MANILA - Economic growth in East Asia and the Pacific will weaken sharply in 2022 due to China's slowdown, but the pace of expansion will pick up next year, the World Bank said on Tuesday.
The Washington-based lender said in a report that it expected 2022 growth in the East Asia and Pacific region, which includes China, to slow to 3.2 per cent, down from its 5 per cent forecast in April and the previous year's growth of 7.2 per cent.
The weaker forecast was due mainly to a sharp slowdown in China, caused by its strict zero-Covid-19 rules that have disrupted industrial production, domestic sales and exports, the World Bank said.
China, which constitutes 86 per cent of the 23-country region’s economic output, was projected to grow 2.8 per cent this year, a significant deceleration from the bank’s April forecast of 5 per cent. This pace of growth means the rest of the region will grow faster than China for the first time in decades.
In 2021, China’s economy expanded 8.1 per cent, its best growth in a decade. For 2023, the world’s second-largest economy was seen growing at 4.5 per cent.
The World Bank’s downgrade of its China forecasts comes as economists are increasingly pessimistic about China’s outlook for next year.
The Asian Development Bank last week cut its outlook on China growth to 3.3 per cent from 4 per cent previously.
Investment banks are also cutting their outlook. Nomura Holdings last week slashed its 2023 growth forecast for China to 4.3 per cent from 5.1 per cent. Goldman Sachs downgraded its outlook to 4.5 per cent from 5.3 per cent, while Societe Generale estimated that output expansion would be under 5 per cent next year.
For the region as a whole, a weakening in global orders for exports is expected to impact demand, while rising interest rates globally are luring capital away as currencies weaken, the World Bank said.
The US dollar’s strength is having a mixed impact by aiding export competitiveness but also pressuring borrowers repaying foreign currency debt, said Mr Aaditya Mattoo, chief economist for East Asia and Pacific at the World Bank.
“From the inflationary and debt burden point of view, a stronger dollar is bad news, but from an export point of view, it is good news,” said Mr Mattoo, adding that weaker regional currencies may boost tourism.
Policymakers need to shield households and firms from rising food and energy prices without adding to existing policy distortions, the World Bank warned. Controls on food prices and energy subsidies are diverting government spending away from areas such as education and healthcare.
“Controls in prices of food and fuel muddy price signals at a time where you need clear signals,” Mr Mattoo said. “Income transfers are better to price regulation.” BLOOMBERG, REUTERS