Laborers work at the TAL garment factory in Vinh Phuc province, Vietnam. Photo: Reuters / Kham
Laborers work at the TAL garment factory in Vinh Phuc province, Vietnam. Photo: Reuters / Kham

The World Bank has raised its economic growth forecasts for developing economies in the East Asia & Pacific (EAP) region but foresees risks ahead from trade protectionism and geopolitical tensions.

The Washington-based global lender now expects the region, which includes China, to grow 6.4% in 2017 and 6.2% in 2018. Its previous forecasts were for 6.2% growth this year and 6.1% growth in 2018.

“The economic outlook for the region remains positive and will benefit from an improved external environment as well as strong domestic demand,” the bank said in its latest East Asia & Pacific Economic Update report on Wednesday.

Rising trade protectionism and economic nationalism, in addition to geopolitical tensions – such as those arising from North Korea’s recent nuclear tests – were listed by the bank as possible dampeners on global trade, however.

“Because of the region’s central role in global shipping and manufacturing supply chains, [escalating tensions on the Korean pensinsula] could disrupt global trade flows and economic activity,” the bank said, adding that related financial market volatility and “flight to safety” capital outflows could also present a drag on growth.

The bank now expects China’s economy to grow 6.7% in 2017 and 6.4% in 2018. Its previous forecasts were for 6.5% this year and 6.3% next year. China’s growth is projected to moderate in 2018-2019 as the economy rebalances away from investment and external demand towards domestic consumption.

The bank’s report cut growth forecasts for several countries in Southeast Asia including Myanmar and the Philippines, while raising forecasts for Malaysia, Thailand and Vietnam.

“Businesses in Myanmar appear to have delayed investments as they wait for the government’s economic agenda to become clearer,” the bank said, as it cut its growth forecasts for the country by half a percentage point for both 2017 and 2018, to 6.4% and 6.7%, respectively.

“These projections do not factor in any longer-term impact of the ongoing insecurity in Rakhine State, which if it persists could have significant adverse effects by slowing foreign investment,” the bank added.

In the Philippines, a delay in a planned government infrastructure programme has softened growth prospects, the World Bank said. Meanwhile, Malaysia is being lifted by higher investment and a recovery in global trade, and growth forecasts for Thailand were up due to a recovery in exports and tourism. A rebound in agriculture and manufacturing is boosting growth in Vietnam.

The report also warned that Southeast Asia countries – Malaysia in particular, but also Indonesia, Thailand and the Philippines – remain more exposed to exchange rate risks than other economies, due to the size of their of their external debts.

With reporting from Reuters