JAKARTA (TheInsiderStories) – East Asia and Pacific (EAP) region’s economy is expected to grow to 6.3 per cent in 2018 amid the trade tension of United States and China and Federal Reserves plan to rise interest rate this year, according to World Bank Ease Asia and Pacific Economic Update, Thursday (12/4).
World Bank advises governments and authorities to stay alert and cope with emerging challenges such as faster rate hikes and trade wars which will require tighter monetary policy and larger fiscal buffers. Governments also need to improve the prospects for the large public and private investment to raise growth in the longer term.
“Policy makers need to focus on addressing risks to economic stability while taking steps to enhance longer-term growth potential.” said Victoria Kwakwa, World Bank Vice President for East Asia and the Pacific.
However, the bank predicts Indonesia’s economy outlook continue to be positive with 5.3 per cent this year. However, the forecast faces risks if global trade slows along with the growth of domestic private consumption, which constitutes over half of the country’s GDP.
World Bank suggested the Indonesian government to put forward bold policies to radically open the economy and bring in investments and jobs. For the fiscal balance is expected to narrow modestly over the forecasting horizon, in line with the smaller deficit stipulated in the 2018 State Budget, high oil prices and critical revenue-enhancing reforms being implemented, boosting total collections.
Meanwhile, the bank predicted China’s growth to slow moderately to 6.5 per cent in 2018 as its economy continues to rebalance away from investment and towards domestic consumption with policies that focus more on slowing credit expansion and improving the quality of growth.
While the region’s growth outlook is positive, there are challenges for policy makers in the short and medium term according to Sudhir Shetty, World Bank Chief Economist for the East Asia and Pacific region.
“Addressing these challenges will require measures to dampen the possible impacts of a more rapid pace of monetary policy tightening in advanced economies as well as to enhance longer-term growth prospects in the face of policy uncertainty, particularly around global trade,” he said.
To address risks to macroeconomic stability, many countries will need to consider tightening monetary policies and further strengthening macroprudential regulations. This will be particularly important in countries where high debt levels or rapid credit growth could exacerbate vulnerabilities in their financial sectors as interest rates are raised in advanced economies.
To address moderating growth prospects across the region in the medium term, he suggested the countries will need to find ways of raising their long-term potential growth. This could include a mix of measures aimed at: improving public spending and infrastructure provision; deepening trade integration and improving trade facilitation; implementing reforms to enhance competitiveness; and building human capital.
With continued threats to the global trading system, developing EAP can respond by deepening its own trade integration and facilitation, through such mechanisms as the ASEAN Economic Community, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and the Belt & Road Initiative.
Written by Elisa Valenta, email: email@example.com