World Economy

WB Trims East Asia, Pacific Growth Forecasts

WB Trims East Asia,  Pacific Growth ForecastsWB Trims East Asia,  Pacific Growth Forecasts

The World Bank trimmed its 2016 and 2017 economic growth forecasts for developing East Asia and Pacific, and said the outlook was clouded by risks such as uncertainty over China's growth prospects, financial market volatility and further falls in commodity prices.

The Washington-based lender now expects the developing East Asia and Pacific region, which includes China, to grow 6.3% in 2016 and 6.2% in 2017, slowing from 6.5% growth in 2015, Reuters reported.

Its previous forecast in October was 6.4% growth in 2016 and 6.3% in 2017.

"The fundamentally positive base case for growth and poverty reduction in the region is subject to elevated risks," the World Bank said in its latest East Asia and Pacific Economic Update report on Monday.

Possible risks include a weaker-than-expected recovery in high-income economies, a faster-than-expected slowdown in China, as well as increases in financial market volatility that could cause monetary conditions to tighten and have adverse effects on the real economy, the bank said.

"In particular, vulnerabilities created by the interplay between high levels of indebtedness, price deflation, and slowing growth in China bear close monitoring, as do corporate and financial sector vulnerabilities across much of the region."

A further fall in commodity prices would have a negative impact on major commodity exporters and reduce the space for public spending and investment, the bank added.

Commodity Prices

Growth in Malaysia was likely to come in at 4.4% in 2016 and 4.5% in 2017, down from 5% in 2015, as weaker demand from China and low commodity prices constrain growth and public spending, the bank said.

Growth in Thailand was seen at 2.5% in 2016 and 2.6% in 2017, down from 2.8% in 2015, with weaker external demand and policy uncertainty likely to weigh on private investment.

Indonesia is likely to see growth accelerate to 5.1% in 2016 and 5.3% in 2017, from 4.8% in 2015, despite low commodity prices and headwinds to external demand.

"However, this outlook is contingent on the implementation of an ambitious public investment program, and the success of recent reforms to reduce red tape and uncertainty for private investors," the bank said, regarding Indonesia.

Growth is expected to firm in the Philippines to 6.4% in 2016 from 5.8% in 2015, on the back of accelerated implementation of the existing pipeline of public-private partnership projects, and spending related to the May 2016 presidential election, the bank said.

China Slowdown

The expected slowdown in the region is mainly due to the continued moderation of growth in China, which is likely to see growth slow to 6.7% in 2016 and 6.5% in 2017, from 6.9% in 2015, the bank said. The growth forecasts for China were unchanged from October.

The report said a cloudier than earlier expected global outlook could weaken demand, sapping momentum in the region, especially among commodity exporters. It called for close monitoring of economic risks, particularly those associated with high levels of debt, price deflation, slower growth in China, and high corporate and household debt in some large economies.

China reported Monday that its inflation remained steady at 2.3% in March, while wholesale prices paid by manufacturers, the producer price index, dropped 4.3%. To counter that deflationary trend, authorities plan to eliminate much of the country's excess factory capacity, especially in the steel sector.

The World Bank report urged China to continue reforms of its restrictive household-registration system, and to shift public spending from infrastructure toward public services including education, health, social assistance and environmental protection.