In a Bloomberg Online news article published on October 07, 2013, entitled, “World Bank Cuts Developing East Asia GDP Forecasts”, it reported that the Washington D.C. based lender published its latest updated assessment of the economic outlook for East Asia’s developing nations in 2013 and 2014, stressing that the region needs to work harder to tackle their respective economic issues in the face of expected interest rate hikes by advanced countries, such as the United States, which is widely expected to gradually wind down its USD 85.0 billion a month bond buying programme starting from December 2013.
According to excerpts from the Bloomberg News article, the latest economic forecast issued by the World Bank calls for developing East Asia to probably expand by approximately 7.1 percent in 2013 and 7.2 percent in 2014, down from its April forecasts of between 7.8 percent and 7.6 percent respectively. In addition, it forecasted that China might grow by approximately 7.5 percent in 2013, in line with the official Chinese Government’s forecasts, and it is lower from the April forecast of approximately 8.3 percent.
The World Bank, in its report, cited some of the factors impacting their renewed forecasts for growth in the East Asian region including the risks to the global recovery from the uncertainty surrounding the timing and consequences of the United States Federal Reserve (US Fed) decision to start winding down its USD 85.0 billion per month bond buying programme, a sharp and unexpected slowdown of investment in China as a result of a global economic slowdown, unrests in the Middle-East which might cause commodity prices, including the price of crude oil to show tremendous volatility for a prolonged period of time, thus hurting many East Asian economies, especially the top importing nations of crude oil such as China, Japan, and most Southeast Asia countries.
The World Bank’s latest assessment of the East Asian economies is not entirely gloomy, as it cited Japan’s new economy strategy, which has now been famously known as ‘Abenomics’ (named after the unconventional economic planning by the current Japanese Prime Minister Shinzo Abe), could increase Japanese investment in the East Asian region, as witnessed by Japan’s active outreach to many Asian economies as part of the economic policy drive to boost its domestic economy through developing international trade ties with the rest of the world. The lender also cited that Southeast Asia economies, including Indonesia, Malaysia, and Thailand, might show some moderating growth, but still in positive territory. Philippines could be a major standout in the Southeast Asia region as remittances, and robust economic growth boosted by foreign direct investments (FDI) in the country, could help the economy weather through the slowdown. Readers might recall that last week, Philippines received an upgrade of their investment grade credit rating to Baa3 from Moody’s citing its robust economic performance, ongoing fiscal and debt consolidation, political stability and improved governance under the leadership of President Benigno Aquino. The World Bank is now forecasting that the Southeast Asia region might expand to approximately 5.2 percent in 2013, and 5.3 percent in 2014.
The latest assessment from the World Bank on developing East Asian economies does not come as a surprise for many, given the continued slow signs of economic recovery in Europe, and the ongoing Middle-East tensions. With the current stalemate happening in Washington D.C. over its week-long Federal Government shutdown, the October 17, 2013 deadline to increase the US debt ceiling, it poses various challenges to the continued resilience of Asia in general, which has been one of the major drivers in reviving the overall global economy. The World Bank recommended some of the economic policy changes that could cushion the potential disruptions caused by the withdrawal of stimulus measures by the advanced economies, including reducing the reliance on short-term and foreign currency denominated debt, accepting a weaker exchange rate when growth is below potential, and building policy buffers to respond to changing global liquidity conditions.
In conclusion, I do believe that several developing East Asian economies need to start preparing for potential challenges to their economic growth rates as the concerns over withdrawal of stimulus measures gather speed as the months progress, and the potential disruption of such a policy change might impact the entire region. This is one of the important roles that governments must try to overcome in order to prevent any potential sharp volatilities in their respective currencies, as witnessed by the August/September 2013 wild fluctuations being shown in the currency markets, impacting nations such as Indonesia, India, and Malaysia, etc. as these countries are prone to external economic shocks due to their wide current-account deficits, capital controls, slow liberalisation of their domestic markets, etc. The time to start the necessary reforms has to be immediate, given the relative short time period between now till December 2013, when the US Fed is widely expected to start implementing its tapering initiatives regarding its ongoing Quantitative Easing (QE) programme, and these developing East Asian economies do not have the luxury of time to resolve any potential issues that could arise due to the potential harm that might come with the new policy shifts in US monetary reforms might cause as a result of the withdrawal of the stimulus measures which could severely impact the current and future economic growth outlooks of these developing East Asian economies if they choose to delay the implementation of the necessary reforms needed to cushion such external shocks to their economies.