The World Bank has joined the Asian Development Bank in cutting its growth forecasts for emerging East Asia. However, the region is still expected to be the world’s fastest growing in 2013, according to the Washington-based institution.
In its East Asia Pacific Economic Update released in Singapore on Monday, the global lender cut its growth forecasts for “developing East Asia” to 7.1 percent in 2013 and 7.2 percent in 2014, down from its April forecasts of 7.8 percent and 7.6 percent respectively.
The forecasts were higher than the Asian Development Bank, which expects regional growth of just 6 percent in 2013 and 6.2 percent the following year due to a slowdown in China and India.
“East Asia Pacific continues to be the engine driving the global economy, contributing 40 percent of the world’s GDP growth – more than any other region. With overall global growth accelerating, now is the time for developing economies to make structural and policy reforms to sustain growth, reduce poverty and improve the lives of the poor and vulnerable,” said Axel van Trotsenburg, World Bank East Asia and Pacific Regional vice president.
The bank blamed its downgrade on slower growth in China along with a slowdown in domestic demand in larger middle income countries such as Indonesia, Malaysia and Thailand, which are seeing weaker investment and reduced exports along with a withdrawal of stimulus programs.
China is expected to meet its official GDP target of 7.5 percent this year, sharply lower than the bank’s previous target of 8.3 percent, although it is seen improving to 7.7 percent in 2014 on the back of improved industrial production.
However, the bank noted risks concerning the restructuring of the Chinese economy, stating that “a greater than expected slowdown of investment could have an adverse effect on the region, especially on suppliers of capital goods and industrial raw materials to China.”
Excluding China, the region is seen expanding by 5.2 percent in 2013 and 5.3 percent next year, with investment growth moderating in ASEAN’s larger economies. However, the Philippines and Cambodia were pointed to as bright spots, with both expected to post 7 percent growth in 2013, while Mongolia is seen maintaining a double-digit growth rate through 2014.
Exporters have been hit by declining commodity prices including prices of metals, palm oil, rubber and non-oil energy, although a pickup in developed economies should boost the region. According to the bank, the second quarter of 2013 marked the first time in 30 months that the eurozone, Japan and the United States had all posted positive growth.
While the World Bank pointed to improved global growth prospects, it also noted risks associated with the withdrawal of quantitative easing in the United States, uncertainty concerning the U.S. fiscal deadlock and a potential China slowdown.
The bank urged policymakers to take advantage of the U.S. Federal Reserve’s delayed tapering by reducing exposure to foreign currency denominated debt, “accepting a weaker exchange rate when growth is below potential, and building policy buffers to respond to changing global liquidity conditions.”
Ironically for critics of Japan’s “Abenomics,” the bank said tapering in the U.S. could be offset by planned monetary expansion in Japan, “which could increase Japanese investment in the region.”
Yudhoyono: APEC the “Driving Force”
Despite the mixed messages, Indonesian President Susilo Bambang Yudhoyono opened the 2013 APEC Economic Leaders’ Meeting in Bali on Monday by declaring that the region remained the driving force for global growth.
“According to the IMF, as a group, APEC is expected to grow by 6.3 percent in 2013 and by 6.6 percent in 2014,” Yudhoyono said in a statement.
“In spite of the uneven pace of recovery, in the APEC region, the APEC economies continue to be the driving force for global growth,” he noted. “We should redouble our efforts to sustain our resilience and maintain our role as the pillar and the safety belt of global growth.”
The Indonesian president also urged regional leaders to continue striving for APEC’s Bogor Goals of “free and open trade” among developing economy members by 2020.
However, the absence of U.S. President Barack Obama from the gathering of regional leaders for the second year in a row was seen as raising question marks over the future of the 21-member APEC group.
Nevertheless, Australian Prime Minister Tony Abbott told Australian media that Trans-Pacific Partnership (TPP) talks had progressed well at the gathering, and could even be concluded by the end of 2013.