World Bank downgrades East-Asia growth forecasts

FXStreet (Mumbai) - In its latest report, the World Bank lowered its growth projections for developing East Asia-Pacific, once a bright spot in the world economy, citing the slowdown in China, lower commodity prices and expectations of the Fed tightening its monetary policy as the key reasons for dimming the growth outlook.

The World Bank downgraded its 2015, 2016 and 2017 growth projections for developing East Asia-Pacific to 6.5, 6.4 and 6.3% respectively on Monday. This stands against previous prediction in April of 6.7% growth for both 2015 and 2016 and 6.6% in 2017.

It projects China will grow 6.9% this year, before slowing to 6.7% and 6.5% in the following two years. This is down from its previous forecasts in April of 7.1, 7 and 6.9% growth respectively.

The World Bank noted in its report:

"Growth in developing East Asia and Pacific is expected to ease."

"China's economy will shift to a more balanced and sustainable growth path. In the rest of the region, growth conditions will depend on the exposure of countries to accelerating demand in high-income economies, gradually tightening external financing conditions, and still-subdued international commodity prices."

"The key trade effects would be mediated through developments in commodity prices, exports of non-commodity merchandise to China, and receipts from Chinese tourists. Financial spillovers would arise through a decline in outward FDI [foreign domestic investment] from China and an increase in volatility."

"There is a risk that the U.S. policy rate 'lift-off' will trigger abrupt market reactions, causing currencies to depreciate sharply, bond spreads to rise steeply, capital inflows to fall sharply, and liquidity to tighten, as occurred during the 2013 'taper tantrum'."

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