand, boost competitiveness, penetrate new markets and attract foreign investment to return to the high growth rates of the past.