1st LD-Writethru: East Asia sees easing growth momentum, reform potential: World Bank

Economic growth will ease slightly but remain strong throughout developing countries in East Asia and the Pacific this year with headwinds coming from an uneven global recovery, the World Bank said in a report released Monday.

EASING GROWTH MOMENTUM

The gradual strengthening of activity in high-income economies combined with the sustained fuel price decline will help developing economies in the region maintain growth performance, the World Bank said in the East Asia Pacific Economic Update released Monday.

Developing economies in the region are projected to grow by 6.7 percent in 2015 and 2016, slightly down from 6.9 percent in 2014, the Washington-based global lender predicted in its biannual report on the region.

Low global oil prices will benefit most developing countries in East Asia, especially Cambodia, Laos, the Philippines, Thailand and the Pacific island countries. But the region's net fuel exporters, including Malaysia and Papua New Guinea, will see slower growth and lower government revenues, it added.

"Despite slightly slower growth in East Asia, the region will still account for one-third of global growth, twice the combined contribution of all other developing regions," said Axel van Trotsenburg, World Bank East Asia and Pacific Regional Vice President.

"Lower oil prices will boost domestic demand in most countries in the region and provide policy makers a unique opportunity to push fiscal reforms that will raise revenues and reorient public spending toward infrastructure and other productive uses," he said.

China's growth is expected to moderate to around 7 percent in the next two years compared with 7.4 percent in 2014, reflecting continued policy efforts to address financial vulnerabilities and gradually shift the economy to a more sustainable growth path, noted the report.

Growth in the rest of developing East Asia is to rise by half a percentage point, to 5.1 percent this year, largely driven by domestic demand--thanks to upbeat consumer sentiment and falling oil prices--in the large Southeast Asian economies.

The challenges facing the world economy continue to pose risks to East Asia's globally-integrated economies. The recovery in high-income countries continues to be slow and uneven, and a downturn in the eurozone and Japan would weaken global trade, the report said.

Higher U.S. interest rates and an appreciating U.S. dollar, along with diverging monetary policy paths across advanced economies, could raise borrowing costs, generate financial volatility and reduce capital flows to East Asia, said the biannual report.

REFORMS NEEDED

The region has thrived despite an unsteady global recovery from the financial crisis, but many risks remain for the region, both in the short and long run, said Sudhir Shetty, Chief Economist of the World Bank's East Asia and Pacific Region.

"To address these risks, improving fiscal policy is key. With low oil prices, countries--whether oil importers or exporters--should reform energy pricing to usher in fiscal policies that are more sustainable and equitable," he suggested.

In most of the larger East Asian economies, efforts to bolster revenues and restructure spending can help fill the gap in infrastructure investments and create more funding for social protection and insurance programs, which are already under pressure amid rapid aging in the region.

As China shifts to a consumption-led, rather than an investment-led, growth model, the main challenge is to implement reforms that will ensure sustainable growth in the long run.

"Over the medium term, developing human capital and physical infrastructure is a key priority," it said, adding that countries should expand and upgrade physical infrastructure and improve public access to higher education and health care in the medium term.

In the long term, countries will need to find ways to sustain productivity growth, contain health care costs and expand the revenue base for social security, suggested the World Bank. Endi