World Bank raises East Asia and Pacific growth forecasts

Better 2017-8 outlook, but risks include rising trade protectionism, geopolitical tensions

WASHINGTON • The World Bank raised its economic growth forecasts for developing East Asia and Pacific for this year and the next, but added that the generally positive outlook was clouded by risks such as rising trade protectionism and geopolitical tensions.

The lender now expects the developing East Asia and Pacific region, which includes China, to grow 6.4 per cent this year and 6.2 per cent next year.

Its previous forecast in April was for 6.2 per cent growth this year and 6.1 per cent growth next year.

"The economic outlook for the region remains positive and will benefit from an improved external environment as well as strong domestic demand," the World Bank said in its latest East Asia and Pacific Economic Update report yesterday.

The outlook, however, faces risks from rising trade protectionism and economic nationalism, which could dampen global trade, and the possible escalation of geopolitical tensions in the region, it said.

'Increasingly hostile statements by United States President Donald Trump and North Korean leader Kim Jong Un in recent weeks have raised fears of a miscalculation that could lead to war, particularly since Pyongyang conducted its sixth and most powerful nuclear test on Sept 3.

"Because of the region's central role in global shipping and manufacturing supply chains, escalation of these tensions could disrupt global trade flows and economic activity," the World Bank said.

That could be accompanied by financial market volatility that would likely hamper economic growth in the region, and there could also be a "flight to safety" that spurs capital outflows, it added.

The bank cut growth forecasts for several countries in South-east Asia, including Myanmar and the Philippines, while raising forecasts for Malaysia and Thailand.

In the Philippines, a delay in a planned government infrastructure programme has softened the economic growth prospects, it said.

It 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.

Malaysia, and to a lesser degree, Indonesia, Thailand and the Philippines, also remain more exposed to exchange rate risk than other developing economies in East Asia and the Pacific as global financial conditions tighten, the World Bank said.

Companies and banks in these countries have sizeable external debt, although foreign exchange reserves currently appear adequate, it said. 

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on October 05, 2017, with the headline 'World Bank raises East Asia and Pacific growth forecasts'. Print Edition | Subscribe