East Asia Pacific Economic Update, October 2016: Reducing Vulnerabilities


Key findings
  • Growth in developing East Asia and Pacific is expected to remain resilient over the next three years,
  • China is expected to continue its gradual transition to slower, but more sustainable, growth, from 6.7 percent this year to 6.5 percent in 2017 and 6.3 percent in 2018.
  • In the rest of developing East Asia, growth is projected to remain stable at 4.8 percent this year, and rise to 5 percent in 2017 and 5.1 percent in 2018.
  • Overall, developing East Asia is expected to grow at 5.8 percent in 2016 and 5.7 percent in 2017-2018.
  • The report expects domestic demand to remain robust across much of the region. Continued low commodity prices will benefit commodity importers and keep inflation low across most of the region.
  • But the region still faces significant risks to growth, including sluggish growth in advanced economies, subdued prospects in most developing economies and stagnant global trade.
  • The report recommends that countries take measures to reduce financial and fiscal vulnerabilities, as a sharp global financial tightening, a further slowdown in world growth or a faster-than-anticipated slowdown in China would test East Asia’s resilience
  • Over the longer term, countries need to address constraints to sustained and inclusive growth, including by filling infrastructure gaps, reducing malnutrition and promoting financial inclusion.
  • 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.
  • Among other large economies, prospects are strongest in the Philippines, where growth is expected to accelerate to 6.4 percent this year, and Vietnam, where growth this year will be dented by the severe drought, but will recover to 6.3 percent in 2017.
  • In Indonesia, growth will increase steadily, from 4.8 percent in 2015 to 5.5 percent 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 percent in 2016 from 5 percent last year, because of weak global demand for oil and manufactured exports.
  • 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 percent, down from 2.3 percent in 2015, on weakening mineral exports and efforts to control debt.
  • Papua New Guinea will see its economic growth at 2.4 percent in 2016, down from 6.8 percent 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.
  • Immediate priorities include advancing reforms in its corporate sector and bringing credit growth under control in China; reducing the buildup of domestic and external financial risks in the other large economies; maintaining fiscal buffers and broadening revenue sources across the region, particularly for commodity producers; and addressing risks to fiscal sustainability in Mongolia and Timor-Leste.
  • Over the longer term, the report highlights several areas on which countries across the region should focus to sustain and 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 where it remains. High levels of childhood undernutrition 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 so as to increase financial inclusion