World Bank Slashes Asia Growth Forecasts

Global economic growth is going to disappoint previous expectations, according to a new report by the World Bank.

In a move some economists were expecting, the World Bank slashed its growth forecasts for many nations throughout Asia, citing weakness in China as a negative catalyst for the rest of the region.

Global economic growth is going to disappoint previous expectations, according to a new report by the World Bank.

In a move some economists were expecting, the World Bank slashed its growth forecasts for many nations throughout Asia, citing weakness in China as a negative catalyst for the rest of the region.

In its new report, the World Bank cut its forecast for the region to 6.7% in both 2015 and 2016, a small decline from previous forecasts of 6.9% growth in in 2015 and 6.8% growth in 2016. Nations throughout Southeast Asia, including Malaysia and the Philippines, saw their growth projections cut. Some analysts believe growth rates could decelerate at an increasing rate in 2015, despite lower energy costs and rising consumer incomes in emerging Asian markets.

The World Bank also cut its estimates for growth in China, although its estimates remain above many investment banks, which see the country growing below its 7% target in 2015. The World Bank said China would grow by 7.1% in 2015 and 7% in 2016, down from earlier estimates of 7.2% and 7.1%.

Corruption, Pollution Headwinds

Weakness in China partly drives the cut in growth throughout east and Southeast Asia, but the report also cited a number of other structural issues as overhangs on economic growth. The bank emphasized that fast growth in the region has been unsustainable, and has driven negative externalities that remain unchecked and will become increasing headwinds in the future.

“Continued measures to contain local government debt, contain shadow banking, reduce excess capacity, curb energy demand, and control pollution will reduce investment and manufacturing growth,” the report said.

However, the World Bank also said the fall in growth is an opportunity for countries to shift their development strategies from industrial output to different growth drivers. Vice President of East Asian and Pacific Regional at the World Bank Axel van Trotsenburg said in a statement that Asian economies could boost demand through structural reforms that can be relatively painlessly now thanks to low energy costs. “Lower oil prices will boost domestic demand in most countries in the region and provide policy makers a unique opportunity to push fiscal reforms that will raise revenues and reorient public spending toward infrastructure and other productive uses,” he said.

Some policymakers have immediately lashed against the report, arguing that the World Bank’s estimates are premature and likely to fall short of reality. In Malaysia, Deputy Finance Minister Datuk Chua Tee Yong said the country would beat the World Bank’s numbers, noting that Malaysia beat growth forecasts in 2014.

However, Yong also noted that Malaysian demand might be temporarily depressed from the nation’s new Goods and Services Tax, which was implemented this month as a revenue driver for the country.