World Bank cuts Asia’s 2022 growth outlook on Ukraine war

The World Bank has downgraded its economic outlook for East Asia and the Pacific, pointing to war in Ukraine, rising inflation in the United States, and slowing growth in China as risks to the region’s growth.

The region is expected to see growth of five percent in 2022, down from a forecast of 5.4 percent in October, the Washington-based lender said in a report released on Tuesday.

But growth could drop to four percent in the event of worsening conditions and ineffective policy responses by governments, the international financial institution said, calling for “bold reforms of fiscal, prudential, trade and innovation policies”.

“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.”

China is forecast to grow five percent this year, down from 5.4 percent, according to the report, which noted the government’s capacity to provide stimulus to offset adverse shocks.

The world’s second biggest economy is slowing down as ultra-strict lockdowns aimed at curbing the worst COVID-19 outbreak since the start of the pandemic weigh on production and demand.

Excluding China, the East Asia and Pacific region is expected to see 4.8 percent growth, down from 5.2 percent.

In Southeast Asia, the Philippines had the strongest outlook, with growth estimated to hit 5.7 percent, followed by Malaysia, Vietnam and Indonesia.

Encouraging signs

Carlos Casanova, senior economist for Asia at UBP in Hong Kong, told Al Jazeera the World Bank’s downgraded forecast reflects weaker demand in China and rising energy prices.

“It’s still early to determine how disruptions to global supply chains will pan out going forward but safe to assume that inflation will remain above target in most Asian economies in 2022, before declining in 2023,” Casanova said. “In terms of China, the weakest months are still ahead of us but we expect an inflection point in activity in June, once policy stimulus kicks in.”

Tim Harcourt, chief economist at the Institute for Public Policy and Governance at the University of Technology Sydney, told Al Jazeera there are also some encouraging economic signs on the horizon.

“There are signs of shipping difficulties easing. Commodity prices are healthy. So that’s good reason to be confident in the World Bank forecasts,” Harcourt said. “But escalation of the Russia-Ukraine conflict and inflationary pressures may cause a later revision.”