World Bank cuts East Asia 2022 growth outlook

World Bank predictions show that due to China’s downturn, economic growth in East Asia and the Pacific may experience a steep decline in 2022, though a marked recovery in growth rate is expected sometime in 2023.

The Washington-based lender predicted in its research that growth in the East Asia and Pacific region, which includes China, would fall to 3.2% in 2022 from its April prediction of 5% and from growth of 7.2% in the year prior.

According to the World Bank, China’s rigorous zero-Covid-19 regulations, which have interrupted industrial production, domestic sales, and exports, are mostly to blame for the country’s abrupt slowdown.

This year’s economic growth in China, which accounts for 86% of the output in the 23-country region, was predicted to slow to 2.8% from the bank’s prior prediction of 5%. Due to this decline in growth rate, China will be slower than the other nations region for the first time in decades.

The Chinese economy grew by 8.1% in 2021, which was the country’s best rate in a decade. Known as the second-largest economy in the world, China was expected to reach a 4.5% growth rate by 2023. That may not be the case anymore as the World Bank revised its China forecast to a lower mark as experts became more negative about China’s prospects for the upcoming year.

In the same vein, the Asian Development Bank this week also reduced its forecast for China’s growth from 4% to 3.3%. The outlook of investment banks is declining as well. For example, last week, Nomura Holdings reduced its 2023 China growth prediction from 5.1% to 4.3%, while Societe Generale predicted that output growth will be less than 5% next year. Goldman Sachs’ revision drew growth rate projections down to 4.5% a notable drop from the previous 5.3%.

The World Bank stated that rising interest rates worldwide are driving capital away as currencies weaken and that a decline in export orders globally is anticipated to have an impact on demand for the region as a whole.

According to Mr Aaditya Mattoo, head economist for East Asia and the Pacific at the World Bank, the strength of the US dollar is having a mixed effect by enhancing export competitiveness but also placing pressure on borrowers to repay foreign currency debt.

“From the inflationary and debt burden point of view, a stronger dollar is bad news, but from an export point of view, it is good news,” said Mr Mattoo, adding that weaker regional currencies may boost tourism.

The World Bank urged policymakers to protect people and businesses from rising food and energy costs without exacerbating current policy inefficiencies. Government spending on things like education and healthcare is being shifted to controls on food prices and energy subsidies.

“Controls in prices of food and fuel muddy price signals at a time where you need clear signals,” Mr Mattoo said. “Income transfers are better to price regulation.”