The World Bank cut its growth forecasts for this year for developing East Asia, and warned of “significant” risks from global uncertainties, including the potential impact from a strengthening dollar and higher US interest rates.
The Washington-based lender expects the developing East Asia and Pacific region, which includes China, to grow 6.7 percent in each of this year and next, down from growth of 6.9 percent last year.
That compares with its previous forecasts in October last year of 6.9 percent growth this year and 6.8 percent next year.
China’s growth is likely to slow due to policies aimed at putting its economy on a more sustainable footing and tackling financial vulnerabilities, the World Bank said in its latest East Asia and Pacific Economic Update report yesterday.
The World Bank said China’s economy is likely to slow to 7.1 percent this year and 7 percent next year, from 7.4 percent last year. The previous forecast was for growth of 7.2 percent this year and 7.1 percent next year.
While the impact of low oil prices will vary from country to country, the World Bank said the prospect of a sustained period of low oil costs will help underpin growth in the region, as will an expected improvement in high-income economies.
However, due to uncertainties in the global economy, there are “significant risks” to the regional outlook, it added.
“Higher US interest rates and an appreciating US dollar, associated with monetary policy divergence across the advanced economies may raise borrowing costs, generate financial volatility and reduce capital inflows more sharply than anticipated,” the World Bank said.
Any downturn in Japan and the euro area would dent the region’s exports, it said.
Another risk is a significant slowdown in China, although that is unlikely since the world’s second-biggest economy enjoys policy buffers, including large foreign reserves and ample fiscal room to deploy stimulus or bail out debtors, the report added.
China’s central bank has cut interest rates twice since November last year in a bid to spur an economy growing at its slowest pace in decades.
Growth in developing East Asia and Pacific excluding China is expected to accelerate to 5.1 percent this year and 5.4 percent next year, from 4.6 percent last year, the World Bank said.
Malaysia, the region’s largest oil exporter, is likely to see growth slow this year, as low oil prices hit capital spending in the energy sector and private consumption cools due to the implementation of the goods and services tax this month, it said.
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