World Bank warns of slowing growth in developing East Asia

THE World Bank on Monday delivered a cautious assessment of economic prospects for the developing countries of East Asia, saying that growth in the region is likely to ease moderately in the coming two years amid what it called "elevated risks" to the region's outlook.

The Washington-based institution said in the latest issue of its bi-annual East Asia and Pacific Update: "Growth in developing East Asia is expected to ease from 6.5 per cent in 2015 to 6.3 per cent in 2016 and 6.2 per cent (on average) in 2017-18."

The report excludes "high-income" countries such as Japan, South Korea and Singapore, which it does not regard as being part of "developing" East Asia and the Pacific.

The World Bank said the overall forecast for the region "reflects China's gradual shift to slower, more sustainable growth", which is expected to be 6.7 per cent in 2016 and 6.5 per cent in 2017, down from 6.9 per cent in 2015.

Meanwhile, the region faces a challenging backdrop of 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.

The World Bank's cautious tone echoed that of the International Monetary Fund and the Asian Development Bank, which in recent months have warned about the impact of China's slowdown on the rest of East Asia through trade and other economic "spillovers".

The overall outlook for developing East Asia "is subject to elevated risks, and countries should continue to prioritise monetary and fiscal policies that reduce vulnerabilities and strengthen credibility, while deepening structural reform", the report said.

World Bank chief economist for East Asia and the Pacific Sudhir Shetty, speaking at the Singapore launch of the report, said: "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, policy makers have less room to manoeuvre in setting macroeconomic policy. 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."

Excluding China, the developing countries of East Asia and the Pacific grew by 4.7 per cent last year; the pace of growth will pick up slightly to 4.8 per cent this year and 4.9 per cent in 2017-18, driven by growth in the large South-east Asian economies, the World Bank said.

"However, 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.

"Among the large developing South-east Asian economies, the Philippines and Vietnam have the strongest growth prospects; both are expected to grow by more than 6 per cent in 2016.

"In Indonesia, growth is forecast at 5.1 per cent in 2016 and 5.3 per cent in 2017, contingent upon the success of recent reforms and implementation of an ambitious public investment programme."

Several small economies, including Laos, Mongolia and Papua New Guinea, will continue to be affected by low commodity prices and weaker external demand, the report said.

Cambodia's growth will be slightly below 7 per cent in 2016-18, reflecting weaker prices for agricultural commodities, constrained garment exports and moderating growth in tourism. In the Pacific-Island countries, growth is likely to remain moderate.

Across the East Asia and Pacific region more generally, "there is a growing need for prudent fiscal policy to guard against future external shocks", the World Bank suggested.

This article was first published on April 12, 2016.
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