China’s economic slowdown leads World Bank to trim developing East Asia growth forecast

The World Bank says it expects developing Asian and Pacific economies to grow by 6.5 per cent this year – down 0.2 percentage points from its previous outlook

PUBLISHED : Monday, 05 October, 2015, 5:44pm
UPDATED : Monday, 05 October, 2015, 8:34pm

The World Bank on Monday trimmed its growth forecast for developing East Asian economies – reflecting risks from China’s slowdown and a looming rise in the United States interest rate.

The bank said it expected developing Asian and Pacific economies to grow by 6.5 per cent this year – down 0.2 percentage points from its previous outlook.

It also forecast growth of 6.4 per cent next year – down 0.3 percentage points from its previous outlook.

The bank cut China’s growth forecast this year to 6.9 per cent from its early projection of 7.1 per cent made in April.

Growth next year was also revised down to 6.7 per cent from its previous estimate of 7 per cent.

It forecast China’s growth would further slow down to 6.5 per cent for 2017.

In the bank’s latest East Asia and Pacific Economic Update, released on Monday, it said China’s economic growth was expected to “gradually decline” in the medium term, citing structural adjustments and policy efforts to address accumulated financial vulnerabilities continue.

“The speed at which the sources of domestic demand rebalance will remain modest, depending critically on an increase in the labour share of gross domestic product,” the report said, referring to Beijing’s efforts to make consumption play a more prominent role in driving the economy, instead of relying heavily on the traditional sectors of exports and investments.

Economic output of the 14-country region, which includes China, India, Indonesia and Vietnam, expanded by 6.8 per cent last year. The forecast excludes Japan and South Korea.

Since the forecast in April, “greater uncertainty about the global economy has weighed on the performance and prospects of developing East Asia and Pacific”, the Washington-based lender said in a report.

It cited Beijing’s efforts to steer the world’s second-largest economy to a slower, more sustainable growth and a widely expected US interest rate increase from ultra-low levels in place since the 2008 global crisis.

“Developing East Asia’s growth is expected to slow because of China’s economic rebalancing and the pace of the expected normalisation of US policy interest rates,” said Sudhir Shetty, chief economist of the World Bank’s East Asia and Pacific Region.

“These factors could generate financial volatility in the short term, but are necessary adjustments for sustainable growth in the long term.”

China is the biggest trading partner for most of its Asian neighbours and steadily declining growth over the past five years has depressed demand for raw materials and industrial components.

Excluding China, the region’s developing economies are expected to grow 4.6 per cent this year, in line with last year’s expansion, the bank said.

It said Vietnam was expected to post 6.2 per cent growth, but smaller economies were forecast to decelerate.

 Additional reporting by Staff Reporter