The Washington-based lender expects the developing East Asia and
Pacific (EAP) region to grow 6.9 percent in 2014 and 2015, down from
the 7.1 percent rate it had previously forecast for both years.
Growth in 2013 had been 7.2 percent.
The bank also trimmed its 2016 growth forecast for the region to 6.8
percent from 7.1 percent.
"The main message of this report is one that I would categorize as
cautious optimism," World Bank East Asia and Pacific Chief Economist
Sudhir Shetty said at a media briefing on Monday on the latest East
Asia Pacific Economic Update.
Possible risks to the outlook include a weaker-than-expected
recovery in global trade and any abrupt rise in global interest
rates, the report said, adding that its baseline scenario was based
on an orderly normalization of monetary policy in the United States.
The World Bank said growth in China was likely to slow to 7.4
percent in 2014 and 7.2 percent in 2015, down from 7.7 percent in
2013. Growth in 2016 was seen at 7.1 percent.
The World Bank had previously seen China's growth coming in at 7.6
percent in 2014 and 7.5 percent in 2015 and 2016.
"Measures to contain local government debt, curb shadow banking, and
tackle excess capacity, high energy demand, and high pollution will
reduce investment and manufacturing output," it said regarding
China's economy has struggled to recover from a soft start to the
year when growth slowed to its weakest in 18 months in the first
quarter. Beijing has indicated it is prepared to accept slower
growth as it tries to wean the world's second-biggest economy away
from dependence on investment and exports in favor of consumption.
But a slowdown in the housing market has become an increasing drag
on the broader economy, prompting Beijing and local governments to
step up efforts to restore momentum.
When asked about the economic implications of the political unrest
in Hong Kong, the World Bank's Shetty said the impact on China's
economy seemed limited at this point.
"What we anticipate is obviously a greater impact on the Hong Kong
SAR (Special Administrative Region), so slower growth in 2014 than
was being anticipated earlier. But at this stage our best
estimates...are that there isn't as yet significant spillover to the
broader Chinese economy," Shetty told reporters.
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HOUSING, CAPITAL FLIGHT RISKS
The report noted potential risks in the region's real estate
markets. There was slim evidence of price bubbles in the larger
economies, which limited chances of "significant" house price
corrections. But, an abrupt financial tightening could trigger a
disorderly adjustment of housing prices, the report warned.
On China, the bank said: "A major nationwide correction in real
estate prices in China remains unlikely, although there may be
pressure on prices in several of the less rapidly growing
Growth in developing East Asia and Pacific excluding China will slow
to 4.8 percent in 2014 from 5.2 percent in 2013 due to the slowing
economies of Indonesia and Thailand, the World Bank said, adding
that growth was likely to rise to 5.3 percent in 2015.
region's vulnerabilities to capital-flow reversals have decreased
over the past year, Indonesia remains relatively exposed due to its
high short-term external financing needs, it said.
The U.S. Federal Reserve is expected to start raising interest rates
at some point next year, with analysts expecting a more aggressive
tightening-cycle by the Fed to potentially trigger a destabilizing
flight of capital from some emerging market economies.
Broad risks to the region include the possibility of slower than
expected recovery in global demand, as well as any rapid increase in
interest rates, which could lead to debt servicing issues in some
EAP countries, particularly among households and corporates, the
World Bank said.
Another risk to the region would be a sharp slowdown in China but
the likelihood of that is low, partly because Beijing has fiscal
buffers to provide economic stimulus, or to bail out banks if
non-performing loans emerge, the World Bank said.
(Editing by Simon Cameron-Moore)
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