World Bank cuts E. Asia, Pacific growth forecast

A vegetable market in Jakarta, Indonesia. A turnaround in Indonesia and Malaysia may happen as soon as next year as expansion across the world picks up, says World Bank chief economist for the East Asia and Pacific region Sudhir Shetty.
A vegetable market in Jakarta, Indonesia. A turnaround in Indonesia and Malaysia may happen as soon as next year as expansion across the world picks up, says World Bank chief economist for the East Asia and Pacific region Sudhir Shetty. PHOTO: REUTERS

Slowdown in developing economies prompts revision of estimate to 6.5% from April's 6.7%

The intensifying slowdown in developing economies has prompted the World Bank to cut its growth forecast for parts of East Asia and the Pacific this year. It now forecasts that developing East Asia and the Pacific will expand 6.5 per cent this year, down from April's 6.7 per cent estimate.

The region - which includes China but excludes developed economies such as Singapore and Taiwan - grew 6.8 per cent last year.

"What the slowdown reflects is primarily a continuing gradual slowdown in China from 2014, as well as in a couple of the larger Asean economies, in particular Malaysia and Indonesia," said World Bank chief economist for the East Asia and Pacific region Sudhir Shetty.

Mr Shetty, who was holding a briefing to mark the release of the World Bank's semi-annual review, also cited a slower-than-expected recovery in advanced economies such as Japan and the euro zone, which has left global trade growing at a much slower pace than before the last global financial crisis.

THE IMPLICATION

What the slowdown reflects is primarily a continuing gradual slowdown in China from 2014, as well as in a couple of the larger Asean economies, in particular Malaysia and Indonesia.

MR SUDHIR SHETTY, World Bank chief economist for the East Asia and Pacific region

While he expects China to meet its indicative growth target of 7 per cent this year, the country's continued shift towards a domestic consumption and services-led model could mean that a slowdown of the Chinese economy drags into next year and 2017.

Mr Shetty's remarks came ahead of a separate report released by the International Monetary Fund (IMF) in Lima yesterday, which said China has the capacity to manage its economic slowdown but needs to communicate policy more effectively and guard against potential spillover.

The IMF, which starts its annual meeting in Peru this week, said China needed to expand market forces to return to sustainable growth and to implement effective governance.

Every percentage point slowdown in China's growth translates into a 0.3 per cent decline for other Asian countries, said the IMF, although it noted that the impact of China's slowdown had likely been exacerbated by declines in its financial markets in recent months.

Beyond China, falling commodity prices and the prospect of the United States raising interest rates could also put pressure on Asia, the IMF said.

But the World Bank, which released its semi-annual review yesterday, expects robust growth from the Philippines and Vietnam this year, while Indonesia, Malaysia and Thailand stay the most vulnerable.

Mr Shetty stressed that the region continues to grow at a "reasonably solid rate", and that some risks to growth in the short term are "necessary adjustments" for sustainable growth in the long term.

"The bottom line is that growth in the developing countries in East Asia Pacific has been slightly slower than what we anticipated six months ago. However, it remains solid," he said, adding that the region is likely to account for 40 per cent of global growth this year.

Mr Shetty told the briefing at the Marina Bay Financial Centre that a turnaround in Indonesia and Malaysia may happen as soon as next year as expansion across the world picks up.

He urged the two nations to focus on "upgrading" their human capital to promote innovation and hence untie the fates of their economies from the commodities cycle.

A version of this article appeared in the print edition of The Straits Times on October 06, 2015, with the headline 'World Bank cuts E. Asia, Pacific growth forecast'. Print Edition | Subscribe