Developed East Asia and Pacific countries to grow 3.2% this year, ADB says

In this May 3, 2020 file photo, containers are loaded on a ship at the Saigon port in Ho Chi Minh City, Vietnam. The developing East Asia and Pacific countries are projected to grow by 3.2 percent this year, according to the World Bank.

The growth of the region is expected to slow this year from 7.2 percent in 2021, before accelerating to 4.6 percent next year, according to the World Bank's newly released East Asia and Pacific Economic Update.

In April, the developing East Asia and Pacific countries are projected to grow by 5 percent in 2022.

The report noted that the global economic slowdown is beginning to dampen demand for the region's exports of commodities and manufactured goods.

READ MORE: ADB lowers its Asia growth outlook to 4.3% as global risks mount.

The report noted that rising inflation abroad has resulted in interest rate increases, which have resulted in capital outflows and currency depreciations in some East Asia and Pacific countries.

The report said these developments have increased the burden of servicing debt and shrunk fiscal space, hurting countries that entered the pandemic with a high debt burden.

The Fed's response to higher inflation in the United States in terms of monetary policy and increases in interest rates is sure to put pressure on all developing countries, including those in the region, said Aaditya Mattoo, World Bank East Asia and Pacific Chief Economist at a virtual press conference in response to a question from Xinhua.

In order to try and support their currencies and to deal with the slight increase in core inflation in the region, the region has had to tighten its interest rates, as it has done less than most other parts of the world, said Mattoo, who said that they have seen capital outflows and that they have contributed to depreciating exchange rates. AfDB says that Africa is losing 15% of GDP due to climate change.

Mattoo noted that most of the developing countries in the region have switched their borrowing largely towards their domestic market, with a smaller share of debt denominated in foreign currencies, making them less vulnerable.

They're coming out of the pandemic with relatively high levels of both private and public debt, but that doesn't mean they are immune to the consequences of higher interest rates, both in terms of economic activity, investment, consumption, as well as the potential financial strains. I would say strains. He said there was not yet serious instability.

The report noted that current policy measures provide much needed relief, but add to existing policy distortions as the countries of the region try to shield households and firms from higher food and energy prices.

Mattoo said policymakers face a tough tradeoff between inflation and economic recovery. Controls and subsidies hurt productivity and muddy price signals. There would be better policies for food, fuel, and finance to spur growth and insure against inflation.