Stronger growth in advanced economies, a moderate recovery in commodity prices, and a recovery in global trade growth, are the favourable external factors that will support the economies of developing East Asia-Pacific to expand by 6.4 percent for 2017, the World Bank said in a report.
The uptick in growth in 2017 relative to earlier expectations reflects stronger than expected growth in China, at 6.7 percent, the same pace as in 2016, the report said.
In the rest of the region, including the large Southeast Asian economies, growth in 2017 will be slightly faster at 5.1 percent in 2017 and 5.2 percent in 2018, up from 4.9 percent in 2016, it added.
Several external and domestic risks could impact this positive outlook. 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, she added.
China rebalancing to continue
China’s gradual rebalancing away from investment and towards domestic consumption is expected to continue, with growth projected to slow to around 6.4 percent in 2018, the report said.
Thailand and Malaysia are expected to grow more rapidly than expected, due to stronger exports, including tourism, for the former, and increased investment in the latter. Gains in real wages are fuelling 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 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.
To maintain resilience against risks, the report called for a move away from measures aimed at short-term growth towards policies that address financial sector and fiscal vulnerabilities. These measures include: strengthening supervision and prudential regulation in countries experiencing rapid growth in private-sector credit and debt; reforming tax policies and administration to help boost revenue collection; and being ready to tighten monetary policy if warranted by the pace of interest rate increases in advanced economies.