KUALA LUMPUR (Oct 5): Malaysia is expected to see slower growth and lower public revenues this year, due to weaker commodity prices, according to a new World Bank report, the East Asia Pacific Economic Update released today.
According to the report, commodity exporters such as Indonesia, Malaysia and Mongolia will see slower growth and lower public revenues this year, reflecting weaker global commodity prices.
On the other hand, commodity importers will maintain a stable — even robust — pace of growth. The report cited Vietnam as an example, with the forecast that it would grow 6.2% in 2015 and 6.3% in 2016.
The report said East Asia is expected to grow 6.5% in 2015, moderating slightly from 6.8% last year.
“Growth in developing East Asia Pacific continues to be solid, but the moderating trend suggests policy makers in the region must remain focused on structural reforms that lay the foundation for sustainable, long-term and inclusive growth,” said World Bank East Asia and Pacific regional's vice president Axel van Trotsenburg in a statement.
“These reforms include regulatory improvements in finance, labor and product markets, as well as measures that enhance transparency and accountability. These policies will reassure investors and markets, and help sustain growth that can help lift people out of poverty,” he added.
World Bank noted East Asia remains one of the main growth drivers of the world economy, accounting for nearly two-fifths of global economic growth, though performance trends across East Asia are diverse.
“China’s economy expected to grow at about 7% this year and gradually moderate thereafter, as its economy continues to shift toward a model more dominated by domestic consumption and services, which implies a gradual reduction of growth,” it said.
The rest of developing East Asia is expected to grow at 4.6% in 2015, similar to last year’s rate, it added.
Meanwhile, the recovery in high-income economies remains gradual, noted World Bank. But global trade is growing at its slowest pace since 2009, and the widespread slowdown in developing countries has intensified, particularly in commodity producers affected by lower commodity prices.
Growth will also ease in many of the smaller economies such as Myanmar, where severe flooding will likely drive down the pace of its growth to 6.5%, from 8.5% in 2014.
World Bank’s East Asia and Pacific Region's chief economist Sudhir Shetty said developing East Asia’s growth is expected to slow, because of China’s economic rebalancing and the pace of the expected normalisation of US policy interest rates.
“These factors could generate financial volatility in the short term, but are necessary adjustments for sustainable growth in the long term,” he added.
The report assumed a gradual slowdown in the Chinese economy in 2016 to 2017.
“This scenario is likely because China has sufficient policy buffers and tools to address the risk of a more pronounced slowdown, including relatively low public debt levels, regulations restricting savings outside of the banking system, and the state’s dominant role in the financial system,” it said.
“If China’s growth were to slow further, the effects would be felt in the rest of the region, especially in countries linked to China through trade, investment and tourism,” it added.
The report also assumed a gradual increase in US interest rates will begin in the coming months.
“While this increase has been anticipated and is likely to be orderly, there is still a risk that markets could react sharply to such tightening, causing currencies to depreciate, bond spreads to rise, capital inflows to fall, and liquidity to tighten,” it warned.
In the face of these possible headwinds, the report emphasised two key priorities across the region: prudent macroeconomic management, aimed at shoring up external and fiscal vulnerabilities; and deeper structural reform, focused on encouraging private investment.