China Weighs on Developing East Asia as World Bank Cuts Outlooks

  • World Bank lowers China 2015 GDP growth forecast to 6.9%
  • Scope in developing East Asia to ease policy is limited

Developing East Asian economies are feeling the weight of China’s growth slowdown, with the World Bank cutting the region’s growth forecasts through 2017.

China’s growth will cool to 6.9 percent in 2015, slower than the 7.1 percent rate predicted in April, the World Bank said in its East Asia and Pacific Economic Update released Monday. Expansion will ease to 6.7 percent next year and 6.5 percent in 2017, it said. Developing East Asia will expand 6.5 percent this year, slower than the 6.7 percent predicted in April.

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’s worsening economic outlook comes at a time when the scope to ease monetary policy is constrained by the need to safeguard financial stability, while room for fiscal expansion is limited, it said.

“Monetary loosening could prove counterproductive if it led to capital outflows, the likelihood of which will grow once U.S. policy rates increase and interest rate differentials with the U.S. narrow,” the World Bank said. “The scope for more public spending to boost short-term growth is limited.”

Currency Risks

The region’s economic outlook is “subject to a greater-than-usual degree of uncertainty,” the lender said, as it reduced 2015 growth forecasts for Indonesia, Philippines and Thailand while raising its outlook for Vietnam. Further currency depreciation could cause balance-sheet strains and such risks are especially a concern in Indonesia, Malaysia, Thailand and Vietnam, it said.

Over the medium-term, the region should re-evaluate fiscal incentives, boost infrastructure investment, change agricultural policies and deepen integration, the World Bank said.

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