WB sees East Asian Economies stable growth

Developing countries in the East Asia Pacific region will see stable economic growth this year, bolstered by a recovery in high-income economies and the market’s modest response so far to the Federal Reserve’s tapering of its quantitative easing, according to the East Asia Pacific Economic Update released Monday by the World Bank.

East Asia will grow by 7.1 percent this year, largely unchanged from 2013, the report says.As a result, East Asia remains the fastest growing region in the world, despite a slowdown from the average growth rate of 8.0 percent from 2009 to 2013. In China, growth will ease slightly, to 7.6 percent this year from 7.7 percent in 2013. Excluding China, the developing countries in the region will grow by 5.0 percent, slightly down from 5.2 percent last year.

“East Asia Pacific has served as the world’s main growth engine since the global financial crisis,” said Axel van Trotsenburg, World Bank East Asia and Pacific Regional Vice President.“Stronger global growth this year will help the region expand at a relatively steady pace while adjusting to tighter global financial conditions.”

Larger Southeast Asian economies, such as Indonesia and Thailand, will face tougher global financial conditionsand higher levels of household debt. Malaysia’s growth will accelerate modestly, to 4.9 percent in 2014. Its exports will increase, but higher debt servicing costs and ongoing fiscal consolidation will weigh on domestic demand.In the Philippines, growth could will slow to 6.6 percent, but withacceleratingreconstruction spending would offsetting the drag on consumption from the effects of natural disasters in 2013.

The smaller economies are expected to grow steadily, but face overheating risks that could require further monetary tightening. In Cambodia, renewed reform momentum after the elections is expected to help stabilize growth at 7.2 percent this year, but labor market instability couldpose downside risks. Steady progress in structural reforms will help Myanmar grow at 7.8 percent. But with limited progress in structural reforms in banking and other sectors, the Vietnamese economy is expected to grow modestly, at 5.5 percent this year. Most of the Pacific Islands and Timor-Leste remain dependent on aid and remittances from advanced economies.

Risks to the regional forecast remain. “A slower-than-expected recovery in advanced economies, a rise in global interest rates, and increased volatility in commodity prices on account of recent geo-political tensions in Eastern Europe serve as reminders that East Asia remains vulnerable to adverse global developments,”said Bert Hofman, Chief Economist of the World Bank’s East Asia and Pacific Region.

On the bright side, as last year’s tapering episode demonstrated, flexible currencies will help East Asia deal with external shocks, including potential capital-flow reversals. In addition, most countries have adequate reserves to cover temporary trade and external shocks.

“Over the longer term, to keep growth high, developing East Asia should redouble efforts to pursue structural reforms to increase their underlying growth potential and enhance market confidence,”Hofman said.