World Bank downgraded the economic growth forecasts of China and other major East Asian countries for fiscal 2013 and 2014, backing the lowered forecasts with reasons like decline in growth rate of china, as well as, weak commodity prices, which have impacted exports and investments in such countries mainly Indonesia, according to Reuters.
Commodity Prices, low investment fueling the decline
“Developing East Asia is expanding at a slower pace as China shifts from an export-orientedeconomy and focuses on domestic demand,” the World Bank said in Update report.
Further, the report noted that low investment and weak global commodity prices clubbed with lower than expected export growth has impacted the larger middle income countries like Indonesia, Malaysia and Thailand.
For developing East Asia, World Bank is looking forward to a growth rate of 7.1 percent in the current fiscal and 7.2 percent in 2014, which is a decline over April estimates of 7.8 percent and 7.6 percent respectively.
Concerns over China
World Bank has raised concerns over China’s investment heavy stimulus programs and said that policymakers should now make an effort to limit the burgeoning growth of credit and enhance the financial supervision of the country.
Further, the bank noted that the government should try to get rid of local government debt, which occurred due to opacity of municipal finances. The authorities must take a step at reforming the situation through clear rules on borrowing, debt resolution, and on the disclosure of comprehensive financial accounts by local governments.
The Washington-based development bank also cited ‘shadow banking’ as another concern for China due to its close resemblance to the banking system along with less regulations, hidden guarantees from banks and local governments.
However, China has strong asset reserves to curb the liabilities as they have land reserves worth 10 percent of the Gross economic product, as well as, shares in state-owned enterprises worth a similar amount.
Indonesia likely to face headwinds
On Indonesia, the World Bank found out that investment growth has declined to a three year low, in the second quarter, and will most probably be impacted due to interest rates hike due to burgeoning inflation, capital outflows, declining foreign direct investment and regulatory uncertainties.
The report said that export revenue has declined due to global commodity prices. Further, investment in the capital-intensive resource sectors of the Indonesian economy has also faced headwinds, which in turn have affected the overall growth in the country.
World Bank is estimating growth for Indonesia at 5.6 percent for 2013 and 5.3 percent for 2014, compared to its previous estimates of 6.2 percent and 6.5 percent, respectively.
