The World Bank on Monday (Oct 6) trimmed its growth forecasts for developing East Asian economies this year and next, as China's economic expansion loses momentum and policymakers face tighter global monetary conditions.
Developing countries in East Asia and the Pacific are likely to see a growth of 6.9 per cent this year and in 2015, slower than the 7.1 per cent the bank had forecast in April, it said in an updated report.
China's economy is forecast to grow 7.4 per cent this year and 7.2 per cent next year, compared with 7.6 per cent and 7.5 per cent projected in April as the government addresses financial vulnerabilities and structural constraints. China's economy expanded 7.7 per cent in 2013.
But the bank's chief Asia economist Suhdir Shetty said China's slowdown is unlikely to be "dramatic" enough to have a major impact on the region. "China's slowdown is gradual. It is slower but it's not the bottom falling out of China's growth," he told reporters in Singapore.
He also said that the link between the giant Chinese economy and the rest of Asia does not only involve demand, which is expected to weaken due to the slowdown. China's links also involve investments which could even increase to parts of Asia as Chinese companies venture out of the country, Shetty said.
Developing East Asian countries, excluding China, are expected to grow 4.8 per cent this year and 5.3 per cent in 2015 from 5.2 percent in 2013.
The ASEAN Five
Growth in Southeast Asia's five biggest economies - Indonesia, Malaysia, the Philippines, Thailand and Vietnam - is forecast to slow down to 4.5 per cent this year from 5.0 per cent in 2013, but is likely to pick up and expand 5.0 per cent next year as demand for exports grow.
"The good news for the ASEAN Five is that there will be a period of rising demand for their exports," Shetty said, adding however that these countries must continue to implement structural reforms, invest in infrastructure and improve their investment climate in order to sustain growth.
Indonesia is expected to grow 5.2 per cent this year and 5.6 per cent next year from 5.8 per cent in 2013. Malaysia's growth is forecast to rise to 5.7 per cent this year from 4.7 per cent last year, before easing to 4.9 per cent in 2015.
The Philippines is forecast to expand at 6.4 per cent this year and 6.7 per cent in 2015 from 7.2 per cent in 2013. Thailand is likely to grow 1.5 per cent this year and 3.5 per cent next year from 2.9 per cent in 2013 as the political situation stabilises. Vietnam is expected to grow 5.4 per cent this year and 5.5 per cent next year. It expanded 5.4 per cent in 2013.
Shetty said a key risk for regional economies is a "disorderly" tightening of monetary policy in the United States, Europe and Japan which would lead to a steep rise in interest rates. He said there was no reason to doubt that a tightening of monetary policy in the developed economies would be gradual, but there was also a risk that it could be abrupt.
"To be completely frank, these are unchartered waters... Yes, there is a possibility it will happen in a disorderly fashion and that's when there could be risks," he said.
Sharply higher interest rates could lead to a reduction in capital flows and affect countries which are dependent on them to finance their deficits, he said. Higher rates could hurt the property markets in several countries, he added.