World Bank raises forecast for developing East Asia and Pacific on China growth expectations
THE World Bank has hiked its 2023 growth forecast for developing East Asia and Pacific economies to 5.1 per cent, up from an estimate of 4.6 per cent last October.
This implies an acceleration from the region’s 3.5 per cent growth in 2022 – but the hike is driven mainly by a higher forecast of 5.1 per cent for China, up from 3 per cent in 2022.
Excluding China, the rest of the region’s growth is predicted to be at 4.9 per cent, down from its robust post-Covid rebound of 5.8 per cent in 2022 and marginally less than October’s forecast of 5 per cent.
The World Bank report released on Friday (Mar 31) looked at eight Asean markets – excluding Singapore and Brunei – as well as China, Mongolia, Papua New Guinea, Timor-Leste and 11 Pacific Island countries.
Despite a broad recovery last year, output remained below pre-pandemic levels in most of the Pacific Island countries, as well as Thailand, which lagged other Asean nations in its recovery.
Regional growth has mainly been led by strong private consumption and goods exports, said the Washington-based lender.
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But while China will rebound, mainly due to its reopening, the rest of the region could now be held back by slowing global growth, moderating commodity prices and further fiscal tightening to combat high inflation.
“The best way to understand where China is, is to think of it as being one step behind the rest of the region,” World Bank East Asia and Pacific chief economist Aaditya Mattoo told media in a call.
China suffered more from the Omicron wave of Covid-19, rather than the earlier Delta wave – and it is thus also bouncing back later, he said.
World Bank East Asia and Pacific vice-president Manuela Ferro said: “Most major economies of East Asia and the Pacific have come through the difficulties of the pandemic, but must now navigate a changed global landscape.
“To regain momentum, there is work left to do to boost innovation, productivity, and to set the foundations for a greener recovery.”
The World Bank named the growing US-China divide as the “most immediate challenge for the region”, identifying four problems emerging from this.
First, trade is being moulded by politics rather than economics, and this uncertainty could discourage investment. Second, diverging standards – on data, for instance – could segment markets, preventing third countries from exploiting global economies of scale.
Third, export restrictions on source and destination markets could disrupt global value chains and third-country trade. Finally, bilateral restrictions on technology flows and collaboration could reduce the global availability of knowledge.
In response to these developments, third countries should prioritise their own market-friendly reforms, added the World Bank. International agreements will also help, with third markets better off having trade deals with both sides “rather than being left out of any agreement or being part of an exclusive trade bloc”.
Other challenges are rapidly ageing populations, resulting in smaller workforces but higher pension and healthcare burdens; and climate risks, partly due to dense populations and high economic activity in coastal areas.
“However, promoting trade, addressing population dynamics, and enhancing climate resilience could strengthen growth,” added Aaditya.
Taking a longer-term view, the lender noted that the region’s rate of potential growth slowed to 6.2 per cent in the decade up to 2021, down from 7.7 per cent in the previous decade. It is expected to decelerate further to as low as 4.7 per cent in the decade through 2030, driven mainly by slower potential growth in China.
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