A report from the World Bank on Monday warned that the war in Ukraine threatens to slow economies in Asia in the months ahead.
Commodity supplies, financial strains, and higher prices will compound troubles for people and businesses in the Asia-Pacific region, the report forecasted.
Growth for the region is estimated at 5%, or less than nearly half a percentage point expected in October. The “low case” scenario, it said, foresees growth dipping to 4%. The region saw a rebound to 7.2% growth in 2021 after many economies experienced downturns with the onset of the pandemic.
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The World Bank anticipated that China, the region’s largest economy, would expand at a 5% annual pace, much slower than the 8.1% growth of 2021.
Russia’s invasion of Ukraine has helped drive up prices for oil, gas and other commodities, eating into household purchasing power and burdening businesses and governments that are already contending with unusually high levels of debt due to the pandemic, the report said.
The development lending institution urged governments to lift restrictions on trade and services to take advantage of more trade opportunities and to end fossil fuel subsidies to encourage the adoption of more green energy technologies.
“The succession of shocks means that the growing economic pain of the people will have to face the shrinking financial capacity of their governments,” said the World Bank’s East Asia and Pacific Chief Economist Aaditya Mattoo. “A combination of fiscal, financial and trade reforms could mitigate risks, revive growth and reduce poverty.”
The report also highlighted changing monetary policy in the US and a slowdown in China as other reasons for potential shocks in the region.
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As the US Federal Reserve weighs raising interest rates to cool the US economy and curb inflation, many Asian economies still lag behind in their pandemic recovery. The World Bank said countries like Malaysia may suffer outflows of currency and other financial repercussions from those changing policies.
Meanwhile, China’s already slowing economy could falter as outbreaks of COVID-19 provoke lockdowns like the one now in place in Shanghai, the country’s biggest megacity. That is likely to affect many Asian countries whose trade relies on demand from China.
“These shocks are likely to magnify existing post-COVID difficulties,” the report said. The 8 million households whose members fell back into poverty during the pandemic, “will see real incomes shrink even further as prices soar.”
“The microeconomic misery will have to contend with macroeconomic misery,” the report said. “Indebted governments, who have seen their debt as a share of GDP increase by ten percentage points since 2019, will struggle to provide economic support.”
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The report noted that regional economies fared better during the 2021 Delta variant waves of coronavirus than in the initial months of the pandemic in 2020, largely because fewer restrictions were imposed and widespread vaccinations helped limit the severity of the outbreaks.
The Associated Press contributed to this report.