The World Bank today lowered its 2013 growth forecast for East Asian developing countries to 7.1 per cent and warned that a prolonged US fiscal crisis could be damaging to the region.
The estimate for this year’s gross domestic product (GDP) growth is down from a forecast of 7.8 per cent in April and lower than the 7.5 per cent growth recorded in 2012 and 8.3 per cent in 2011.
Regional GDP growth in 2014 and 2015 was forecast at 7.2 per cent for both years with middle-income economies like Indonesia, Malaysia and Thailand also softening. Excluding China, the region is expected to grow 5.2 per cent in 2013 and 5.3 per cent in 2014.
Bert Hofman, the World Bank’s East Asia and Pacific chief economist, told journalists that the bank was expecting a “smooth resolution” to the budgetary impasse that has forced parts of the US Government to shut down.
However, he added: “If there were to be a sustained deadlock, it could actually be quite damaging also for the East Asian economies.
“For every percentage point growth lost in the United States, we would see about half a percentage point growth lost in East Asia.”
Hike in debt ceiling limit
The US impasse has raised fears that the US lawmakers will not increase the country’s borrowing limit before an October 17 deadline, which could lead the Government to default on its debts.
Hofman said: “Any refusal on the increase in the debt ceiling is so unprecedented that it is very hard to predict what would happen. So we don’t have that in the simulation.”
In a report, the bank said that East Asia is still fastest growing in the world despite a slowdown in powerhouse China and a softening in places such as Indonesia and Thailand this year.
“East Asia-Pacific continues to be the engine driving the global economy, contributing 40 per cent of the world’s GDP growth — more than any other region,” said Axel van Trotsenburg, World Bank’s East Asia and Pacific Regional Vice-President.
“With overall global growth accelerating, now is the time for developing economies to make structural and policy reforms to sustain growth, reduce poverty and improve the lives of the poor and vulnerable,” he added in a statement.
The bank noted that in recent months speculation about the withdrawal of the US Federal Reserve’s stimulus programme led to stock market sell-offs and currency depreciation in East Asia, hurting countries with large foreign participation in their financial markets.