THE World Bank has trimmed its growth forecast for developing east Asian economies, reflecting risks from China’s slowdown and a looming United States interest rate hike.
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While this increase has been anticipated and is likely to be orderly, there is still a risk that markets could react sharply to such tightening, causing currencies to depreciate, bond spreads to rise, capital inflows to fall, and liquidity to tighten.
According to the World Bank, improved investor sentiment and resilience to external shocks are expected to raise India’s growth for the fiscal year 2015 to 7.5% and further to 7.8% in FY 2016.
The lender urged policymakers in the region to focus on structural reforms that lay the foundation for sustainable, long-term and inclusive growth.
The East Asia Pacific Economic Update released today looks at the challenging global environment facing the region.
The report points out that “the recovery in high-income economies remains gradual, global trade is growing at its slowest pace since 2009, and the widespread slowdown in developing countries has intensified”.
The bank now expects growth in developing East Asia and the Pacific to be 6.5% this year and 6.4% in 2016, down from an earlier forecast of 6.7%.
The World Bank expects that China to meet its annual gross domestic product or GDP growth target of about 7 percent this year, with economic expansion set to moderate thereafter as investment growth decelerated on the bank of tighter credit and more subdued property sector conditions.
The 2015, 2016 and 2017 growth projection for the East Asia-pacific is downgraded to 6.5, 6.4 and 6.3 percent on Monday.
Growth will ease, however, in numerous smaller economies. This is down from 6.8 per cent actual growth in 2014.
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Among the bigger Southeast Asian countries, the Philippines and Vietnam are expected to be the stronger performers as weak commodity prices hobble growth in oil exporters Indonesia and Malaysia.
