Asia Pacific recovery at risk from Ukraine crisis, Fed tightening, China slowdown: WB

ABS-CBN News

Posted at Apr 05 2022 01:54 PM

World Bank Headquearters, Philippines. Jonathan Cellona, ABS-CBN News
World Bank Headquearters, Philippines. Jonathan Cellona, ABS-CBN News

MANILA - Economic recovery is at risk in developing countries in East Asia and the Pacific due to several factors, the World Bank said on Tuesday. 

The multilateral lender said that aside from the lingering COVID-19 pandemic, recovery is also threatened by the effects of the Ukraine crisis, the tightening of monetary policy by the US Federal Reserve, and the slowing down of growth in China as it grapples with fresh outbreaks. 

"Shocks emanating from the war in Ukraine and the sanctions on Russia are disrupting the supply of commodities, increasing financial stress, and dampening global growth," the World Bank said in its East Asia and Pacific Economic Update: Braving the Storms. 

The Bank said countries in the region that are large importers of fuel – like Mongolia and Thailand, and food – like the Pacific Islands – are seeing a decline in real incomes. 

Meanwhile countries with large debt – like Lao People’s Democratic Republic and Mongolia – and high dependence on exports – like Malaysia and Vietnam – are susceptible to global financial and growth shocks.

"While commodity producers and fiscally prudent countries may be better equipped to weather these shocks, the repercussions of these events will dampen the growth prospects of most in the region," the World Bank said.

Growth is seen to slow to 5 percent in 2022, down from the 5.4 percent forecast made in October. 

"If global conditions worsen and national policy responses are weak, growth could slow to 4 percent," the bank said. 

China, which accounts for 86 percent of regional output, is projected to grow between 4 to 5 percent. 

The World Bank said struggling regional firms will be hit by new supply and demand shocks, while households will see real incomes shrink even further as prices soar. This could leave at least 6 million people in the region trapped in poverty this year at the $5.50 per day poverty line.

"Indebted governments, who have seen their debt as a share of GDP increase by 10 percentage points since 2019, will struggle to provide economic support." 

Central banks will also have less room for monetary easing with inflation rising at least 1 percentage point above previous expectations due to the oil price shock alone, the Bank said.

“The succession of shocks means that the growing economic pain of the people will have to face the shrinking financial capacity of their governments,” said East Asia and Pacific Chief Economist Aaditya Mattoo. 

“A combination of fiscal, financial and trade reforms could mitigate risks, revive growth and reduce poverty,” he added.

The World Bank recommends that instead of imposing price controls and unselective assistance, governments provide targeted support to households and firms. This, it said would limit pain from the shocks and create space for growth-enhancing investment. 

The Bank also pushed for stress-testing financial institutions to help identify risks. 

Reforms of trade-related policies in goods and, especially, in still-protected services sectors would enable countries to take advantage of shifts in the global trade landscape, it said. 

Improving skills and enhancing competition would strengthen the capacity and incentive to adopt new digital technologies.

“The region’s largely strong fundamentals and sound policies should help it weather these storms,” said World Bank Vice President for East Asia and Pacific Manuela V. Ferro

 

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