World Bank cuts GDP growth forecast for East Asia for 2022

The World Bank cut its growth forecast for East Asia and the Pacific for 2022 to reflect the economic impact of Russia’s invasion of Ukraine, warning the region could lose further momentum if conditions worsen.

The Washington-based lender said in a report on Tuesday it expected 2022 growth in the developing East Asia and Pacific (EAP) region, which includes China, to expand 5.0 per cent, lower than its 5.4 per cent forecast in October.

But growth could slow to 4.0 per cent if conditions worsened and government policy responses were weaker, World Bank said.

China’s economy is expected to grow 5.0 per cent this year, down from a previous estimate of 5.4 per cent, it said, noting its government’s capacity to provide stimulus to offset adverse shocks.

“The region confronts a triad of shocks which threaten to undermine its growth momentum,” said World Bank East Asia and Pacific Chief Economist Aaditya Mattoo.

The war between Russia and Ukraine, which Mattoo said was the “most serious risk” to the region’s growth outlook, is leading to food and fuel price increases, financial volatility and reduced confidence all over the world.

Mattoo said Russia’s invasion of Ukraine was more worrying given that the region was still contending with the effects of the COVID-19 pandemic, a structural slowdown in China and faster inflation that could prompt quicker US monetary tightening.

The war’s impact on economies in East Asia and the Pacific would vary depending on their exposure and resilience, Mattoo said. Excluding China, output in the rest of the region is projected to expand 4.8 per cent this year.

“Just as the economies of East Asia and the Pacific were recovering from the pandemic-induced shock, the war in Ukraine is weighing on growth momentum,” World Bank Vice President for East Asia and Pacific Manuela Ferro said in a statement.

“The region’s largely strong fundamentals and sound policies should help it weather these storms.”

Meanwhile the Asian stocks rose to their highest in more than a month on Tuesday, underpinned by a broad recovery on Wall Street while the euro was stuck near a one-week low against the dollar amid talk of more sanctions against Moscow.

MSCI’s broadest index of Asia-Pacific shares outside Japan built on early gains and advanced 0.3 per cent to 602.2, the strongest since Feb.24.

The benchmark has lost 4 per cent so far this year, dragged by big declines in Chinese shares, while the Russia-Ukraine crisis has also hurt the near-term outlook.

Japan’s Nikkei edged up 0.16 per cent, the S&P/ASX 200 index rose 0.2 per cent, while South Korean stocks added 0.1 per cent.

Markets in mainland China and Hong Kong were closed for a public holiday on Tuesday. Shanghai went into a two-stage lockdown last week as authorities worked to contain the city’s biggest ever COVID-19 outbreak. In the currency markets, the Australian dollar jumped to a nine-month high after the central bank signalled higher interest rates were closer. The Aussie strengthened 0.9% to $0.7612, its strongest since late June.

The euro was steady at $1.09710 after dropping as low as $1.0960 in the previous session for the first time since March 28.

Global markets were looking to Wednesday’s release of minutes from the Federal Reserve’s last policy meeting that could offer signs the US central bank could raise its benchmark overnight interest rate by half a percentage point next month.

Oil futures rose as the potential for more sanctions added to concerns about supply disruptions, while Iran nuclear talks stalled.

Philippine stocks fell on Tuesday after the country’s inflation rate exceeded market forecasts, hitting its highest level in six months, and the peso appreciated even as the central bank maintained that no policy intervention was needed for now. stocks in the Philippines gave up 0.7 per cent and underperformed their emerging Asian peers, while the peso gained 0.4 per cent.

The country’s consumer price index (CPI) rose 4 per cent in March, exceeding the 3.7 per cent median forecast in a Reuters poll. Still, Bangko Sentral ng Pilipinas (BSP) said that monetary policy intervention was not needed, and that the central bank remained cautious against possible second-round effects from supply-side pressures.

Inflation readings for March exceeded expectations as higher food prices exacerbated the effects of higher transportation and utilities costs, Barclays analysts said in a note. They said they expect the BSP’s first interest rate hike in the second half of fiscal 2022. BSP governor Benjamin Diokno said the surge in global oil prices could make average inflation breach the upper end of the bank’s 2 per cent to 4 per cent target range this year, making it the second consecutive year of above-target inflation.