The World Bank has cut its growth forecast for the Asia Pacific region for this year and next, because of the risks posed from a sharp slowdown in China and raising USA interest rates.
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China’s economy is expected to grow a few 6.9% in 2015, down from a previous forecast of 7.1%, and lower than the 2014 expansion of 7.3%. This is down from its previous forecasts in April of 7.1, 7 and 6.9 percent growth respectively.
The World Bank sees developing Asia to grow by grow 6.5% in 2015, slightly down from 6.8% a year ago.
The World Bank East Asia and Pacific Vice President Axel van Trotsenburg explained in a statement that authorities in the East Asian region must focus on structural reforms to ensure “sustainable, long-term and inclusive growth”.
This scenario is likely because China has sufficient policy buffers and tools to address the risk of a more pronounced slowdown, including relatively low public debt levels, regulations restricting savings outside of the banking system, and the state’s dominant role in the financial system.
The rest of developing East Asia is expected to grow 4.6% in 2015, similar to the rate previous year.
However, the bank warns that if the country’s growth rate dips further, it could adversely affect the economies of neighboring countries that heavily depend on China.
Policymakers in China have been steadily increasing stimulus measures over the a year ago to help support growth as the property sector continues to come under pressure and export demand wanes. China’s GDP rose 7.3 percent in 2014.
East Asia will create global momentum as it accounts for nearly two-fifths of the world’s economic growth, the World Bank said. However, the outlook is mixed.
Weak global commodity prices continue to dim the prospects for business profits and household incomes in Indonesia and Malaysia.
The report assumed a gradual slowdown of the Chinese economy.
Among the large Southeast Asian nations, growth conditions will be most buoyant in the Philippines and Vietnam, the World Bank said.
Apart from the Philippines, the 14-country forecast also includes China, Indonesia, Malaysia, Thailand, Vietnam, Cambodia, Laos, Myanmar, Mongolia, Fiji, Papua New Guinea, the Solomon Islands, and East Timor.
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A stronger El Ninõ may also hurt agriculture severely which could result in higher prices and slower overall growth.
