The World Bank trimmed its growth forecast for developing East Asia and Pacific, citing a sluggish China and global demand amid still-high interest rates and dampened trade.

The World Bank said it now expects developing economies in East Asia and the Pacific to grow 5% in 2023, according to its October report published Monday in Asia. That’s slightly less than the 5.1% it had forecast in April. For 2024, the Washington-based multilateral bank now expects 4.5% growth for the region, down from its forecast of 4.8% in April.

The World Bank left its 2023 economic growth forecast for China unchanged at 5.1%, but lowered its 2024 estimate to 4.4% from 4.8% previously. The organization cited “longer-term structural factors,” elevated debt levels in the world’s second-largest economy and weakness in its property sector as reasons for its downgrade.

“While domestic factors are likely to be the dominant influence on growth in China, external factors will have a stronger influence on growth in much of the rest of the region,” the World Bank said.

Even though East Asian economies have mostly recovered from the series of shocks since 2020 — including the Covid-19 pandemic — and will continue to grow, the World Bank said the pace of growth will likely slow.

The World Bank flagged the significant increase of general government debt, as well as the rapid jump in corporate debt levels, particularly in China, Thailand and Vietnam.

It warned that high government debt levels can limit both public and private investment. Elevated debt could lead to higher interest rates, which would increase the cost of borrowing for private businesses, it said.

According to the World Bank’s calculations, a 10-percentage-point increase in general government debt to GDP is associated with a 1.2 percentage point decline in investment growth. Similarly, a 10-percentage-point increase in private debt to GDP is associated with a 1.1 percentage point decline in investment growth, it said.

The bank also noted relatively high levels of household debt in China, Malaysia and Thailand compared to other emerging markets. High household debt can have a negative impact on consumption, since more income would be used to service debts, which could lead to cuts in spending.

A 10-percentage-point increase in household debt would decrease consumption growth by 0.4 percentage point, the World Bank said.

As it stands, the World Bank said household spending is still below pre-pandemic trends in the developing East Asia and Pacific region.

In China, the current trend of retail sales is flatter than before the pandemic due to falling house prices, weaker household income growth, increased precautionary savings and household debt as well as other structural factors, such as an aging population.