Cooling China expected to put drag on East Asia's economic growth

World Bank says recovery in advanced markets and structural reforms key to region's growth

PUBLISHED : Tuesday, 08 April, 2014, 1:08am
UPDATED : Friday, 11 April, 2014, 5:57pm

Developing East Asian economies will grow more slowly than forecast this year as China's expansion moderates and political upheaval weighs on Thailand's outlook, the World Bank said.

China would grow 7.6 per cent this year, down from the 7.7 per cent projected in October, while Thailand would expand 3 per cent, 1.5 percentage points lower than its earlier forecast, the World Bank said in its East Asia and Pacific Economic Update, released yesterday. Developing East Asia is expected to grow 7.1 per cent this year, down from the 7.2 per cent forecast in October.

The region's expansion would be underpinned by a recovery in high-income economies and the market's modest response to the United States Federal Reserve's tapering of its quantitative easing programme, the report said. It said "structural reforms" were the key to reducing vulnerabilities and enhancing the sustainability of long-term growth in the region.

"China has already begun a series of reforms in finance, market access, labour mobility and fiscal policy to increase the efficiency of growth and boost domestic demand," the World Bank said in a statement.

"Over time, these measures will put the economy on a more stable, inclusive and sustainable footing. Some initiatives that the government has already announced, such as tax reform and lowering barriers to private investment, may also spur growth in the short term."

Bert Hofman, the World Bank's chief economist for East Asia and Pacific, said risks included a slower-than-expected recovery in advanced economies, a rise in global interest rates and increased volatility in commodity prices because of recent geopolitical tensions in Eastern Europe.

Successful reforms in China could bring considerable benefits to trade partners supplying it with agricultural products, consumer goods and modern services, the World Bank said. "Conversely, spillovers from a disorderly rebalancing in China could hurt regional and global growth, especially in countries relying on natural resource exports," it said.

In past quarters, domestic demand, particularly investment, had weakened in Indonesia and Malaysia, reflecting tighter credit, higher debt servicing costs, fiscal consolidation, reduced profits from commodities and higher import costs, the report said.

"In Thailand, implementation delays and political uncertainties have been the major contributors [to its slowdown]," the World Bank said.

It said the global economic recovery "remains on track", assuming 3 per cent growth this year and 3.3 per cent next year. Growth in high-income economies is assumed to accelerate to 2.1 per cent this year and 2.4 per cent next year.