World Bank trims forecast for East Asia, but expects China to meet its GDP target

The slowdown in China, a plunge in commodity prices and the prospect of tighter external financing conditions are clouding the growth outlook for developing East Asia-Pacific, the World Bank cautioned. This region has long been a bright spot in the world economy.

The international body trimmed its 2015, 2016 and 2017 growth estimates for developing East Asia-Pacific to 6.5, 6.4 and 6.3 percent respectively on Monday. That's down from its previous prediction in April of 6.7 percent growth for both 2015 and 2016 and 6.6 percent in 2017, and the April predictions themselves were slashed from a previous forecast.

Developing East Asia and Pacific, which grew 6.8 percent last year, comprises of 14 nations including China, Indonesia, Malaysia, Philippines, Thailand and Vietnam.

"China's economy will shift to a more balanced and sustainable growth path. In the rest of the region, growth conditions will depend on the exposure of countries to accelerating demand in high-income economies, gradually tightening external financing conditions, and still-subdued international commodity prices," the body said.

Meanwhile, the World Bank expects China to meet its annual gross domestic product (GDP) growth target of about 7 percent this year, with economic growth set to moderate thereafter, as investment expansion decreases due to tighter credit and more quiet property sector conditions.

It expects the world's second largest economy to expand 6.9 percent this year, before dipping to 6.7 percent and 6.5 percent in the following two years. This is down from its previous forecasts in April of 7.1, 7 and 6.9 percent growth respectively.

A bigger-than-expected slowdown would cause painful repercussions for the rest of the region given the countries' tight trade and financial links.

"The key trade effects would be mediated through developments in commodity prices, exports of non-commodity merchandise to China, and receipts from Chinese tourists. Financial spillovers would arise through a decline in outward FDI [foreign domestic investment] from China and an increase in volatility," the World Bank said.

U.S. interest rates increase also represents a risk for the region as higher rates could impact the cost and availability of external financing for the region, it said.