publication
East Asia Pacific Economic Update, April 2017: Sustaining Resilience


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Key findings
 
  • The outlook for developing East Asia is expected to remain broadly positive in the next three years, with growth driven by robust domestic demand and a gradual recovery in the global economy and commodity prices.
  • China’s economy will grow 6.5 percent in 2017 and 6.3 percent in 2018, compared with 6.7 percent in 2016, as the government rebalances toward consumption and services.
  • In the rest of the region, including the large economies in Southeast Asia, growth is expected to pick up slightly to 5 percent in 2017 and 5.1 percent in 2018, up from 4.9 percent in 2016.  
  • As a whole, the economies of developing East Asia and Pacific are projected to expand at 6.2 percent in 2017 and 6.1 percent in 2018.
  • Poverty in the region is likely to continue to fall, driven by sustained growth and rising labor incomes.
  • The global environment and domestic vulnerabilities still pose risks to the region’s prospects. These include: faster-than-expected interest rate hikes in the U.S.; protectionist sentiments in some advanced economies; and rapid credit expansion and high levels of debt in several East Asian countries.
  • To address these risks, the report recommends that policy makers continue to focus on prudent macroeconomic management and ensuring sustainable fiscal balances in the medium term.
  • Growth in the region will continue to be driven by strong domestic demand, including public, and increasingly private, investment. This trend will also be supported by gradually rising demand for exports, as emerging markets and developing economies recover.
  • The slow pace of recovery in commodity prices will benefit commodity exporters in the region, but won’t unduly hurt the economies of commodity importers in East Asia.
  • In China, growth will continue to moderate, reflecting the impact of the government’s measures to reduce excess capacity and credit expansion. As a result, the report expects activity in the real estate sector to slow down.
  • In the short term, policy makers should prioritize measures that counteract global risks threatening the availability and cost of external finance, as well as export growth.
  • Across the region’s large economies, increasing fiscal revenues can help governments finance programs that boost growth and foster inclusion while reducing risks to fiscal sustainability.
  • Some smaller commodity-exporting economies will need to take steps to increase their fiscal solvency.
  • In China, the government can sustain its efforts to reduce corporate debt and restructure state-owned enterprises, tighten the regulation of shadow banking and address rising household mortgage debt. Reforms to reduce excess industrial capacity could be complemented with improved social transfers and labor policies.
  •  With credit growth remaining high across much of the region, including Vietnam, the Philippines and Lao PDR, the report suggests an emphasis on strengthening regulation and enhancing supervision.
  • The longer-term challenge for the region lies in sustaining rapid growth while ensuring greater inclusion. Governments can address these challenges by increasing productivity and investment, which have slowed recently in several economies, as well as by improving the quality of public spending. 
  • In the face of rising protectionism outside the region, East Asia can seize opportunities to advance regional integration, including by deepening ongoing initiatives, lowering barriers to labor mobility and expanding cross-border flows of goods and services within the ASEAN Economic Community.
  • Policy makers can put future economic prospects on a more sustainable path if they take steps to reduce pollution caused by farming, a rising threat amid the intensification of agriculture in the region.