"I think that (the Russia-Ukraine conflict) has the potential to hurt these countries because of big increases in commodity prices, which are feeding into inflation and squeezing consumption," World Bank East Asia and Pacific Chief Economist Aaditya Mattoo told Xinhua in a recent virtual interview.
Noting countries that depend on trade and finance would suffer the most, Mattoo said, "some countries might see a bigger contraction because they're more export-dependent, more fuel-dependent or the governments have greater financing needs and less capacity to remedy."
Vietnam, Thailand, Malaysia and Cambodia are more exposed to global demand, said the economist, adding Mongolia has high government debt, high external financing needs and very high inflation, which makes it one of the most vulnerable in the crisis.
Aside from the Russia-Ukraine conflict, Mattoo said that tighter global financial conditions amid the U.S. Federal Reserve's rate hikes, along with slower growth in China, also create headwinds for growth in the developing East Asia and Pacific.
"Higher interest rates tend to create pressure for capital outflows and that can lead to depreciation and force an increase in interest rates within these countries," said the World Bank economist.
This evidently hurts countries with high levels of debt, such as Cambodia and Laos, as well as countries which rely on short-term capital flows to finance their current account deficits, such as Cambodia, Malaysia and Thailand, he said.
As China rebalances its economy, Mattoo said China has shown "a stronger willingness" in recent years to make regulatory changes that "favor sustainable, inclusive and stable growth over short-term needs."
Overall economic growth in developing East Asia and Pacific countries is projected to slow to 5 percent in 2022, 0.4 percentage point less than expected in October, according to the World Bank's recent East Asia and Pacific Economic Update.
The World Bank urged governments to enhance the efficiency of their fiscal policies for recovery and growth, and to strengthen macro-prudential policies to mitigate risks from global financial tightening.
It also called on policymakers to reform trade-related policies in goods, especially in still protected services sectors to take advantage of shifts in the global trade landscape, and encourage the diffusion of technology.
Mattoo said that it's "unfortunate" that over the last few years, many countries in the world have started "looking inwards," and have started thinking about bringing back value chains.
A World Bank analysis, however, showed that the best response to re-shoring policies or protectionist policies is not retaliation.
"Retaliation would hurt you even more," Mattoo said, urging countries to open up in a sensible, well-regulated way and to facilitate trade.
The World Bank economist said there is a risk of reversing globalization amid the conflict, but this would not be desirable, as a retreat from openness shrinks opportunities for trade, and barriers on goods, ideas, investment and beyond would hurt growth prospects.
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