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‘Be attentive’ to China’s rebalancing

April 25, 2019

Policymakers in the East Asia and Pacific region should be mindful of China’s bid to make its economy more dependent on consumption instead of debt-led spending, a World Bank economist said on Wednesday.

“It will be important for policymakers to be attentive to China’s efforts to rebalance its economy as a related shift will present both new opportunities and challenges,” acting East Asia and Pacific chief economist Andrew Mason told reporters in a briefing.

The move towards a consumption-led economy “has implications for other countries in the region,” he added, as “over time, it (China) will reduce its demand for intermediate inputs and increase its demand for final consumption goods.”

The rebalancing will potentially alter the structure of investments in the region and countries’ positions in global and regional value chains, which highlights the need for reforms that will strengthen competitiveness.

Policy reforms in the service sector are also necessary, Mason said, as it remains “remain very restrictive compared to goods sector”.

While regional growth is expected to stay strong, he noted that this was expected to slow to 6.0 percent in 2019 and 2020, from 6.3 percent in 2018, in the face of continuing global headwinds.

The World Bank recently trimmed its 2019 Philippine growth outlook to 6.4 percent from 6.5 percent previously, citing a delayed government budget and a global trade slowdown, among other factors, but this still represents an improvement from last year’s 6.2-percent expansion.

Gross domestic product (GDP) growth is expected to pick up to 6.5 percent next year.

Elsewhere in the region, the World Bank expects slowdowns for China (6.0 from 6.3 percent in 2018), Thailand (3.8 from 4.1 percent), Vietnam (6.6 from 7.1 percent), Cambodia (7.0 from 7.5 percent), and the Solomon Islands (2.9 from 3.5 percent).

Growth in Indonesia and Malaysia is forecast to remain unchanged at 5.2 percent and 4.7 percent, respectively.

This year’s gainers, meanwhile, will be Lao PDR ( 6.6 from 6.5 percent) Mongolia (7.2 from 6.9 percent) Myanmar (6.5 from 6.2 percent) Papua New Guinea (5.1 from 0.3 percent), Fiji (3.4 from 3.2 percent) and Timor-Leste (3.9 from -0.7 percent).

“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,” Mason said.

“Continued uncertainty stems from several factors including further deceleration in advanced economies, the possibility of a faster-than-expected slowdown in China, and unresolved trade tensions. These continuing headwinds will need to be actively managed,” he added.

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