World Bank Cuts East Asia and Pacific Region's Growth Estimates Due To Uncertainties In China

World Bank has lowered its growth estimates for East Asia and Pacific region to 5% in 2023, compared to the earlier forecast of 5.1%. Meanwhile, 2024 growth projection is at 4.5%. According to the World Bank the region's growth will be supported by improving external conditions, however, persistent domestic difficulties in China weigh on the prospects.

In its semi-annual outlook report that was released on Sunday, the World Bank said that growth in developing East Asia and Pacific is projected to remain strong at 5% in 2023 but will ease in the second half of 2023 and is forecast to be 4.5% during 2024.

World Bank East Asia and Pacific Vice-President Manuela V. Ferro said, "The East Asia and Pacific region remains one of the fastest growing and most dynamic regions in the world, even if growth is moderating."

According to the updated outlook, regional growth this year is higher than the average growth projected for all other emerging markets and developing economies but lower than previously projected. Growth in China in 2023 is projected to be 5.1% and in the region excluding China to be 4.6%. Growth among Pacific Island Countries is expected to be 5.2%.

World Bank predicts China's growth to slow down in 2024.

It said, in 2024, improving external conditions will help growth in the rest of the region but persistent domestic difficulties in China - the fading of the bounce back from the re-opening of the economy, elevated debt, and weakness in the property sector, structural factors such as ageing - will weigh on growth in China, slowing it to 4.4% in 2024.

On the other hand, growth in the rest of the region is expected to edge up to 4.7% in 2024, as recovery in global growth and easing of financial conditions offset the impact of slowing growth in China and trade policy measures in other countries.

Ferro added, "Over the medium term, sustaining high growth will require reforms to maintain industrial competitiveness, diversify trading partners, and unleash the productivity-enhancing and job-creating potential of the services sector."

An intensification of geopolitical tensions, and the possibility of natural disasters, including extreme weather events, are additional downside risks to the region's economic outlook, it said.

Sector-wise, World Bank believes services sectors can play an increasing role in driving development in a region known for manufacturing-led growth, a Special Focus section of the report says. Services sectors have already become key contributors to aggregate labor productivity growth over the last decade. Services exports have grown faster than goods exports. And the growth of foreign direct investment in services has exceeded that in manufacturing by a factor of five in China, Indonesia, Malaysia, the Philippines, and Thailand.

Also, it believes that the diffusion of digital technologies and services reforms are improving economic performance.

Chief Economist Aaditya Mattoo of World Bank East Asia and Pacific, said, "Services reform and digitalization can generate a virtuous cycle of increasing economic opportunity and enhanced human capacity, powering development in the region."

World Bank highlighted that the combination of services reform and digitalization is not only creating new opportunities, it is also enhancing the capacity of people to take advantage of these opportunities. For example, distance education and telemedicine supported by well-selected, trained, and motivated local staff have led to better learning and health outcomes in the region, though there remains significant inequality in access.