By Nick Mann | 8 October 2012
The World Bank has cut its growth forecasts for both China and the East Asia region as a whole on the back of weak export demand and slow worldwide economic growth.
In its latest East Asia and Pacific data monitor update, published this morning, the Bank said it now expected China’s economy to grow by 7.7% this year, compared with 9.3% in 2011 and 8.2% in May. But this could fall further, it noted, as there had already been a ‘significant’ slowdown already this year.
‘Economic momentum is expected to be weak during the coming months with limited policy easing, a property market correction, and faltering external demands,’ it said.
Its assessment echoes that of the Asian Development Bank, which last week said that slowing growth in China and India would drag on the performance of the developing Asia nations as a whole.
The World Bank also shares the ADB’s expectation of a bounce-back in China next year. Central and local government stimulus measures and a relaxation of monetary policy earlier this year would combine to help growth to improve to 8.1% next year, it said.
For the 22 countries of the East Asia and Pacific region as a whole, the World Bank expects economic growth of 7.2% this year, compared with the 7.6% it forecast in May and a record 8.2% last year.
Despite a downturn in demand for the region’s exports, ‘robust’ domestic demand – in particular driven by reconstruction spending following last year’s floods in Thailand – will help to support improved growth of 7.6% in 2013.
Pamela Cox, World Bank East Asia and Pacific regional vice president, said: ‘Weaker demand for East Asia’s exports is slowing the regional economy, but compared to other parts of the world, it’s still growing strongly, and thriving domestic demand will enable the region’s economy to bounce back to 7.6% next year.’
The Bank warned, however, that a potential sharp deterioration in the eurozone situation had a high risk of affecting East Asia’s economies due to their trade and financial sector links with the single currency bloc.
Countries that especially rely on commodity exports for their economic stability could be hit by a ‘major shock’ in the balance between the cost of their imports and exports caused by a further global slowdown. These include Mongolia, Lao, Timor Leste, Fiji and Papua New Guinea, the Bank said.
It noted, however, that most developing East Asian economies were ‘well-positioned’ to weather a renewed eurozone crisis or global slowdown. They had current account surpluses, modest deficits and well-capitalised banking systems, and had reduced their exposure to European banks in favour of investing in their Asia-Pacific counterparts.
Bert Hofman, World Bank chief economist for East Asia and the Pacific, added: ‘Over the medium term, increases in productivity in the East Asia and the Pacific, which is increasingly becoming a middle-income region, will drive growth. Continued structural reforms, improvements in the business climate and investments in infrastructure and education systems will become more important.’
