Home » World Bank’s revised outlook for East Asia reflects China’s economic hurdles

World Bank’s revised outlook for East Asia reflects China’s economic hurdles

by Admin

Amid concerns about China’s economic stability and diminished global demand, the World Bank has revised its growth projections for developing East Asia and the Pacific. The bank’s most recent assessment, unveiled in its Monday report from Asia, predicts the region will see a 5% growth in 2023, a modest decline from the previously anticipated 5.1% made in April. The 2024 forecast was also adjusted from 4.8% to 4.5%.

World Bank's revised outlook for East Asia reflects China's economic hurdles

The World Bank, based in Washington, remains steady on its 2023 growth prediction for China, maintaining it at 5.1%. However, expectations for 2024 underwent a cut, dropping from 4.8% to 4.4%. This recalibration stems from a myriad of challenges China is currently navigating. These include escalating debt levels, a shaky property sector, and broader “longer-term structural factors.”

According to the bank, China’s economic trajectory is likely more influenced by internal dynamics. In contrast, other regional economies will be considerably swayed by external variables. Despite the majority of East Asian economies having rebounded from adversities since 2020, most notably the Covid-19 pandemic, the World Bank anticipates the rate of growth to decelerate in the coming years.

A specific concern raised by the bank revolves around the alarming increase in debt levels, both governmental and corporate. Countries such as China, Thailand, and Vietnam are witnessing especially steep hikes in this arena. Such towering debt levels have potential ramifications, including constricting public and private investments and the possibility of surging interest rates, consequently amplifying borrowing costs for private entities. The bank’s analysis reveals that a 10-percentage-point escalation in government debt relative to GDP could lead to a 1.2 percentage point drop in investment growth.

Similarly, a comparable rise in private debt might result in a 1.1 percentage point reduction in investment expansion. A particular point of contention is the growing household debt, especially in countries like China, Malaysia, and Thailand, which currently outstrip other emerging economies. Heightened household debt potentially dampens consumption by redirecting a more significant portion of income towards debt service, eventually leading to spending cutbacks. The World Bank emphasizes that a 10-percentage-point uptick in household debt could potentially shave off 0.4 percentage point from consumption growth.

Current indicators suggest household expenditure in the East Asia and Pacific region hasn’t yet reached its pre-pandemic zenith. Specifically, in China, retail sales trends are somewhat stagnant, attributed to an amalgamation of factors: declining housing prices, subdued growth in household income, an inclination towards precautionary savings, escalating household debt, and demographic shifts, such as an aging populace.

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