World Bank trims Asia forecast but says no China hard landing

The World Bank on Monday cut its growth forecasts for developing economies in East Asia and the Pacific but allayed fears of a hard landing for China's slowing economy.

The bank also said it expects any increase in US interest rates to have an orderly impact but warned of a risk that markets could react sharply, causing regional currencies to fall further.

In a report on 14 economies led by China, the bank called on them to mitigate the impact of the slowing Chinese economy and any increase in US rates by adopting "prudent macro-economic management" and deeper structural reforms.

"The baseline growth projections for China assume a further gradual slowdown in 2016-17," the bank said, playing down concerns that the world's second largest economy could slow down abruptly following stock market turmoil and a softening manufacturing sector.

"China has sufficient policy buffers to address these risks and prevent a sharp slowdown," it said.

In its updated outlook for the region, the bank said China's gross domestic product (GDP) is expected to grow by 6.9 percent this year, moderating to 6.7 percent next year and 6.5 percent in 2017. GDP rose 7.3 percent in 2014.

The forecasts were slightly lower than the bank's projections in April.

For developing economies in the East Asia-Pacific region, average growth is forecast at 6.5 percent this year, 6.4 percent next year and 6.3 percent in 2017. This is down from 6.8 percent actual growth in 2014.

"This reflects mainly a moderate slowdown in China," the bank said.

The 14-country forecast also includes Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia, Laos, Myanmar, Mongolia, Fiji, Papua New Guinea, the Solomon Islands and East Timor.

Among the bigger Southeast Asian countries, the Philippines and Vietnam are expected to be the stronger performers as weak commodity prices hobble growth in oil exporters Indonesia and Malaysia.

The Philippine economy is forecast to grow by 5.8 percent this year, 6.4 percent next year and 6.2 percent in 2017, compared with 6.1 percent in 2014.

Vietnam's GDP is forecast to rise from 6.0 percent in 2014 to 6.2 percent this year and 6.3 percent each over the next two years.

For Malaysia, growth is expected at 4.7 percent this year and in 2016 and 5.0 percent in 2017, down sharply from 6.0 percent in 2014.

Indonesian growth should come in at 4.7 percent this year, 5.3 percent next year and 5.5 percent in 2017, compared to 5.0 percent in 2014.

The bank said it expects the US central bank to raise interest rates in the coming months, which could prompt capital to flow back into the US economy from emerging markets in search of better returns.

"While this increase has been anticipated and is likely to prove orderly, there is a risk that markets could overreact in the short term," it warned.

"The risks to global and regional growth, and to the cost and availability of external financing, call for a continued focus across the region on sound macroeconomic management and on mitigating external and fiscal vulnerabilities."

Axel van Trotsenburg, the bank's regional vice president, said in a statement the reforms must include "regulatory improvements in finance, labour, and product markets, as well as measures that enhance transparency and accountability".