World Bank cuts East Asia GDP outlook

China GDP outlook cut to 7.7% in 2012; QE3 likely to have less impact on emerging Asia
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First Published: Mon, Oct 08 2012. 10 06 PM IST
World Bank headquarters building in Washington, DC. Photo: Wikimedia Commons
World Bank headquarters building in Washington, DC. Photo: Wikimedia Commons
Updated: Tue, Oct 09 2012. 04 10 PM IST
Singapore: The World Bank cut its economic growth forecasts for the East Asia and Pacific region on Monday and said there was a risk the slowdown in China could worsen and last longer than many analysts have forecast.
“Unlike the rest of the region, China is experiencing a double whammy—the growth slowdown is driven by weaker exports as well as domestic demand, in particular investment growth,” World Bank chief economist for East Asia and the Pacific Bert Hofman said at a briefing in Singapore.
He stressed, however, that the World Bank, like many economists, still expects China to have a soft landing as seen from the bank’s revised 7.7% growth forecast for this year and 8.1% for next year.
The World Bank earlier on Monday released its latest East Asia and Pacific Data Monitor, warning China’s that slowdown could accelerate.
In the report, the international lender said that ambitious investment plans announced by several local governments in China could face funding constraints, “not least because governments are feeling the pinch of a cooling real estate market, which lowers land sales revenues”.
The World Bank said the central government was unlikely to come up with a major fiscal stimulus package as policymakers were concerned about a rebound in home prices and a possible reversal of hot money flows.
Nevertheless, the bank expects growth in China to pick up in 2013, helped by monetary policy measures introduced earlier this year and an acceleration of central government investment spending.
The World Bank had earlier this year forecast 8.2% gross domestic product (GDP) growth for China in 2012 and 8.6% in 2013.
For the region as a whole, the World Bank now expects developing East Asia to grow by 7.2% this year and 7.6% in 2013, down from earlier estimates of 7.6% and 8%, respectively.
“This is the slowest growth rate in the Asia Pacific region since 2001. It’s even slower than the peak of the financial crisis in 2009,” Hofman said.
The World Bank last week cut its 2012 growth forecast for Sub-Saharan Africa to 4.8% from 5.2%, and lowered its outlook for Latin America to 3% from the previous 3.5 to 4%, citing the global economic slowdown.
“Economic projections for EAP (East Asia and Pacific) are surrounded by considerable uncertainties, and a variety of risks continue to loom over the global and regional economy,” the bank said.
“Although recent policy moves have reduced the risk stemming from the Eurozone, financial market disruptions still constitute the main risk to this outlook, followed by the ‘fiscal cliff’ risk in the United States,” it added, referring to the sharp cuts in US government spending that could be triggered next year if lawmakers fail to reach a new agreement.
Southeast Asia, QE3
The World Bank was bullish about South-East Asia due to strong domestic demand and noted investment spending in Thailand, Malaysia and Indonesia was booming. For Indonesia, the ratio of investment to GDP has now returned to pre-Asian financial crisis levels.
The multilateral lender kept its 2012 GDP forecasts for Indonesia and Thailand at 6.1% and 4.5%, respectively, and raised its 2012 growth outlook for Malaysia to 4.8% from 4.6%.
The 2012 forecast for the Philippines was increased to 5% from 4.2%.
“In the Philippines, the acceleration of government infrastructure spending has contributed to the strong growth performance in the first half, while revenue growth is supported by tax administration reforms as well as strong GDP growth,” the World Bank said.
Most developing East Asian economies were well positioned to weather troubles in the global economy as they enjoyed current account surpluses or only modest deficits and held high levels of foreign exchange reserves relative to their international payment obligations, the World Bank added.
Hofman said the latest round of “quantitative easing” by Western central banks will not be as disruptive to East Asia as previously, as weakening exports coupled with still strong imports mean overall inflows to the region were not as large as they had been in the past.
“It was a problem almost two years ago and even one year ago, but it seems less of a problem now,” he said.
The US Federal Reserve last month unveiled a third round of quantitative easing, whereby it will inject new money into the system by buying mortgage securities. The European Central Bank has also announced plans to buy the bonds of troubled euro zone countries such as Spain to bring borrowing costs down.
The World Bank, however, warned that countries such as Mongolia, Laos, Timor Leste, Fiji and Papua New Guinea could experience a sharp terms-of-trade shock in a major slowdown, as commodities accounted for at least 80% of total exports.
It added the recent spikes in global food prices were less of a risk to the East Asia and Pacific region as rice markets had not been affected.
“Rice prices have been relatively stable, with most of the price risks on the downside as stocks in Thailand continue to build as a result of the new floor price policy, and good crops in Cambodia, Vietnam and the Philippines,” it said. Reuters
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First Published: Mon, Oct 08 2012. 10 06 PM IST
More Topics: World Bank | GDP | Economy | Growth | China |
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