Growth in developing East Asia and the Pacific (EAP) is projected to soften to 6.0 percent in 2019 and 2020, down from 6.3 percent in 2018, largely reflecting global headwinds and a continued gradual policy-guided slowdown in China, according to the latest edition of the semiannual East Asia and Pacific Economic Update, Managing Headwinds.
Still, the region’s economies weathered the financial markets volatility of 2018 relatively well largely due to strong policy fundamentals, including diversified economies, flexible exchange rates, and solid financial and fiscal buffers.
While trade tensions have abated somewhat, global trade growth is likely to moderate further. Fortunately, domestic demand has remained strong in much of the region, partly offsetting the impact of slowing exports.
EAP’s resilient growth, at levels that stand above most other regions, should bring about further poverty reduction, already at historic lows.
- China’s ongoing, policy-guided slowdown will lead to 6.2 percent growth in 2019 and 2020, down from 6.6 percent in 2018.
- Growth in Indonesia and Malaysia is projected to remain unchanged in 2019, while growth rates in Thailand and Vietnam are expected to be slightly lower in 2019.
- In the Philippines, a delay in approving the 2019 national government budget is expected to weigh on GDP growth in 2019, but growth is anticipated to pick up in 2020.
- Growth prospects among the smaller economies in EAP remain favorable.
- Large infrastructure projects are expected to accelerate growth for Lao PDR and Mongolia.
- Cambodia’s growth is projected to remain robust, although at a slower pace than in 2018, mainly due to weaker-than-expected external demand.
- Expansionary fiscal policy is expected to boost growth in Myanmar in the short term, while recent structural reforms are expected to support growth in the medium term.
- Growth is expected to pick up in Papua New Guinea in 2019 as the economy recovers from a catastrophic earthquake in 2018.
- Growth in Fiji is projected to continue to rise, albeit at a more tempered pace as reconstruction efforts near completion in the aftermath of tropical cyclones.
- In the short term, strengthening reduced buffers, including rebuilding international reserves that were drawn upon to manage exchange rate volatility in 2018 will be important. Monetary policy may also need to be adjusted to become more neutral as risks of capital outflows have abated.
- Continued structural reforms are also key in the medium term – to increase productivity, boost competitiveness, create better opportunities for the private sector, and strengthen countries’ human capital.
- The intensification of some risks also highlights the need for continued investments on social assistance and insurance programs to protect the most vulnerable, the report argues. Today, developing EAP has the lowest social assistance coverage among the poorest twenty percent of the population than any other developing region.
- For Pacific Island Countries it is crucial to ensure debt sustainability by improving debt management, quality of spending, and building fiscal s pace. While their public debt is relatively low, structural factors, including modest long-term economic growth prospects, high vulnerability to natural disasters, and high costs for public services and infrastructure, place the Pacific Island countries at high risk of debt distress.