Despite a less favourable external environment that has seen increased trade tensions and financial volatility, the growth outlook for developing East Asia and Pacific (EAP) remains positive, new figures show.

Growth in developing EAP is expected to be 6.3% in 2018, lower than in 2017 due to the continued moderation in China’s growth as its economy continues to rebalance, according to the latest World Bank economic report – Navigating Uncertainty – on the region.

The October 2018 edition of the update underscores, however, that in recent months a combination of trade tensions, higher US interest rates, a stronger US dollar, and financial market volatility in many emerging economies has increased the uncertainty around the region’s growth outlook. At the same time, inflation has begun to rise across the region, particularly in Myanmar, the Philippines, and Vietnam.

“Robust growth has been and will continue to be the key to reducing poverty and vulnerability in the region,” said Victoria Kwakwa, World Bank vice president for East Asia and the Pacific. “Protectionism and turbulence in financial markets can hurt the prospects for medium-term growth, with the most adverse consequences for the poorest and most vulnerable. This is a time for policy makers across the region to remain vigilant and proactively enhance their countries’ preparedness and resilience.”

According to the report, China is expected to slow moderately to 6.5% in 2018, after growing faster than anticipated in 2017. Growth in developing EAP, excluding China, is expected to remain stable at 5.3% from 2018 to 2020, driven primarily by domestic demand.

In Thailand and Vietnam, growth is expected to be robust in 2018 before slowing in 2019 and 2020 as stronger domestic demand only partially offsets the moderation in net export growth. Indonesia’s growth should be stable, thanks to improved prospects for investment and private consumption.

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Meanwhile, growth in 2018 in the Philippines will likely slow, but the expected expansion of public investment will boost growth over the medium term. In Malaysia growth is expected to ease, as export growth slows, and public investment is lower following the cancellation of two major infrastructure projects.

In EAP’s smaller economies, growth prospects remain robust, averaging over 6% annually in Cambodia, Lao PDR, Mongolia, and Myanmar between 2018 and 2020. Growth is expected to resume in Timor-Leste following the resolution of a political impasse, while in Papua New Guinea it is expected to rebound in 2019, following the large earthquake earlier this year. Growth in the Pacific Island countries is expected to remain relatively stable, although highly vulnerable to natural disaster shocks.

“The regional and global integration of most economies in the region intensifies their vulnerability to external shocks,” says Sudhir Shetty, World Bank chief economist for the East Asia and Pacific region. “The main risks to continued robust growth include an escalation in protectionism, heightened financial market turbulence, and their interaction with domestic fiscal and financial vulnerabilities. In this context of rising risks, developing EAP economies need to utilise the full range of available macroeconomic, prudential, and structural policies to smooth external shocks and raise potential growth rates.”