Economic growth in East Asia and the Pacific is expected to be the weakest in decades next year, according to a new report from the World Bank.
The regional economy is then anticipated to slow to 4.5 percent next year, down from the April projection of 4.8 percent.
Growth in China is slated to be 4.4 percent, driven by "persistent domestic difficulties" such as high debt, weakness in the property sectors, and "structural factors."
But expansion in the rest of the region is estimated to be 4.7 percent in 2024 "as recovery in global growth and easing of financial conditions offsets the impact of slowing growth in China and trade policy measures in other countries."
“The East Asia and Pacific region remains one of the fastest growing and most dynamic regions in the world, even if growth is moderating,” said World Bank East Asia and Pacific Vice President Manuela V. Ferro in the report.
“Over the medium term, sustaining high growth will require reforms to maintain industrial competitiveness, diversify trading partners, and unleash the productivity-enhancing and job-creating potential of the services sector.”
At the same time, this forecast is a downgrade from the previous estimates and is the slowest in five decades, excluding the Asian financial crisis in the 1990s and the CCP (Chinese Communist Party) virus pandemic.
Threats to EAP GrowthThree components leave the developing Asian economies vulnerable to sluggish growth: Softer global trade, industrial competitiveness, and growing debt.
Over the past 12 months, exports have eased considerably from China, Indonesia, Malaysia, and Vietnam.
U.S. industrial and trade policies inside President Joe Biden's Inflation Reduction Act and the CHIPS and Science Act have worsened conditions in this part of the world.
With the federal government showering domestic and foreign companies with hundreds of billions of dollars in subsidies like tax credits and grants, businesses are bolstering operations in the United States by reshoring or nearshoring away from China.
"We encourage the United States to become competitive on all tech levels to balance the trade deficit and employ a broader range of workers," the lobby group said.
Still, the U.S. manufacturing sector remains in a recession, while Chinese factory activity returned to expansion territory in September for the first time since March.
Corporate, Household Debt UpDebt—government, corporate, and household—as a share of gross domestic product has risen exponentially over the past decade in many East Asian and Pacific countries, the World Bank's report notes.
"Corporate debt too has increased significantly in China and Vietnam by more than 40 percentage points of GDP since 2010, and now exceeds the level in advanced economies," the World Bank states.
"And household debt is now significantly higher in China, Malaysia, and Thailand compared to levels in other emerging markets."
Toshiro Nishizawa, a professor at the University of Tokyo's Graduate School of Public Policy, believes China is facing significant "debt distress" due to lending under the Belt and Road Initiative (BRI).
While Beijing has diminished its lending efforts in recent years due to borrowers' challenges, it still faces "the risk of being debt-trapped."
Federal Reserve policy is another challenge for East Asian and Pacific states like Indonesia.
The U.S. central bank's quantitative tightening has pushed up global bond yields and has applied pressure on the Indonesian rupiah, says Nichola Mapa, a senior economist at ING.
"A potential Fed rate hike could prompt BI to hike its own policy rates, which could sap even more momentum from flagging bank lending."
A stronger greenback has hurt Asian currencies and economies, forcing businesses and consumers to pay more for dollar-denominated commodities.
Brief Look at Asian MarketsAsian financial markets have been mixed in 2023.
Year-to-date, the Shanghai Composite Index is up 0.7 percent, while the Hang Seng Index has plunged more than 12 percent.
Indonesia's JSX Composite Index is up about 1 percent this year, and Singapore's FTSE Straits Times Index has slumped by close to 2 percent.