The developing economies of East Asia and the Pacific can look forward to positive prospects in 2017-2018, the forecast underpinned by an improved global growth outlook and continued strong domestic demand, according to the latest World Bank report on the region.
The East Asia and Pacific region is projected to expand by 6.4% in 2017, getting a lift from stronger growth in advanced economies, a moderate recovery in commodity prices, and a strengthening of global trade growth, according to the October 2017 edition of the East Asia and Pacific Economic Update.
Regional growth is expected to slow slightly to 6.2% in 2018, primarily reflecting China’s gradual slowdown.
The region’s biggest economy, China is predicted to reflect stronger-than-expected growth of 6.7% this year, the same pace as in 2016, but is seen to slow to around 6.4% in 2018-19 as it undertakes a gradual rebalancing.
In the rest of the region, including the large Southeast Asian economies, growth will be slightly faster at 5.1% in 2017 and 5.2% in 2018, up from 4.9% in 2016.
Thailand and Malaysia are seen to grow more rapidly than expected, due to stronger exports, as well as due to tourism for the former, and increased investment in the latter.
Gains in real wages are fueling strong consumption in Indonesia, and a rebound in agriculture and manufacturing is boosting growth in Vietnam.
In the Philippines, the economy is projected to expand at a slightly slower pace than in 2016, partly due to slower-than-expected implementation of public investment projects.
The outlook for smaller countries is mixed. Mongolia and Fiji are expected to fare better in 2017-2018. Mongolia’s macroeconomic stabilization program is encouraging new foreign direct investment in mining and transport. Fiji’s growth will be supported by reconstruction from Cyclone Winston. Growth in Cambodia and Laos is moderating compared to 2016, but its pace remains higher than other countries in the region; trade and FDI in Cambodia and expansion of the power sector in Laos are the main drivers.
Several external and domestic risks could impact this positive outlook, said the World Bank. Economic policies in some advanced economies remain uncertain, while geopolitical tensions centered on the region have increased. Monetary policies in the U.S. and the Euro Area could be tightened more quickly than expected. Many countries in the region have high levels of private sector debt while fiscal deficits remain high or are on the rise.
“The recovery of the global economy and the expansion of global trade are good news for the East Asia and Pacific region and its continued success in improving living standards,” said Victoria Kwakwa, World Bank vice president for the East Asia and Pacific region. “The challenge will be for countries to strike a balance between prioritizing short-term growth and reducing medium-term vulnerabilities, so that the region has a stronger foundation for sustained and inclusive growth.”
The improved prospects for global growth offer a window of opportunity for countries to reduce vulnerabilities while pursuing reforms that can yield growth dividends over the longer term, said Sudhir Shetty, World Bank chief economist for the East Asia and Pacific region. “Reducing risks to financial sector stability and strengthening competitiveness, including through deeper regional integration, remain priorities.”
The report also highlights the potential that tourism development and deeper regional integration offer to offset the risks of protectionism. Growth in tourism, if well managed, has the potential to yield substantial benefits to the region, including for the Pacific Island countries. The ASEAN Economic Community offers one avenue for promoting further regional integration, including by further liberalizing trade in services and reducing non-tariff barriers.
