World Bank trims 2016, 2017 East Asia growth forecasts, cites risks to outlook

Reuters: The World Bank trimmed its 2016 and 2017 economic growth forecasts for developing East Asia and Pacific, and said the outlook was clouded by risks such as uncertainty over China’s growth prospects, financial market volatility and further falls in commodity prices.

The Washington-based lender now expects the developing East Asia and Pacific (EAP) region, which includes China, to grow 6.3% in 2016 and 6.2% in 2017, slowing from 6.5% growth in 2015.

Its previous forecast in October was 6.4% growth in 2016 and 6.3% in 2017.

The expected slowdown in the region is mainly due to the continued moderation of growth in China, which is likely to see growth slow to 6.7% in 2016 and 6.5% in 2017, from 6.9% in 2015, the bank said. The growth forecasts for China were unchanged from October.

“The fundamentally positive base case for growth and poverty reduction in the region is subject to elevated risks,” the World Bank said in its latest East Asia and Pacific Economic Update report on Monday.

Possible risks include a weaker-than-expected recovery in high-income economies, a faster-than-expected slowdown in China, as well as increases in financial market volatility that could cause monetary conditions to tighten and have adverse effects on the real economy, the bank said.

“In particular, vulnerabilities created by the interplay between high levels of indebtedness, price deflation, and slowing growth in China bear close monitoring, as do corporate and financial sector vulnerabilities across much of the region.”

A further fall in commodity prices would have a negative impact on major commodity exporters and reduce the space for public spending and investment, the bank added.

Growth in Malaysia was likely to come in at 4.4% in 2016 and 4.5% in 2017, down from 5.0% in 2015, as weaker demand from China and low commodity prices constrain growth and public spending, the bank said.

Growth in Thailand was seen at 2.5% in 2016 and 2.6% in 2017, down from 2.8% in 2015, with weaker external demand and policy uncertainty likely to weigh on private investment.

Indonesia is likely to see growth accelerate to 5.1% in 2016 and 5.3% in 2017, from 4.8% in 2015, despite low commodity prices and headwinds to external demand.

“However, this outlook is contingent on the implementation of an ambitious public investment programme, and the success of recent reforms to reduce red tape and uncertainty for private investors,” the bank said, regarding Indonesia.

Growth is expected to firm in the Philippines to 6.4% in 2016 from 5.8% in 2015, on the back of accelerated implementation of the existing pipeline of public-private partnership projects, and spending related to the May 2016 presidential election, the bank said.