China slowdown

In reports issued Monday, the World Bank said the rate of economic growth in South Asia would grow robustly in the next two years, led by India.

But the Washington-based lender cut its growth forecast for East Asia, saying it expected growth would slow slightly this year to 6.9 percent in 2014 and 2015, down from the 7.1 percent rate it had previously forecast for both years.

Its latest Economic Update for East Asia said the slower-than-expected global recovery was affecting demand for Asian exports.

But in its twice-yearly South Asia Economic Focus, the bank said South Asia would expand by 6 percent in 2015 and 6.4 percent in 2016, up from 5.4 percent this year.

India accounts for 80 percent of the region's output, and is expected to outpace its neighbors by logging 5.6 percent in the current fiscal year and 6.4 percent in 2015-2016.

The bank, which is preparing for its annual meeting later this week, also said the region's strong growth is likely to continue for the foreseeable future if governments undertake the necessary structural reforms.

"The outlook over the next years for South Asia indicates broad economic stability and a pick-up in growth with potential risks concentrated on the fiscal and structural reform side,” the bank's chief economist for South Asia, Martin Rama, said.

In contrast, while developing countries in East Asia continue to expand more rapidy than those in South Asia, their overall growth rate is slowing. China's growth rate will eased to 7.4 percent in 2014 and 7.2 percent next year due largely to new financial policies aimed at putting the economy on a more sustainable footing. The figures are lower than the bank's April forecasts of 7.6 percent and 7.5 percent.

China outpaced the rest of developing East Asia, with growth at a low of 4.8 percent this year but expected to jump to 5.3 percent in 2015. Growth in Southeast Asia's largest economies - Indonesia, Malaysia, the Philippines, Thailand and Vietnam - is forecast to slow down to 4.5 percent this year from 5.0 percent in 2013, but they are expected to rebound to 5.0 percent next year.

Even within these countries, there was a mixed picture. While Indonesia in particular was hit by reduced demand for commodities, the 2014 forecast for Malaysia was revised sharply upwards to 5.7%, up from 4.9% in April, due to increased exports.

The bank's South Asia report highlighted factors such as a broadly improving current account deficits and strong foreign-exchange reserves acrosss the region. But it warned that Indian gains in competitiveness resulting from a depreciation of the rupee last year were at risk.

Additionally, South Asia can profit from the increasing cost of East Asian labor: It says the region "has an opportunity to become the manufacturing hub of the world; but achieving this will require boosting competitiveness."

sgb/uhe (AFP, Reuters, World Bank)