World Bank Cuts East Asia GDP Outlook, Flags China Risks

World Bank Cuts East Asia GDP Outlook, Flags China Risks

Sunday, 7 Oct 2012
Reuters

"Rice prices have been relatively stable, with most of the price risks on the downside as stocks in Thailand continue to build as a result of the new floor price policy, and good crops in Cambodia, Vietnam and the Philippines"

The World Bank cut its economic growth forecasts for the East Asia and Pacific region on Monday and said there was a risk the slowdown in China could get worse and last longer than expected.

"China's slowdown this year has been significant, and some fear it could still accelerate," the World Bank said in its latest East Asia and Pacific Data Monitor, which was released in Singapore.

Ambitious investment plans announced by several local governments could face funding constraints, "not least because governments are feeling the pinch of a cooling real estate market, which lowers land sales revenues", the international lender added.

China's economy will likely expand by 7.7 percent this year, down from a May estimate of 8.2 percent, while the growth forecast for 2013 was cut to 8.1 percent from an earlier 8.6 percent.

As for the region as a whole, the World Bank now expects developing East Asia to grow by 7.2 percent this year and 7.6 percent in 2013, down from earlier estimates of 7.6 percent and 8.0 percent, respectively.

"Economic projections for EAP (East Asia and Pacific) are surrounded by considerable uncertainties, and a variety of risks continue to loom over the global and regional economy," the World Bank said.

"Although recent policy moves have reduced the risk stemming from the Eurozone, financial market disruptions still constitute the main risk to this outlook, followed by the 'fiscal cliff' risk in the United States," the lender added, referring to the sharp cuts in U.S. government spending that could be triggered next year if lawmakers fail to reach a new agreement.

On China, the World Bank said the central government was unlikely to come up with a major fiscal stimulus package as policymakers were concerned about a rebound in home prices and a possible reversal of hot money flows.

Nevertheless, the bank expects growth in China to pick up in 2013, helped by monetary policy measures introduced earlier this year and an acceleration of central government investment spending. The risk of a hard landing remains small, it added.

Southeast Asia

The World Bank was bullish about Southeast Asia due to strong domestic demand and noted investment spending in Thailand, Malaysia and Indonesia was booming. For Indonesia, the ratio of investment to gross domestic product has now returned to pre-Asian financial crisis levels.

The multilateral lender kept its 2012 GDP forecasts for Indonesia and Thailand at 6.1 percent and 4.5 percent, respectively, and raised its 2012 growth outlook for Malaysia to 4.8 percent from 4.6 percent.

The 2012 forecast for the Philippines was increased to 5.0 percent from 4.2 percent.

"In the Philippines, the acceleration of government infrastructure spending has contributed to the strong growth performance in the first half, while revenue growth is supported by tax administration reforms as well as strong GDP growth," the World Bank said.

The bank said most developing East Asian economies were well positioned to weather troubles in the global economy as they enjoyed current account surpluses or only modest deficits and held high levels of foreign exchange reserves relative to their international payment obligations.

But it warned that countries such as Mongolia, Laos, Timor Leste, Fiji and Papua New Guinea could experience a sharp terms-of-trade shock in a major slowdown, as commodities accounted for at least 80 percent of total exports.

The World Bank added the recent spikes in global food prices were less of a risk to the East Asia and Pacific region as rice markets had not been affected.

"Rice prices have been relatively stable, with most of the price risks on the downside as stocks in Thailand continue to build as a result of the new floor price policy, and good crops in Cambodia, Vietnam and the Philippines," it said.