World Bank trims 2015 East Asia growth forecast

SINGAPORE — East Asia's developing economies led by China will grow slightly slower this year, with higher US interest rates and an appreciating dollar posing further risks to the region, the World Bank said Monday.

In its latest forecasts for the region, the bank said China's economy should expand by 7.1 per cent in 2015, slower than the 7.2 per cent rate projected in October and down from last year's 7.4 per cent growth.

Developing East Asia should grow 6.7 per cent, easing from 6.9 per cent in 2014, the World Bank added in the latest edition of its East Asia Pacific Economic Update.

Under the bank's definition, Developing East Asia includes 14 countries.

"Despite slightly slower growth in East Asia, the region will still account for one-third of global growth, twice the combined contribution of all other developing regions," Axel van Trotsenburg, World Bank East Asia and Pacific regional vice president, said in a statement.

Slower growth in China is likely to temper the positive effects of lower oil prices and a recovery in developed countries, but the bank said economies should take advantage of the oil price fall to push through fiscal reforms aimed at raising revenues such as cutting fuel subsidies.

"In China, engineering a gradual shift to a more sustainable growth path will continue to pose challenges for policymakers, given real sector weaknesses and financial system vulnerabilities," the bank said, adding that reforms "will depress activity in the short term".

The bank slashed its forecast for growth in the Philippines to 6.5 per cent this year from its October estimate of 6.7 per cent, but this is still higher than last year's 6.1 per cent expansion.

Indonesia growth

For Indonesia, 2015 growth is expected to come in at 5.2 per cent, slower than the bank's previous estimate of 5.6 per cent but still stronger than last year's 5 per cent expansion.

Thailand's economy is likely to mount a strong rebound and grow at 3.5 per cent this year from just 0.70 per cent in 2014 as greater political stability perks up consumer spending and investments.

But the bank said growth for Malaysia, Southeast Asia's largest oil exporter, will slow to 4.7 per cent from 6 per cent last year as the country feels the pinch from depressed crude prices, while a goods and services tax implemented this month will affect consumption.

Malaysian growth will pick up to 5 per cent in 2016, it said.

"East Asia Pacific has thrived despite an unsteady global recovery from the financial crisis, but many risks remain for the region both in the short and long run," said the bank's chief economist Sudhir Shetty.

Among the risks is a downturn in the eurozone and Japan, two of the region's top export markets, the bank said.

It also warned that higher US interest rates and an appreciating dollar "could raise borrowing costs, generate financial volatility and reduce capital flows" to the region.

The Federal Reserve is split on when to raise ultra-low US interest rates, with timing scenarios ranging from June this year to sometime in 2016, according to minutes of its last policy meeting released last week.