Slower growth in China drags down World Bank forecasts

SINGAPORE — The World Bank cut its 2015 and 2016 growth forecasts for the developing East Asia and Pacific (EAP) region, and said the outlook was clouded by the risk of a sharp slowdown in China and expected increases in United States interest rates.

The Washington-based lender now expects the EAP region, which includes China, to grow 6.5 per cent in 2015 and 6.4 per cent in 2016, down from 6.8 per cent growth in 2014. Its previous forecast in April was 6.7 per cent in each of 2015 and 2016.

Slower-than-expected growth in China will put pressure on commodity exporters, as well as trade, foreign direct investment and tourism in the region, the World Bank said. It sees China’s economy growing 6.9 per cent in 2015 and 6.7 per cent in 2016, down from 7.3 per cent in 2014. The previous forecast was for China to grow 7.1 per cent in 2015 and 7.0 per cent in 2016.

The scope to ease monetary policy is constrained by the need to safeguard financial stability, while room for fiscal expansion is limited, it said.

“Monetary loosening could prove counterproductive if it led to capital outflows, the likelihood of which will grow once US policy rates increase,” the World Bank said. “The scope for more public spending to boost short-term growth is limited.”

The region’s economic outlook is “subject to a greater-than-usual degree of uncertainty”, the lender said, as it reduced 2015 growth forecasts for Indonesia, the Philippines and Thailand while raising its outlook for Vietnam. “In particular, uncertainty surrounds the trajectory of, and spillovers from, China’s economic rebalancing and the expected normalisation of US policy interest rates,” it said.

Over the medium term, the region should re-evaluate fiscal incentives, boost infrastructure investment, change agricultural policies and deepen integration, the World Bank said. Agencies