The World Bank on Monday scaled back slightly its 2013 growth forecasts for developing East Asia and warned about possible over-heating in the region's larger economies that could stoke inflation and asset bubbles.
The global lender, in its latest East Asia and Pacific Update, cut its gross domestic product (GDP) growth projection for China by 0.1 percentage point to 8.3 percent for 2013, citing Beijing's ongoing efforts to restructure its economy.
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It also lowered its forecast for Indonesia to 6.2 percent from 6.3 percent due to an expected moderation in investment growth, but raised its growth outlook for Thailand and Malaysia.
Overall, the World Bank expects developing East Asia to grow by 7.8 percent this year, below its December estimate of 7.9 percent but faster than last year's 7.5 percent.
"Our growth forecasts for EAP (East Asia and the Pacific) for 2013 and 2014 remain roughly similar to those of December last year. We expect that with improving external conditions and strong domestic demand, regional growth will rise moderately to 7.8 percent in 2013 and then adjust back to 7.6 percent in 2014 and 2015," it said.
The World Bank, however, tempered its more benign outlook about conditions in the West with a call for Asian governments to start reining in the supportive monetary and fiscal policies that had been adopted in the aftermath of the financial crisis, echoing concerns raised by the Asian Development Bank last week.
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"Counter cyclical demand policies have helped sustain growth, but they may now risk stoking inflationary pressures and amplifying the credit and asset price risks that are emerging in the context of strong capital inflows into the region," the World Bank said.
While the bulk of capital flows into China and Indonesia comprise foreign direct investments that are not easily reversible, portfolio flows are sizable in Malaysia where they comprising 6.4 percent of GDP in 2012 on a net basis, up from 2.9 percent of GDP in 2011.
"Maintaining an appropriate macroeconomic stance and sufficient flexibility in the exchange rate and applying macro prudential measures to ensure these flows do no fuel asset bubbles are priorities," it added.