Modest growth easing forecast for east Asia and Pacific: World Bank

Growth in the developing east Asia and Pacific region has remained resilient and is expected to ease only “modestly” during 2016-2018, according to the latest report on the region from the World Bank. This relatively positive outlook is, however, subject to “elevated” risks. Countries should therefore continue to prioritise monetary and fiscal policies that reduce vulnerabilities and strengthen credibility, while deepening structural reforms, advised the bank. The latest forecast shows that growth in developing east Asia is expected to ease from 6.5% in 2015 to 6.3% in 2016 and down to 6.2% in 2017-2018. The World Bank said the forecast reflects China’s gradual shift to slower, more sustainable growth—expected to be 6.7% in 2016 and 6.5% in 2017, compared with 6.9% in 2015.hide“Developing east Asia and Pacific continues to contribute strongly to global growth. The region accounted for almost two fifths of global growth in 2015, more than twice the combined contribution of all other developing regions,” said Victoria Kwakwa, incoming World Bank east Asia and Pacific regional vice-president. “The region has benefited from careful macroeconomic policies, including efforts to boost domestic revenue in some commodity-exporting countries. But sustaining growth amid challenging global conditions will require continued progress on structural reforms,” she added. The East Asia and Pacific Economic Update examines the region’s growth prospects against a challenging backdrop characterised by slow growth in high income countries, a broad slowdown across emerging markets, weak global trade, persistently low commodity prices and increasingly volatile global financial markets. Excluding China, the region’s developing countries grew by 4.7% in 2015. The pace of growth will pick up slightly to 4.8% in 2016 and 4.9% in 2017-2018, driven by growth in the large, southeast Asian economies. But the outlook for individual countries varies depending on their trade and financial relationships with high-income economies and China, as well as their dependence on commodity exports, states the report. The Philippines and Vietnam have the strongest growth prospects among the large developing southeast Asian economies. Both are expected to grow by more than 6% in 2016. The growth forecast for Indonesia is 5.1% in 2016 and 5.3% in 2017. This will, however, be contingent on the success of recent reforms and implementation of an “ambitious” public investment program, said the World Bank. Several small economies, including Lao PDR, Mongolia and Papua New Guinea, will continue to be affected by low commodity prices and weaker external demand. Cambodia’s growth will be slightly below 7% during 2016-2018, reflecting weaker prices for agricultural commodities, constrained garment exports and moderating growth in tourism, added the bank. In the Pacific island countries, growth is likely to remain moderate. “Developing east Asia and Pacific faces elevated risks, including a weaker than expected recovery in high income economies and a faster than expected slowdown in China. At the same time, policymakers have less room to manoeuver in setting macroeconomic policy,” commented Sudhir Shetty, chief economist of the World Bank’s east Asia and Pacific Region. “Countries should adopt monetary and fiscal policies that reduce their exposure to global and regional risks, and continue with structural reforms to boost productivity and promote inclusive growth,” he added. Slower than expected global growth could weaken demand and reduce growth in developing east Asia and Pacific, especially among commodity exporters, noted the bank. The report calls for close monitoring of economic vulnerabilities—particularly those associated with high levels of debt, price deflation and slower growth in China—and high corporate and household debt in some other large economies. The region needs to also prepare for natural disasters, which pose a substantial risk for Pacific island countries, added the World Bank. The report calls for continued macroeconomic prudence and sustained structural reform. In China, it recommends strengthening market discipline in the financial sector and advises that credit allocation needs to be more market-driven because this would gradually open up sectors that are dominated by state-owned enterprises to greater competition. The report also urges a shift in public spending from infrastructure toward public services, such as education, health and social assistance, and also towards environmental protection. “Across the region more generally, there is a growing need for prudent fiscal policy to guard against future external shocks. This is especially important in those economies where growth has been sustained through increased public or private sector borrowing, or where external demand has been supported by the commodities boom,” points out the World Bank in the report. Over the longer term, the report calls for governments to boost transparency and strengthen accountability. It urges countries to reduce barriers to regional trade, such as non-tariff measures and regulatory barriers, including to trade in the market for services. The report also stresses that the benefits from the digital revolution will be maximised by the development of regulatory regimes that favour competition and that help workers adapt their skills to the demands of the new economy.

Modest growth easing forecast for east Asia and Pacific: World Bank

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