East Asia and Pacific Growth Rates Stable

Growth in developing East Asia and Pacific is expected to remain resilient over the next three years, according to a new World Bank report.

However, the region still faces significant risks to growth, and countries need to take measures to reduce financial and fiscal vulnerabilities. Over the longer term, the report recommends that countries address constraints to sustained and inclusive growth, including by filling infrastructure gaps, reducing malnutrition and promoting financial inclusion, World Bank report said Wednesday.

The newly released East Asia and Pacific Economic Update expects China to continue its gradual transition to slower, but more sustainable, growth, from 6.7% this year to 6.5% in 2017 and 6.3% in 2018.

In the rest of the region, growth is projected to remain stable at 4.8% this year, rise to 5% in 2017 and 5.1% in 2018. Overall, developing East Asia is expected to grow at 5.8% in 2016 and 5.7% in 2017-2018.

“The outlook for developing East Asia and Pacific remains positive, with weakness in global growth and external demand offset by robust domestic consumption and investment,” said Victoria Kwakwa, World Bank vice president for East Asia and Pacific.

Improving Infrastructure

“The long-term challenge is to sustain growth and make it more inclusive, including by shrinking gaps in income and access to public services, especially in China; improving infrastructure across the rest of the region; reducing persistent child malnutrition; and harnessing the potential of technology to stimulate financial inclusion.”

The report offers a comprehensive analysis of the outlook for East Asia and Pacific against a challenging global backdrop, including sluggish growth in advanced economies, subdued prospects in most developing economies and stagnant global trade.

The report says continued low commodity prices will benefit commodity importers and keep inflation low across most of the region.

In China, growth will moderate as the economy continues to rebalance toward consumption, services and higher-value-added activities, and as excess industrial capacity is reduced. Nevertheless, tighter labor markets will support continued growth in incomes and private consumption.

Large Economies

Among other large economies, prospects are strongest in the Philippines, where growth is expected to accelerate to 6.4% this year, and Vietnam, where growth this year will be dented by the severe drought, but will recover to 6.3% in 2017.

In Indonesia, growth will increase steadily, from 4.8% in 2015 to 5.5% in 2018, the report says, contingent on a pickup in public investment and the success of efforts to improve the investment climate and increase revenues.

In Malaysia, however, growth will fall, to 4.2% in 2016 from 5% last year, because of weak global demand for oil and manufactured exports.

Smaller Economies

Among the smaller economies, the growth outlook has deteriorated markedly in some commodity exporters.

In Mongolia, the economy is projected to grow only 0.1%, down from 2.3% in 2015, on weakening mineral exports and efforts to control debt.

Papua New Guinea will see its economic growth at 2.4% in 2016, down from 6.8% in 2015, because of declining prices and output for copper and liquefied natural gas.

By contrast, growth will remain buoyant in Cambodia, Lao PDR and Myanmar.

Adopting Better Policies

Over the longer term, the report highlights four areas where policy measures can promote inclusive growth. First, it recommends that China build on its past success in reducing poverty by improving access to basic public services for the rural population, and for the still growing number of migrants to the cities.

Second, other countries in the region need to fill infrastructure gaps by rebalancing public expenditure, increasing public-private cooperation and improving the efficiency of public investment management.

Third, the report urges policymakers to address widespread malnutrition. High levels of childhood under-nutrition persist in many countries, even relatively affluent ones, and lead to health and cognitive deficits that are difficult to reverse.

The report recommends coordinated measures across a range of areas, including early childhood development programs and micronutrient interventions.

Finally, the report recommends that countries harness the potential of technology in transforming financial services and increasing financial inclusion. The region is technologically advanced, with a high level of mobile phone penetration, but lags in access to financial services. To reap the gains from financial innovation, countries will need to strengthen legal and regulatory frameworks and enhance consumer protection.