(Bloomberg) — The World Bank has lowered its growth forecasts for East Asia and Pacific amid headwinds from slowing global demand, rising debt and inflation challenges.
Growth in the region is forecast to slow to 3.2% in 2022 from 7.2% last year, seen much lower than the 5% forecast in April, according to a report published Tuesday. The group should see growth rebound to 4.6% next year.
The region is weighed by China’s growth, which is forecast to decelerate to 2.8% this year from 8.1% in 2021 amid ongoing Covid-related restrictions and a property-market slump. In April, the World Bank had tipped China to grow by 5% in 2022.
A weakening in global orders for the region’s exports is expected to impact demand while rising interest rates globally are luring capital away from the region as currencies weaken, the World Bank said.
The dollar’s strength is having a mixed impact by aiding export competitiveness but also pressuring borrowers repaying foreign currency debt, said Aaditya Mattoo, the World Bank’s East Asia and Pacific chief economist.
“From the inflationary and debt burden point-of-view, a stronger dollar is bad news, but from an export point-of-view it is good news,” Mattoo said, adding that weaker regional currencies may boost tourism.
Policy makers need to shield households and firms from rising food and energy prices without adding to existing policy distortions, the World Bank warned. Controls on food prices and energy subsidies are diverting government spending away from areas such as education and healthcare.
“Controls in prices of food and fuel muddy price signals at a time where you need clear signals,” Mattoo said. “Income transfers are better to price regulation.”