World Bank trims East Asia growth forecasts

The World Bank on Monday (Oct 5) cut its growth forecasts for developing economies in East Asia and the Pacific but allayed fears of a hard landing for China’s slowing economy.

China’s economy is expected to grow at about 7% this year and gradually moderate thereafter, as its economy continues to shift toward a model more dominated by domestic consumption and services, which implies a gradual reduction of growth.

For developing economies in the East Asia-Pacific region, average growth is forecast at 6.5 per cent this year, 6.4 per cent next year and 6.3 per cent in 2017.

Philippine growth rebounded to 5.6 percent in the second quarter, defying a regional slowdown thanks to robust government spending. The previous prediction in April of 6.7 percent growth for both 2015 and 2016 and 6.6 percent in 2017, and the April predictions themselves were trimmed from a previous forecast.

Slower-than-expected growth in China will put pressure on commodity exporters, as well as trade, foreign direct investment, and tourism in the region, the World Bank said.

The region accounts for almost two-fifths of global economic growth, according to the East Asia Pacific Economic Update released today.

Vietnam, for example, is expected to grow 6.2% in 2015 and 6.3% in 2016.

Even a gradual interest rate hike in the U.S. in the coming months would be a risk, as markets could react sharply, causing currencies to depreciate, bond spreads to rise, capital inflows to fall and liquidity to tighten, the bank noted.

Growth will ease, however, in numerous smaller economies. The whole outlook was less optimistic for Thailand, Malaysia, and Indonesia.

“This reflects mainly a moderate slowdown in China”, the bank said.

“Weak agricultural output will weigh on GDP growth in Cambodia and especially Myanmar, following the severe monsoonal floods in July 2015”.

The lastest economic indicators still point to lackluster activity in China though.