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World Bank Trims Growth Projections For Developing East Asia

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The World Bank on Monday cut its growth forecasts for developing East Asia, citing weaker growth in China and the other economies in the region.

The bank now projects 7.1 percent growth for developing East Asia in 2013, below the 7.8 percent growth predicted in April. The growth for 2014 is seen at 7.2 percent, which is also weaker than its earlier forecast of 7.6 percent.

China, the region's largest economy, is forecast to expand 7.5 percent this year and 7.7 percent in 2014. These projections are smaller than the World Bank's April forecast of 8.3 percent for 2013 and 8 percent for 2014.

China's slowdown reflects the government's efforts to shift from an export-oriented economy to one that focuses on domestic demand. The growth in larger middle income countries, including Indonesia, Malaysia, and Thailand, is also softening in light of lower investment, lower global commodity prices and lower-than-expected growth of exports, the bank said while releasing its East Asia Pacific Economic Update.

According to the lender, risks remain related to the restructuring of the Chinese economy. A bigger-than-expected slowdown in investment could have an adverse effect on the region, especially on suppliers of capital goods and industrial raw materials to China, the bank said in the report.

"As the recovery picks up in the US, Japan and the Eurozone, with growth accelerating in the second quarter of 2013, developing countries in East Asia stand to benefit because of their high trade shares in the economy," the report said. At the same time, it also urged the countries to be prepared for potentially disruptive adjustments.

The Federal Reserve's decision to delay tapering stabilized markets for now, giving countries a second opportunity to take measures to lower risks from future volatility," World Bank East Asia and Pacific Chief Economist Bert Hofman said.

Hofman noted that reducing the reliance on short-term and foreign currency denominated debt, accepting a weaker exchange rate, when growth is below potential, and building policy buffers to respond to changing global liquidity conditions are some of the ways that can help countries be prepared.

The bank urged authorities to be ready to respond to a steady increase in interest rates in advanced economies, and redouble their efforts to restore and maintain financial stability.

Last week, the Asian Development Bank slashed its economic growth forecasts for developing Asia, citing more moderate economic activity in China and India as well as widespread concerns that possible tapering of US stimulus program could impact growth in the region.

The ADB now forecasts the region to grow 6 percent in 2013 and 6.2 percent in 2014.

The International Monetary Fund is set to publish its flagship World Economic Outlook report on October 8.

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