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World Bank lowers growth forecasts for East Asia and Pacific

World Bank lowers growth forecasts for East Asia and Pacific
The World Bank Group headquarters during the World Bank Group International Monetary Fund 2021 Virtual Spring Meetings in Washington, DC, 6 April 2021. (Photo: EPA-EFE/SHAWN THEW)

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% in 2022 from 7.2% last year, seen much lower than the 5% forecast in April, according to the lender’s latest outlook. The group should see growth rebound to 4.6% next year. 

The region is weighed by China’s growth, which is forecast to decelerate to 2.8% this year from 8.1% in 2021 amid ongoing Covid-related restrictions and a property-market slump. That pace of growth means the rest of the region will grow faster than China for the first time in decades. In April, the World Bank had tipped China to grow by 5% in 2022. It sees a recovery to 4.5% in 2023.

The international financial institution’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 Covid Zero strategy and disruptions likely when the country eventually reopens. 

The Asian Development Bank last week cut its outlook on China growth to 3.3% from 4% seen previously, a pace the ADB said will 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 last week slashed its 2023 growth forecast for China to 4.3% from 5.1%. Goldman Sachs Group downgraded its outlook to 4.5% from 5.3%, while Societe Generale SA estimated output expansion would be under 5% next year. The median estimate in Bloomberg’s latest survey of economists is for gross domestic product to expand 5.1% in 2023, down from a previous projection of 5.2%. The consensus for this year was also lowered, to 3.4% from 3.5%.

Strong dollar

For the region as a whole, a weakening in global orders for exports is expected to impact demand while rising interest rates globally are luring capital away as currencies weaken, the World Bank said.

The dollar’s strength is having a mixed impact by aiding export competitiveness but also pressuring borrowers repaying foreign currency debt, said Aaditya Mattoo, the World Bank’s East Asia and Pacific chief economist.

“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 may boost tourism.

Price signals

Policy makers need to shield households and firms from rising food and energy prices without adding to existing policy distortions, the World Bank warned. Controls on food prices and energy subsidies are diverting government spending away from areas such as education and healthcare.

“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.” BM

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