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World Bank lowers growth outlook for developing East Asia

World Bank lowers growth outlook for developing East Asia

The World Bank has revised its growth forecast for developing East Asia and the Pacific, citing a sluggish China, weak global demand, and elevated debt levels as the main reasons for the downgrade. According to the bank’s report, the region is now expected to grow by 5% in 2023, slightly lower than the 5.1% forecasted earlier, and by 4.5% in 2024, down from the previous estimate of 4.8%. The bank specifically highlighted the significant increase in government and corporate debt, particularly in China, Thailand, and Vietnam, as a risk to future growth.

The World Bank also warned that high debt levels could limit both public and private investment and lead to higher interest rates, increasing the cost of borrowing for businesses. It noted that a 10-percentage-point increase in government debt to GDP is associated with a 1.2 percentage point decline in investment growth, while a similar increase in private debt to GDP is associated with a 1.1 percentage point decline in investment growth. The bank further highlighted the relatively high levels of household debt in China, Malaysia, and Thailand compared to other emerging markets, which could negatively impact consumption and lead to reduced spending.

Despite the challenges, the World Bank acknowledged that East Asian economies have largely recovered from the shocks of the past few years, including the COVID-19 pandemic, and will continue to grow. However, the pace of growth is expected to slow due to the aforementioned factors. In China, retail sales have been affected by falling house prices, weaker household income growth, increased precautionary savings, and an aging population, leading to a flatter trend compared to pre-pandemic levels. Overall, the World Bank’s revised forecast reflects the ongoing economic uncertainties and risks faced by the developing East Asia and Pacific region.

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