The World Bank has lowered its growth forecasts for East Asia and Pacific amid headwinds from slowing global demand, rising debt and inflation challenges.
Growth in the region is forecast to slow to 3.2 percent this year from 7.2 percent last year —much lower than the 5 percent forecast in April — before rebounding to 4.6 percent next year, the global lender said.
The region is weighed by China’s growth, which is forecast to decelerate to 2.8 percent this year from 8.1 percent last year amid ongoing COVID-related restrictions and a property market slump.
That pace of growth means the rest of the region would grow faster than China for the first time in decades. In April, the World Bank had tipped China to grow by 5 percent this year. It sees a recovery to 4.5 percent next year.
World Bank’s downgrade to its China forecasts comes as economists are increasingly pessimistic about the outlook for next year, expecting any rebound to be bumpy under Beijing’s “zero COVID” strategy and disruptions likely when the country eventually reopens.
The Asian Development Bank (ADB) last week cut its outlook on China growth to 3.3 percent from its prior forecast of 4 percent — a pace that the ADB said would be slower than the rest of developing Asia for the first time in more than three decades.
Investment banks are also cutting their outlook. Nomura Holdings Inc last week slashed its growth forecast for China next year to 4.3 percent from 5.1 percent.
Goldman Sachs Group Inc downgraded its outlook to 4.5 percent from 5.3 percent, while Societe Generale SA estimated output expansion would be under 5 percent next year. T
The median estimate in Bloomberg’s latest survey of economists is for GDP to expand 5.1 percent next year, down from a previous projection of 5.2 percent. The consensus for this year was also lowered, to 3.4 percent from 3.5 percent.
For the region as a whole, a weakening in global orders for exports is expected to affect demand while rising interest rates globally are luring capital away as currencies weaken, the World Bank said.
The US dollar’s strength is having a mixed impact by aiding export competitiveness, but also pressuring borrowers repaying foreign currency debt, World Bank’s East Asia and Pacific chief economist Aaditya Mattoo said.
“From the inflationary and debt burden point-of-view, a stronger dollar is bad news, but from an export point-of-view it is good news,” Mattoo said, adding that weaker regional currencies might boost tourism.
Policymakers need to shield households and firms from rising food and energy prices without adding to existing policy distortions, the World Bank said.
Controls on food prices and energy subsidies are diverting government spending away from areas such as education and healthcare, it said.
“Controls in prices of food and fuel muddy price signals at a time where you need clear signals,” Mattoo said.
“Income transfers are better to price regulation,” he said.
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