Red flag over slowing growth in East Asian economies

The World Bank has given a gloomy 2024 economic outlook for East Asian developing economies, predicting the weakest pace of growth in half a century as a slowdown in China and the effects of trade policy in other countries take their toll.

The World Bank maintained its forecast for China’s 2023 economic growth at 5.1% but trimmed its prediction for 2024 to 4.4% from 4.8%, citing the persistent weakness of its property sector.

For East Asia and the Pacific, including China, the World Bank slightly trimmed its 2023 GDP growth forecast to 5% from its prior 5.1% estimate, according to its semi-annual regional update released on Sunday.

For 2024, the bank lowered its regional growth outlook to 4.5% from 4.8%, dragged down by external factors, including a sluggish global economy, high interest rates and trade protectionism. “Almost 3,000 new restrictions were imposed on global trade in 2022, three times as large as those in 2019,” the World Bank said.

The region, which has been a major driver of global growth, faces its slowest expansion since the late 1960s, except for periods of exceptional shocks such as the Covid pandemic, the Asian financial crisis and the oil price surge in the 1970s, according to the Financial Times.

For China, the bounce-back from the reopening of the economy after three years of ultrastringent zero-Covid policies has faded, and elevated debt and weakness in its property sector are weighing on growth, the World Bank said in the report.

After months of mostly dismal data, the world’s second-largest economy has started to show signs of stabilisation. Factory activity expanded for the first time in six months in September, an official survey showed on Saturday.

Initial signs of improvement emerged in August, with factory production and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2% jump in August, reversing July’s 6.7% decline.

Analysts say more policy support will be needed to ensure China’s economy can hit the government’s growth target of about 5% in 2023.

Stronger structural reforms — including further liberalisation of the hukou residence permit system, stronger social safety nets and greater regulatory predictability for investments in innovative and green products — could help revive consumption and investment, creating the basis for sustainable growth, the World Bank said.

China’s economic sluggishness has polarised government advisers over the best way forward. The pro-reform camp is beating the drum for faster structural reforms, including relaxing the hukou system and removing market entry barriers for private firms at the cost of state giants.

The bank warned that an intensification of geopolitical tensions and the possibility of natural disasters, including extreme weather events, are additional downside risks to the region’s economic outlook.

“The East Asia and Pacific region remains one of the fastest growing and most dynamic regions in the world, even if growth is moderating,” said World Bank East Asia and Pacific vice-president Manuela Ferro.

“Over the medium term, sustaining high growth will require reforms to maintain industrial competitiveness, diversify trading partners, and unleash the productivity-enhancing and job-creating potential of the services sector.”

The bank said the services sector can play a growing role in driving development in a region known for manufacturing-led growth, as digital technologies and services reforms improve economic performance and create new opportunities.

The bank cited examples from the Philippines, where the adoption of software and data analytics by firms increased their productivity 1.5% on average over the 2010-19 period, and from Vietnam, where the reduction in policy barriers in transport, finance and business services led to a 2.9% annualised increase in value added per worker in these sectors over the 2008-16 period. 

With Reuters