The World Bank yesterday cut its developing East Asia and Pacific growth forecasts for this year and next year, saying the outlooks were clouded by the risk of a sharp slowdown in China and possible spillovers from expected increases in US interest rates.
The Washington-based lender now expects the developing East Asia and Pacific region, which includes China, to grow 6.5 percent this year and 6.4 percent next year, down from 6.8 percent growth last year.
Its previous forecast in April was 6.7 percent for both this year and next year.
“The baseline scenario for regional growth is subject to a greater-than-usual degree of uncertainty, and risks are weighted to the downside,” the World Bank said in its latest East Asia and Pacific Economic Update.
“In particular, uncertainty surrounds the trajectory of, and spillovers from, China’s economic rebalancing and the expected normalization of US policy interest rates,” the report said.
The World Bank said the downward revisions to regional growth forecasts mainly reflect a moderate slowdown in China’s economy, which it expects to grow 6.9 percent this year and 6.7 percent next year, down from 7.3 percent last year.
The previous forecast was for China to grow 7.1 percent this year and 7 percent next year.
Growth in developing East Asia excluding China is expected to hold steady this year at 4.6 percent before accelerating to 4.9 percent next year, the World Bank said. Those estimates were down from previous forecasts of 5.1 percent growth this year and 5.4 percent next year.
The bank said the outlook for household incomes and business profits in Indonesia and Malaysia was clouded by weakness in global commodity markets.
It said lower real trade-weighted exchange rates can play a key role for such commodity exporters to adjust to weaker terms of trade.
“The depreciations of the Indonesian rupiah and Malaysian ringgit against the US dollar have reduced the drop in exporter revenues, corporate profits and household incomes in local currency terms — a valuable shock-absorbing effect,” it said.
“More generally, authorities should limit currency market interventions to smoothing volatility, given the importance of maintaining adequate reserve buffers,” the World Bank added.
Further declines in Asian currencies against the dollar could strain balance sheets in countries with significant US dollar-denominated debt, it said.
“Stress may arise whenever individual firms and sectors suffer from a significant concentration of liabilities,” the World Bank said, adding that such risks are a special concern in Indonesia, Malaysia, Thailand and Vietnam.
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