China only bright spot as World Bank cuts ASEAN growth outlook

beijingwalker · Mar 31, 2023

China only bright spot as World Bank cuts ASEAN growth outlook

RCEP to deliver more gains than CPTPP, but risks U.S. economic distancing

FRANCESCA REGALADO, Nikkei staff writerMarch 31, 2023 11:00 JSTUpdated on March 31, 2023 11:44 JST

BANGKOK -- China will be the only bright spot in the Asia-Pacific region this year, with the World Bank lowering its growth forecast for ASEAN economies due to slowing domestic and export demand as well as slumping productivity.

The bank's latest economic outlook published on Friday warned of a productivity decline, particularly in Southeast Asian countries vying to be the region's manufacturing hubs, as the U.S.-China decoupling forces a rearrangement of global supply chains.

The rate of potential growth in the Asia-Pacific region is expected to slow further in this decade to as low as 4.7%, miring countries in lower and upper-middle income traps longer.

"This remarkable catch-up of the region ... had run out of steam even before COVID," said Aaditya Mattoo, chief economist for East Asia and Pacific at the World Bank. "While this region saw very good macroeconomic policy management, it did not see big structural reforms."

The bank expects China to grow 5.1% this year, an upward revision of 0.6 percentage point from figures published in October. Regional growth excluding China is forecast to decline to 4.9%, a decrease of 0.9 percentage point from 2022. Growth forecasts for four of the ASEAN-5 countries -- Indonesia, Philippines, Thailand and Vietnam -- were revised down. Thailand's acceleration from 2.6% in 2022 was downgraded sharply from 4.1% to 3.6%, as was Vietnam from 6.7% to 6.3%.

China's growing share as the end-destination for its neighbors' exports could offset losses from the U.S.-China trade war. Many of these economies were linked by the Regional Comprehensive and Economic Partnership, which the bank found to be "more economically significant" than the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the U.S.-led trade pact that it ultimately left.
But the bank warned of economic distancing for countries in the region without bilateral free trade agreements with the U.S., still the world's largest economy.

"Uncertain politics rather than reliable economics and predictable trade rules are now molding trade patterns. That leads to a less certain policy environment," said Mattoo. Uncertainty and politically motivated trade arrangements could inhibit long-term growth and investment, he warned.

Countries have more to gain from being "hubs" to connect the diverging U.S. and Chinese markets through bilateral trade agreements rather than being members of exclusive trade blocs, according to the report.
In the region's manufacturing powerhouses, exports have fallen more than 20% from their 2022 peak. Domestic demand is expected to decline as the end of pandemic-related government support programs pressures disposable income, with negative implications for consumption and investment.

Cambodia's growth projection held steady at 5.2% while Myanmar is expected to grow by 3%. Pacific island nations were downgraded as a whole from 5.7% to 4.3%.

While output in China and Vietnam is 15% higher than pre-pandemic levels, several economies have not caught up, including Thailand, Myanmar and most of the Pacific islands. The bank warned that the decline in manufacturing value could hamper growth absent "last mile" reforms to liberalize the high-value services sector and the mobility of labor and capital.

"This region has grown through openness, but the region remains suspicious of opening up its services sector," said Mattoo.

Most countries in region see lower 2023 growth forecasts (In percent)
	October 2022	April 2023
East Asia and Pacific	4.6	5.1
Excluding China	5	4.9
China	4.5	5.1
ASEAN-5	5.1	4.9
Indonesia	5.1	4.9
Malaysia	4.2	4.3
Philippines	5.8	5.6
Thailand	4.1	3.6
Vietnam	6.7	6.3
Cambodia	5.2	5.2
Myanmar	n/a	3
Pacific Islands	5.7	4.3
Source: World Bank