World Bank lowers growth forecast for East Asia and the Pacific

Growth in the region will slow from 7.2% last year to 3.2% in 2022, well below the 5% projected in April, according to the latest data.

The region is under pressure from China's economic growth, which is projected to slow from 8.1% in 2021 to 2.8% in 2022 amid ongoing covid restrictions and a downturn in the real estate market. That growth rate means the rest of the region will grow faster than China for the first time in decades. In April, the World Bank predicted that China will grow 5% in 2022. A recovery to 4.5% is expected in 2023.

The lowered forecast for China comes as economists are increasingly pessimistic about the prospects for next year, expecting any recovery to be uneven under Beijing's "Covid Zero" strategy and likely disruptions when the country eventually reopens. 

Last week, the Asian Development Bank lowered its forecast for China's growth to 3.3 percent from the 4 percent previously forecast, which ADB said would be slower than the rest of developing Asia for the first time in more than three decades.

Investment banks are also lowering their forecasts. Nomura Holdings Inc. last week lowered its 2023 growth forecast for China from 5.1% to 4.3%. Goldman Sachs Group Inc. lowered its forecast to 4.5% from 5.3%, and Societe Generale SA believes next year's growth will be less than 5%. The median forecast in the latest Bloomberg economists' survey puts gross domestic product growth at 5.1% in 2023, down from the previous forecast of 5.2%. The consensus forecast for this year has also been lowered to 3.4 percent from 3.5 percent.

In the region as a whole, declining international export orders are expected to affect demand, while rising interest rates around the world are pulling back capital amid weakening currencies, the World Bank said.

According to Aaditya Mattoo, the World Bank's chief economist for East Asia and the Pacific, the strengthening dollar has a mixed impact, boosting export competitiveness but at the same time putting pressure on borrowers who pay debt in foreign currencies.

Mattoo said that a stronger dollar is good for exports, but at the same time it is detrimental for inflation and debt burdens. Aaditya Mattoo added that weakening regional currencies could help boost tourism.

The World Bank warned that government officials need to protect households and firms from rising food and energy prices without exacerbating existing policy distortions. Food price controls and energy subsidies divert public spending from areas such as education and health care.