After Bumpy Start to 2014, World Bank Cuts China Growth Forecast

The World Bank has cut its growth forecast for China, but has its “bumpy start to the year” really made that much difference?

China is the world’s second-largest economy and for many analysts, it has the potential to eventually overtake the US to take the top spot. But with years of rapid growth behind it, fears have been mounting for some time that growth will slow and eventually stop impressing the world. This week, in a new report, the World Bank has cut its growth forecast for China from 7.7 to 7.6 per cent over 2014.

It’s still a very strong rate of growth compared to most other countries, and will be the envy of developed countries. Chancellor George Osborne would no doubt love to present those kinds of growth figures to the House of Commons. Still, the fact that China is losing steam in the eyes of international experts is likely to make waves, both in Beijing and global markets.

According to the World Bank, East Asian developing economies will grow slower than forecast as a whole this year, with an overall growth prediction of 7.2 per cent now cut to 7.1 per cent. Thailand is expected to be a major casualty, too, as political unrest has contributed to hamper its economy. The report’s authors have cut that country’s forecast from 4.5 to three per cent.

Overall, the picture remains fairly stable both in China and the rest of the region, but there are clear signs of at least a slight slowdown. Even in countries such as Malaysia, where forecasts have actually been bumped up, the higher cost of debt is expected to weigh on domestic consumption.

“A slower-than-expected recovery in advanced economies, a rise in global interest rates, and increased volatility in commodity prices on account of recent geopolitical tensions in Eastern Europe serve as reminders that East Asia remains vulnerable to adverse global developments,” Bert Hofman, chief economist of the World Bank’s East Asia and Pacific region, said in a statement.

In many cases, it seems that continuing with structural reforms is seen as the solution to keep growth coming. The World Bank says that China’s announced reforms to market access, finance and fiscal policy among others will help ensure a more stable and sustainable basis for future growth.

As the World Bank points out, reforms in China will have knock-on effects for its trading partners worldwide. Persevering with a successful reform plan is key to ensuring this important market remains in a good position to grow.