World Bank forecasts slowdown in East Asia and Pacific economies in 2019

The EAP slow growth shows how trade war impacted the region. Countries like Thailand, Vietnam, Philippines report low economic growth which dent the region's economic health.

Slow growth in China weighs heavily in East Asia and the Pacific (EAP) region. According to the World Bank's Managing Headwinds report, growth of East Asia and the Pacific (EAP) will remain at 6.0 per cent in 2019, which is down from 6.3 per cent in 2018. Different factors marred slow growth in major economies which suffered due to economic policies. The growth in 2018 was seen due to effective policy frameworks, favourable trade policies, investors' trust in the market.

EAP's slow growth shows how trade war impacted the region. Countries like Thailand, Vietnam, the Philippines reported low economic growth which dented the region's economic health. The World Bank report also focuses on structural reforms to boost productivity, competitiveness, create better opportunities for private firms and increase human capital. Growth prospects among the smaller economies in EAP remain favourable.

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.

China's ongoing, policy-guided slowdown will lead to 6.2 per cent growth in 2019 and 2020, down from 6.6 per cent 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.

Victoria Kwakwa World Bank Vice President for East Asia and Pacific said, "The region's resilient growth should bring about further poverty reduction, already at historic lows. By 2021, in fact, we expect extreme poverty to dip below 3 per cent. At the same time, however, half a billion people in the region remain economically insecure, at risk of falling back into poverty— an important reminder of the scale of the challenges facing policymakers."

"While the economic outlook for EAP remains largely positive, it is important to recognize that the region continues to face heightened pressures that began in 2018 and that could still have an adverse impact. Continued uncertainty stems from several factors including a further deceleration in advanced economies, the possibility of a faster-than-expected slowdown in China, and unresolved trade tensions," said Andrew Mason, World Bank Acting Chief Economist for the East Asia and Pacific region.

To face these persistent risks the report details both short- and medium-term responses. In the short term, it calls for strengthening reduced buffers, including rebuilding international reserves that were drawn upon to manage exchange rate volatility in 2018. Monetary policy may also need to be adjusted to become more neutral as risks of capital outflows have abated. The report highlights the importance of continued structural reforms 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 per cent of the population than any other developing region.

The report also stresses the importance of the Pacific Island Countries to ensure debt sustainability by improving debt management, quality of spending, and building fiscal space. 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.

Key Takeaways from the report

• Monetary policy may also need to be adjusted to become more neutral as risks of capital outflows have abated.
• The intensification of some risks also highlights the need for continued investments in social assistance and insurance programs.
• EAP has the lowest social assistance coverage among the poorest twenty per cent 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 space.