Majority of countries in East Asia and Pacific region may face slower rate
The World Bank has revised its projection higher for China's GDP growth. It is expected to expand by 8.5 percent year-on-year in 2021, compared with a forecast of 8.1 percent in April.
While China's economy is projected to grow faster-than-expected, most other countries in the East Asia and Pacific region may face slower growth along with a decline of employment rates and labor force participation, economists from the World Bank said at an online news conference on Wednesday.
The World Bank predicted in its East Asia and Pacific Fall 2021 Economic Update report that economic growth in the whole region will be 7.5 percent this year, up fractionally from the April forecast of 7.4 percent.
But excluding China, GDP growth for the rest of the region is projected to be at 2.5 percent, about 2 percentage points slower compared to April's update, the report showed.
World Bank economists believe that COVID-19 is likely to reduce potential growth in the region, which has already led to a contraction in actual output recently along with worsening bank balance sheets and increased uncertainty.
"As the recent economic recovery of EAP countries is uneven, countries in the region should take measures to contain the COVID-19 pandemic as well as strengthen macro-financial supports," said Aaditya Mattoo, chief economist of the EAP Region of the World Bank.
Internationally, countries can coordinate fiscal stimulus and deepen cooperation on taxation to enable domestic revenue mobilization in the face of mobile capital. Domestically, countries can introduce or reintroduce fiscal rules as a commitment to limiting future deficits and debt, Mattoo added.
Many EAP countries can use monetary policy to support economic recovery in the near-term but must remain alert to the risk of abrupt global financial tightening, he said.
Chinese central bank governor Yi Gang had written in an article on Tuesday that China is now able to meet a potential growth rate of 5 to 6 percent, a level of production that keeps the economy in balance. A country's potential output is usually determined by productivity and labor supply, without the influence of inflation.
That means China does not need to adopt aggressive monetary easing, or specifically asset purchases or quantitative easing measures. The nation has the means to implement a normal monetary policy for a longer period, and the period for such a normal monetary policy will be extended "as long as possible", said Yi.
"The ultimate goal of China's monetary policy is to maintain the stability of currency value and promote economic growth. Interest rate is the key to achieve the goal of monetary policy," he added.
The People's Bank of China, the central bank, launched an electronic trading mechanism for the standing lending facility, or SLF, a monetary policy tool providing short-term liquidity. This measure has improved the country's interest rate system, which is called the "interest rate corridor", the PBOC reported last week.
In the system, the open market operation interest rate is the central bank's short-term policy rate, and the interest rate of the medium-term lending facility, or MLF, is the medium-term policy rate. The one-year MLF interest rate currently stands at 2.95 percent.
Besides, the reserve requirement ratio, or RRR, is now at 1.62 percent, a level "conducive to balancing the interests of all parties and supporting the sustainable development of financial institutions," according to the PBOC governor.
On Wednesday, the PBOC injected liquidity into the financial system for a ninth day running, the longest such run since December of 2020. The liquidity was offered through 100 billion yuan ($15.5 billion) of 14-day reverse repurchase agreements, resulting in a net injection of 40 billion yuan, in order to keep monetary market interest rates at a stable level.