The World Bank said that developing economies in East Asia will grow faster than China this year, as the world's second largest economy struggles with a real-estate crunch and the government's zero-tolerance approach to COVID 19 is what the World Bank expects to do so for the first time since 1990.
The Washington, D.C. based lender cut its forecast for Chinese growth this year, but said that it expects growth among 22 neighboring economies to double in 2022 compared to the pace they notched last year, as countries benefit from dismantling most COVID 19 restrictions and a revival in tourism.
The outlook for the region is threatened by the fact that central banks, including the U.S. Federal Reserve, raise interest rates more aggressively than investors anticipate to contain galloping inflation, according to the bank. It said that global growth could be hurt and financial stress could be a factor in heavily indebted emerging markets.
In its latest assessment of the developing economies of East Asia and the Pacific, the World Bank said that China is expected to expand by 2.8% in 2022. That is down from a 4.3% forecast in June, making the World Bank gloomier on China's prospects this year than the International Monetary Fund, which forecasts 3.3% growth and some private sector forecasts from banks, including Goldman Sachs Group and Standard Chartered.
China's success in containing COVID 19 infections comes at a significant economic cost, the lender said in a report released Monday. It also highlighted the drag of a real-estate downturn with sales, prices and construction activity falling as developers wrestle with heavy debts and consumers lose confidence in a market plagued by unfinished projects.
In April, the Asian Development Bank cut its forecast for Chinese growth to 3.3%, from 5% in April. Financial institutions including Goldman Sachs, Nomura and S&P Global Ratings have cut their forecasts for growth next year, citing a darkening global backdrop and the chance that China sticks with its zero-COVID policy well into next year.
The region includes China and Southeast Asian economies, such as Malaysia and Indonesia, as well as Pacific islands such as Samoa and Tonga. It covers 23 countries, but not advanced Asian economies such as South Korea, Singapore and Japan.
The region excluding China is expected to grow 5.3%, up from the 2.6% recorded in 2021. Vietnam is projected to expand 7.2%, the Philippines by 6.5%, Malaysia by 6.4% and Indonesia by 5.1%.
Aaditya Mattoo, World Bank chief economist for East Asia and the Pacific, said in an interview that China is lagging behind other economies in a region where it usually drives growth.
Some of the economies are still smaller than before the epidemic, underscoring the prospect of continued domestic growth to close the gap even as Western demand for Asian exports fades. The World Bank said that the output in Cambodia, the Philippines and Thailand is expected to surpass prepandemic levels this year.
Most countries have relatively low debts and manageable financing needs, it said. Some people with foreign currency borrowings, such as Laos and Mongolia, could come under pressure as a strengthening dollar and rising interest rates push up debt-servicing costs, an especially painful mix for those with foreign currency borrowings, according to the World Bank.