Just before the weak March trade figures from China were issued yesterday, The World Bank lowered its forecasts for economic growth in East Asia, thanks to the slowdown in China which the bank warned could offset the benefits of lower oil prices and improving activity in developed economies in Europe and the US.
The bank said in its East Asian outlook forecast that China is now expected to expand at 7.1% this year, down from a previous projection of 7.2%. The growth rate is expected to drop to 7% next year and 6.9% the next.
China’s first quarter GDP data is out tomorrow and according to forecasts from the likes of the ANZ and Nomura, growth could be around 6.9% on an annual basis.
The World Bank expects now the developing East Asia and Pacific (EAP) region, which includes China, to grow 6.7% this year and next, down from the 6.9% growth rate in 2014.
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 yesterday’s report.
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.
"Higher U.S. interest rates and an appreciating U.S. 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.
“Continued measures to contain local government debt, contain shadow banking, reduce excess capacity, curb energy demand, and control pollution will reduce investment and manufacturing growth [in China],” the bank said in a report on East Asian economies.
China’s central bank has cut interest rates twice since November in a bid to spur an economy growing at its slowest pace in decades, and another could be on the way after the surprisingly weak trade figures (especially exports) for March yesterday.
The World Bank also cut its estimates for Indonesia, Malaysia, the Philippines, Cambodia and Mongolia.
That and the cut in China’s GDP estimate helps explain why regional growth is now expected to moderate from 6.9% in 2014 to a still solid 6.7% in this year.
Growth in developing East Asia and Pacific (excluding China) is expected to accelerate to 5.1% in 2015 and 5.4% next year from 4.6% in 2014.
"Despite slightly slower growth in East Asia, the region will still account for one-third of global growth, twice the combined contribution of all other developing regions," said Axel van Trotsenburg, World Bank East Asia and Pacific Regional Vice President.
"Lower oil prices will boost domestic demand in most countries in the region and provide policy makers a unique opportunity to push fiscal reforms that will raise revenues and reorient public spending toward infrastructure and other productive uses," he said.
