World Economy

East Asia faces growth slowdown, World Bank warns

World Bank expects slower China to drag East Asia

China's economic re-balancing will shave a few percentage points off its neighbors' growth outlook in the coming years, the World Bank announced on Wednesday.

Gross domestic product (GDP) in developing East Asia will ease to 6.3 percent in 2016 and 6.2 percent in 2017-18, versus 6.5 percent in 2015, the Washington-based institution predicted in a new report, adding that the forecasts reflected China's transition to a slower, more sustainable growth model.

"Developing East Asia and Pacific faces elevated risks, including a weaker-than-expected recovery in high-income economies and a faster-than-expected slowdown in China," said Sudhir Shetty, chief economist of the World Bank's East Asia and Pacific region. "At the same time, policy makers have less room to maneuver in setting macroeconomic policy."

Excluding China, the East Asia region's developing countries could see growth hit 4.8 percent in 2016 and 4.9 percent in 2017-18, from 2015's 4.7 percent, thanks to reasonably robust growth in Southeast Asia.

The Philippines and Vietnam boast the strongest outlook, with GDP set to climb over 6 percent in 2016, the report stated.

Indonesia, Southeast Asia's largest economy, could expand 5.1 percent this year and 5.3 percent in 2017, depending on the success of President Joko Widodo's recent reforms and the implementation of a public investment program.

But volatile commodity prices and weak external demand will continue to hurt smaller nations in East Asia, including Cambodia, Lao, Mongolia and Papua New Guinea.

"Across the region more generally, there is a growing need for prudent fiscal policy to guard against future external shocks. This is especially important in those economies where growth has been sustained through increased public or private sector borrowing, or where external demand has been supported by the commodities boom," the report said.

Taking a longer-term focus, the World Bank stresses governments to increase transparency and accountability as well as helping citizens adapt their skill sets to meet the demands of the new digital economy.

Zooming in on China

The World Bank forecasts the world's second-largest economy to grow 6.7 percent in this year and 6.5 percent in 2017. That's in line with the Chinese government's official 2016 target of 6.5-7 percent annual growth.

Beijing releases first-quarter GDP this Friday and experts predict a reading of 6.7 percent on-year, according to a Reuters poll, compared to the the December quarter's 6.8 percent figure. China's growth rate slowed in 2015 to a 25-year low of 6.9 percent.

Strengthened market discipline in China's financial sector was needed, the World Bank report said, outlining possible measures such as allowing credit allocation to be more market-driven, permitting greater competition in sectors dominated by state-owned enterprises, as well as continued reform of the household-registration system.

A shift in public spending from infrastructure to environmental protection and public services, such as education, health, and social assistance, should also be a priority, the report said.

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