World Bank trims east Asia growth forecasts

The World Bank has trimmed its forecasts for economic growth in East Asia, with the slowdown in China set to counter the benefits of lower oil prices and improved activity in the developed world.

China is now expected to expand at 7.1 per cent this year, the bank said on Monday, down from a previous projection of 7.2 per cent. The growth rate is expected to drop to 7 per cent in 2016 and 6.9 per cent the following year.

"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 [in China]," the bank said in a report on East Asian economies.

China is due to report first-quarter growth figures on Wednesday, with most analysts expecting a 7 per cent expansion. But on Monday China reported a sharp fall in both imports and exports, which ANZ analysts said pointed to growth of 6.9 per cent.

The World Bank also cut its estimates for Indonesia, Malaysia, the Philippines, Cambodia and Mongolia, which prompted a 0.2 percentage point reduction in its forecast for developing East Asia as a whole. Regional growth is now expected to moderate from 6.9 per cent last year to 6.7 per cent in 2015.

Growth in emerging markets globally has slipped to its lowest since the financial crisis, partly due to China's move to rebalance its economy away from investment and heavy industry. A rising dollar, lower commodity prices and efforts to curb a rapid build-up in debt in some nations also acted to cool growth.

Christine Lagard, head of the International Monetary Fund, warned last week that the global economy risked becoming stuck in a "new mediocre" phase of low growth, and urged leaders across the world to speed up reforms.

Policy makers in a number of Asian economies have responded to slower growth and falling oil prices by loosening monetary policy. China, India, Indonesia, and Thailand have all cut rates in the past six months, while others are expected to follow.

Despite slower growth, east Asia is set to account for about a third of global growth this year, the bank said, more than double the combined figure for all other developing economies. The region should also see a pick-up in export demand if activity in the western world continues to improve.

However, many private sector economists are less sanguine about the region's short-term outlook. Morgan Stanley analysts said on Monday there were "significant downside risks to growth" in Asia this year.

"We expect China's growth slowdown to be a key drag on the region's growth, given its importance as a source of end demand for the region", Morgan Stanley said.

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