World Bank lowers growth forecast for developing East Asia
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An urban view of tall buildings at dusk as seen from Victoria Peak in Hong Kong, China on July 23, 2023.
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The World Bank has lowered its growth forecast for East Asia and the Pacific, citing China’s slowdown and global demand amid still-high interest rates and a decline in trade.
The World Bank said it now expects developing economies East Asia and Pacific region will grow by 5% in 2023, according to its October report published in Asia on Monday. This is slightly lower than the 5.1% estimated in April. For 2024, the Washington-based multilateral bank now expects growth of 4.5% for the region, down from a forecast of 4.8% in April.
The World Bank left its 2023 economic growth forecast for China unchanged at 5.1%, but cut its 2024 estimate to 4.4% from 4.8% previously. The organization cited “long-term structural factors”, elevated debt levels in the world’s second-largest economy and weakness in its property sector as reasons for its downgrade.
“While domestic factors are likely to be the dominant influence on growth in China, external factors will have a greater influence on growth in the rest of the region,” the World Bank said.
Even though East Asian economies have mostly recovered from a series of shocks since 2020 – including the Covid-19 pandemic – and will continue to grow, the World Bank said the pace of growth is likely to slow.
increasing debt levels
The World Bank noted a significant increase in general government debt as well as a sharp rebound in corporate debt levels, particularly in China, Thailand, and Vietnam.
It warned that high government debt levels could limit both public and private investment. It said increased debt could lead to higher interest rates, which would increase the cost of borrowing for private businesses.
According to World Bank calculations, a 10 percentage point increase in general government debt relative to GDP is associated with a 1.2 percentage point decline in investment growth. Similarly, a 10 percent increase in private credit to GDP is associated with a 1.1 percent decline in investment growth.
The bank also noted relatively high levels of household debt in China, Malaysia and Thailand compared to other emerging markets. Higher household debt may have a negative impact on consumption, as more income will be used to repay debt, leading to reductions in spending.
The World Bank said a 10 percent increase in household credit would reduce consumption growth by 0.4 percent.
As it is, the World Bank said household spending in the developing East Asia and Pacific region is still below pre-pandemic trends.
In China, the current trend of retail sales is lower than before the pandemic due to falling house prices, weak household income growth, increased precautionary savings and household debt as well as other structural factors such as an aging population.
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