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World Bank raises East Asia's 2018 GDP outlook, but wary of trade war

Reuters  |  JAKARTA 

By Gayatri Suroyo

JAKARTA (Reuters) - The raised its growth forecast for and the Pacific for 2018, but warned that a possible U.S.-trade war could harm growth in countries that are part of the Chinese

The Washington-based lender said in a report on Thursday it expected 2018 growth in the developing and Pacific (EAP) region, which includes China, to expand 6.3 percent, a notch up from 6.2 percent forecast in October.

The 2018 forecast is slower than last year's 6.6 percent growth, reflecting a slowdown in as it continues to rebalance its economy away from investment towards domestic consumption, with policies that focus more on slowing credit expansion and improving the quality of growth, the said.

China's 2017 growth was a faster-than-anticipated 6.9 percent, prompting the to revise up this year's growth projection to 6.5 percent from October's forecast of 6.4 percent.

Sudhir Shetty, the World Bank's chief economist for the region, said the forecast did not take into account a potential trade war between the world's two largest economies, although he did not feel that one was imminent.

Some U.S. officials and analysts have said they believe the dispute could eventually be resolved via dialogue, but reiterated on Thursday that no formal talks have taken place.

However, Shetty noted that two thirds of Chinese goods on a U.S. list targeted for increased tariffs are made in a supply chain that stretches across the region, particularly in the Philippines, and

Should the tariffs be imposed on goods assembled in China, there would be "a knock-on effect" to economies in the supply chain, Shetty told a conference.

"That is a significant thing to be concerned about because the success of this region is based on open trade," he added.

The suggested bolstering regional trade through mechanisms such as the ASEAN Economic Community, the Comprehensive and Progressive Agreement for and the China-led so that the region can try to insulate itself against the threat of a trade war.

"Will that completely offset the impact of a possible trade war? Probably not, but it could certainly mitigate against the worst effects of those developments," Shetty said.

The pace of interest rate increases in advanced economies is another short-term risk for the region, Shetty said.

Interest rates in most economies in the EAP region are currently at historically low levels and monetary tightening may be needed to help offset capital outflows should rates in advanced economies rise faster than expected, he said.

This was particularly the case for countries with high debt levels or rapid credit growth, such as Malaysia, he said.

Meanwhile, countries such as Papua New Guinea, and may have to increase their fiscal buffers through a conservative fiscal stance and better public debt management, he said.

The expects the region to grow 6.1 percent in 2019, unchanged from its prior forecast, and 6 percent in 2020.

(Editing by and Jacqueline Wong)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, April 12 2018. 13:37 IST