- The World Bank now expects development in East Asia and the Pacific to grow by 5% this year, up from 5.1% previously.
- For 2024, the organization now expects the region to grow 4.5% in 2024, up from 4.8% previously.
- Growth risks include rising government, corporate and private debt.
An urban view of high-rise buildings at dusk seen from Victoria Peak in Hong Kong on July 23, 2023 in Hong Kong, China.
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The World Bank cut its growth forecast for East Asia and the Pacific, citing sluggish demand in China and the world amid still-high interest rates and subdued trade.
The World Bank now expects developing countries in East Asia and the Pacific to grow by 5% in 2023, according to its October report released in Asia on Monday. That’s slightly less than the 5.1% forecast in April. For 2024, the Washington-based multilateral bank now expects growth of 4.5% for the region, compared to its forecast of 4.8% in April.
The World Bank left its forecast for China’s economic growth in 2023 unchanged at 5.1%, but lowered its estimate for 2024 to 4.4% from 4.8% previously. The organization cited “longer-term structural factors,” increased debt in the world’s second-largest economy and weakness in the real estate sector as reasons for the downgrade.
“While domestic factors are likely to have the dominant influence on growth in China, external factors will have a stronger impact on growth across much of the rest of the region,” the World Bank said.
Although East Asian economies have largely recovered from the series of shocks since 2020 – including the Covid-19 pandemic – and will continue to grow, the World Bank said the pace of growth is likely to slow.
The World Bank noted the significant increase in public debt as well as the rapid increase in corporate debt, particularly in China, Thailand and Vietnam.
It warned that high government debt can limit both public and private investment. Increased debt could lead to higher interest rates, which would increase borrowing costs for private companies, it said.
According to World Bank calculations, a 10 percentage point increase in public debt relative to GDP is associated with a 1.2 percentage point decline in investment growth. Likewise, a 10 percentage point increase in private debt relative to GDP is associated with a 1.1 percentage point decline in investment growth, it said.
The bank also noted that household debt levels in China, Malaysia and Thailand are relatively high compared to other emerging markets. High household debt can have a negative impact on consumption as more income would be used to service debt, which could lead to spending cuts.
A 10 percentage point increase in household debt would reduce consumption growth by 0.4 percentage points, the World Bank said.
According to the World Bank, household spending in the developing East Asia and Pacific region is currently still below pre-pandemic trends.
In China, the current retail sales trend is flatter than before the pandemic, reflecting falling property prices, weaker household income growth, increased precautionary saving and household debt, and other structural factors such as an aging population.