SINGAPORE Oct 7 The World Bank lowered its 2013
and 2014 economic growth forecasts for China and most of
developing East Asia on Monday, citing slower growth in the
world's most populous nation as well as weaker commodity prices
that have hurt exports and investments in countries such as
"Developing East Asia is expanding at a slower pace as China
shifts from an export-oriented economy and focuses on domestic
demand," the World Bank said in its latest East Asia Pacific
Economic Update report.
"Growth in larger middle-income countries including
Indonesia, Malaysia, and Thailand is also softening in light of
lower investment, lower global commodity prices and
lower-than-expected growth of exports," it added.
The Washington-based development bank now expects developing
East Asia to expand by 7.1 percent this year and by 7.2 percent
in 2014, down from its April estimate of 7.8 percent and 7.6
CHINA LOCAL GOVERNMENT DEBT A CONCERN
On China, the World Bank said the massive, investment-heavy
stimulus program supported by credit expansion had run its
course, and policymakers must focus on containing the rapid
growth of credit and tighten financial supervision.
It added local government debt was a concern, given the
complexity and opacity of municipal finances, and said they
should be reformed "with clear rules on borrowing, on allowed
sources of borrowing, on debt resolution, and on the disclosure
of comprehensive financial accounts by local governments".
"The rapid expansion of shadow banking poses serious
challenges, since shadow banking is closely linked to the
banking system, is less regulated, and operates with implicit
guarantees from banks and local governments," the World Bank
But it added local governments in China had significant
assets to meet liabilities as they held land reserves worth 10
percent of gross domestic product (GDP) as well as shares in
state-owned enterprises worth a similar amount.
China had shown some progress in rebalancing its economy, it
added, with consumption contributing more to quarterly growth
than investment in the two years up to the first quarter of 2013
and services accounting for a larger share of GDP.
"Still, the economy has yet to make the decisive turn toward
consumer-based growth," the World Bank said.
The World Bank now expects the Chinese economy to expand by
7.5 percent this year, down from its April forecast of 8.3
percent and below the International Monetary Fund's most recent
forecast of 7.75 percent.
China's 2014 growth is estimated at 7.7 percent, the World
Bank said, down 0.3 percentage point from the previous
The IMF is due to publish its new world economic outlook on
Tuesday ahead of the fund's annual meeting.
Turning to Indonesia, the World Bank said investment growth
reached a three-year low in the second quarter and is likely to
face headwinds from interest rate hikes in response to rising
inflation and capital outflows as well as from a slowdown in
foreign direct investment and regulatory uncertainties.
"Lower global commodity prices have dampened export receipts
and slowed private investment in the capital-intensive resource
sectors of the Indonesian economy, depressing overall growth,"
the World Bank said.
The World Bank cut its growth forecast for Indonesia to 5.6
percent for 2013 and 5.3 percent next year, down from its
previous estimates of 6.2 percent and 6.5 percent, respectively.
As for the Philippines, investments slowed in the second
quarter after a strong first three months of the year. But
remittances from Filipinos working abroad boosted consumption,
which contributed three-fourths to growth in the April-June.
The World Bank expects the Philippines to grow by 7.0
percent this year, much faster than the April forecast of 6.2
percent. For 2014, the economy would probably expand by 6.7
percent, better than the previous estimate of 6.4 percent.
The World Bank said its latest regional forecasts faced
greater likelihood of being revised downwards than upwards,
citing potential headwinds such as a less orderly tapering of
the U.S. Federal Reserve's stimulus programme and a prolonged
fiscal deadlock in Washington.
World Bank East Asia and Pacific Chief Economist Bert Hofman
added, however, that the reversal of capital flows in developing
East Asia may be offset by Japan's new strategy to exit
deflation and revive growth, commonly referred to as
Japan's efforts to reflate its economy could spill over to
emerging Asian economies through expanded bank lending,
portfolio rebalancing, and increased outward foreign direct
investment, he said.