Developing economies of East Asia and the Pacific are set to see slowing growth, with higher-for-longer interest rates and worsening geopolitical tensions clouding the outlook for the region, the World Bank said.

Gross domestic product growth is seen at 4.5 per cent for 2024 and 4.3 per cent for 2025, down from the 5 per cent estimated for 2023, the World Bank said in its semi-annual outlook. While most economies in East Asia and the Pacific are set to grow faster than the rest of the world, their pace is still slower than before the pandemic.

The drag is partly due to the expected deceleration in the world’s second-largest economy, whose expansion is forecast to slow to 4.5 per cent and 4.3 per cent this year and the next, respectively.

“China is aiming to transition to a more balanced growth path, but the quest to ignite alternative demand drivers is proving difficult,” the World Bank said in its report.

The country needs more than just “conventional fiscal stimulus”, the development lender said, adding that stronger social protection, progressive taxation and reallocation of public spending from infrastructure to human capital will help spur consumption.

Excluding China, developing East Asia and the Pacific should post a steady expansion at 4.6 per cent this year and 4.8 per cent next year as goods exports likely rebound and financial conditions ease. The Philippines, Vietnam and Cambodia are poised to grow by above 5 per cent in 2024 and about 6 per cent in 2025. Thailand and Myanmar are the laggards among the region’s major economies.

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“Core inflation in the US and EU remains elevated, and labour markets remain tight, suggesting interest rates will remain higher than pre-pandemic levels in the foreseeable future,” the World Bank said of downside risks. “Political developments within countries as well as rising geopolitical tensions are fuelling uncertainty.”

The World Bank also aired a warning about the sharp increase in debt in the region, which keeps borrowing costs high and squeezes both consumption and investment.

Corporate debt in China and Vietnam has risen by more than 40 percentage points of GDP since 2010 and exceeded the level in advanced economies, it said. Household debt in China, Malaysia and Thailand is also higher than those in other emerging markets.

On the external front, increased trade protectionism – mostly wielded by advanced economies – could hurt growth for developing East Asia and the Pacific as it limits access to key markets such as the US, South Korea and Japan, and the firms receiving subsidies are potential competitors of the region’s firms, the World Bank said. Almost 3,000 new trade-distorting measures were imposed in 2023, three times as large as those in 2019, it added. BLOOMBERG