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World Bank lowers growth outlook for East Asia


October 07. 2013 12:37AM
Associated Press

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(AP) The World Bank cut its 2013 growth forecast for East Asia's developing countries on Monday, reflecting regional powerhouse China's slowdown plus the looming end of the United States' cheap-money stimulus policy.


The international lender said it expects the region's emerging economies to grow by an average of 6 percent this year, down from its April prediction of 6.5 percent.


China was forecast to expand by 7.5 percent, lower than the 8.3 percent April outlook. The world's second-largest economy's rapid acceleration is slowing as it shifts to an economy driven by its own consumers instead of mostly exports, and growth hit a two-decade low in the second quarter.


Other developing Asian economies have been hit by weaker demand, plus worries that the U.S. will pull back its loose monetary policy that has poured funds into emerging markets.


Lower global commodity prices and weaker-than-expected export growth have also slowed growth in larger middle-income countries including Indonesia, Malaysia and Thailand, the World Bank economic update said. The Philippines, though, was forecast to continue its surge of the past two years with a forecast expansion of 7 percent, nearly double the rate of two years ago.


Asia's developing economies are slowing even as growth has finally picked up in the U.S., Europe and Japan, which should provide some boost to export-sensitive countries that have been hurt by weak demand in their biggest markets.


Many emerging economies also face the prospect of the U.S. Federal Reserve policymakers scaling back their monetary stimulus program that has injected money into developing countries where returns are higher. Hints that the Fed might start to scale back the $85 billion in bonds it buys each month as soon as September rocked developing countries' financial markets and weakened their currencies over the summer as foreign investors started pulling funds out on the expectation of higher returns back home.


The Fed has delayed its "tapering" of the stimulus, but with advanced economies' growth finally picking up, the end of cheap money is inevitable.


Bert Hofman, the World Bank's chief economist for East Asia and the Pacific, said the delay gives countries "a second opportunity to take measures to lower risks from future volatility."


He urged countries to reduce reliance on short-term foreign currency denominated debt and to enact structural reforms such as improving infrastructure and investment climate to lure back investors once the U.S. stimulus incentive dries up.


Associated Press


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