WB Forecasts E. Asia Growth But Warns of Rising Risks

The World Bank raised its growth forecast for the developing economies of East Asia and the Pacific on Wednesday but warned that risks included rising protectionism and escalating tensions over North Korea.

In an update to its annual economic outlook, the bank forecast economic growth of 6.4% for the region this year, then easing to 6.2% in 2018m ABCNews reported.

The World Bank said it tweaked its forecasts to reflect stronger than expected growth this year in China—Asia's biggest economy—before a gradual slowdown next year.

In its previous forecast in April, the Washington-based lender projected a 6.2% expansion in 2017 and 6.1% for 2018. The report covers 15 countries including China, Thailand, Vietnam, Malaysia and the Philippines.

While the outlook is broadly positive, the bank said growing protectionism could chill world trade, citing proposals for changes to the North American Free Trade Agreement that would restrict or discourage imports and increasing uncertainty about access to the British market as Brexit talks get underway.

Furthermore, "geopolitical tensions in the region are rising and could escalate into armed conflict," the report said, referring to United Nations sanctions on North Korea in response to its nuclear and missile tests. Some world powers are urging even tougher measures, including possible military action, to stop Pyongyang from developing its nuclear capabilities, it said.

"Escalation of these disputes could have serious economic consequences," the World Bank said.

East Asia's crucial position in global shipping and manufacturing supply chains means flaring tensions could disrupt trade flows and economic activity, it said, adding that the tendency for global investors to pull their money during political crises could pressure exchange rates and raise world interest rates. Commodity prices could also spike because of worries about supply disruptions, the report said.

Rise and Fall

The World Bank raised its forecast for China's GDP growth in 2017 to 6.7% and 6.2% in 2018, from a previous forecast of 6.4% and 6.2% respectively.

China's economic growth is projected to moderate in 2018-2019 as the economy rebalances away from investment and external demand towards domestic consumption, the bank said.

According to the report, China's economic growth is projected to stabilize in 2018-2019 as the economy rebalances and moves away from investment and external demand towards domestic consumption.

The WB added that Malaysia's growth is gaining a lift from higher investment and a recovery in global trade, while Thailand's growth forecasts have been revised higher due to a stronger recovery in exports and tourism.

The World Bank cut growth forecasts for several countries in Southeast Asia including Myanmar and the Philippines, while raising forecasts for Malaysia and Thailand, Reuters reported.

WB revised Malaysia's gross domestic product growth forecast upwards for this year to 5.2% from 4.9% in June, on the back of a much stronger-than-expected actual growth of 5.7% in the first half of 2017.

"Businesses in Myanmar appear to have delayed investments as they wait for the government's economic agenda to become clearer," said the bank.

It cut Myanmar's growth forecasts by 0.5 percentage points for both 2017 and 2018, to 6.4% and 6.7%, respectively. "These projections do not factor in any longer-term impact of the ongoing insecurity in Rakhine State, which if it persists could have significant adverse effects by slowing foreign investment."

More than half a million Rohingya have fled from a Myanmar military crackdown in Rakhine State launched in late August that has been denounced by the United Nations as "ethnic cleansing".

In the Philippines, a delay in a planned government infrastructure program has softened the economic growth prospects, the World Bank said.

“In 2017, the Philippines economy is projected to expand at a slightly slower pace than 2016, at 6.6%. The delay in the anticipated push of the planned government infrastructure program has been contributing to the moderation of fixed capital formation growth, softening the growth prospect for the year,” the WB said.

For 2018, the WB’s GDP growth projection was reduced to 6.7% from 6.9% previously, below President Rodrigo Duterte administration’s 7-8% yearly growth target from 2018 to 2022.

In 2019, the WB expects Philippine economic expansion of 6.7%, a pace also slower than the government target.

However, the World Bank cautioned that its generally positive outlook was subject to significant downside risks, warning that "continued uncertainty about economic policies in some advanced economies and the escalation of geopolitical tensions could jeopardize growth prospects”.