World Bank raises growth forecast for East Asia, says banking sector is sound despite global stress

The World Bank expects East Asian and Pacific economies to grow more than it previously estimated, thanks to a sharp rebound in activities in China, noting that the region hasn't been affected by global banking stresses.

The region is projected to expand by 5.1% in 2023, up from the 4.6% it forecast in October last year, the World Bank said in its April report. The East Asia and Pacific region grew by 3.5% in 2022, it said.

As for China's economy, the World Bank raised its full-year growth forecasts for 2023 from 4.5% to 5.1%.

"The forecast assumes a pro-growth alignment of public health, regulatory, and macroeconomic policy in China," it said, adding that a rebound in domestic consumption is expected to put "moderate upward pressure" on inflation, which it expects will rise to 2.6% in 2023 from 2% in 2022.

In reference to concerns about a spillover from banking turmoil in the United States and Europe, the World Bank said the East Asian and Pacific banking sector "has not so far been impacted, but there are potential risks through direct of indirect exposure to losses."

"Publicly available indicators show adequate overall capital levels and low non-performing loans for most countries in the region," the World Bank said. "Financial sector health is so far sound in East Asia Pacific."

The World Bank said the "most immediate challenge" for the region is the growing division between the U.S. and China.

"Politics, rather than economic fundamentals and predictable rules, are molding trade patterns and the resulting uncertainty could discourage investment in other countries," the World Bank said in its report.

Aaditya Mattoo, the World Bank's chief economist for the East Asia and Pacific region, said the impact of decoupling could extend beyond the two countries.

"There's no doubt these divisions between these two large traders are going to have an effect on the rest of the world quite apart from the effect it has on the countries themselves," he said on CNBC's "Street Signs Asia."

"We have a risk of the disruption of global value chains with these restrictions," he said.

In a separate in a report earlier this week, the World Bank said the global economy's "speed limit" — which it defines as the maximum long-term rate at which it can grow without sparking inflation — will reach the lowest in three decades by 2030.

It expects the average global potential gross domestic product growth between 2022 and 2030 to fall to 2.2% a year — a decline it said is "roughly a third from the rate that prevailed in the first decade of this century." It added that potential GDP can be boosted by up to 0.7 percentage points should governments adopt "sustainable, growth-oriented" policies.

"The ongoing decline in potential growth has serious implications for the world's ability to tackle the expanding array of challenges unique to our times—stubborn poverty, diverging incomes, and climate change," said Indermit Gill, the World Bank's chief economist and senior vice president for development Economics.

"A lost decade could be in the making for the global economy," Gill warned.