World Bank Warns of Geopolitical Risks in East Asia and the Pacific i

A South Korean soldier stands guard as a North Korean flag flutters on top of a tower in the North Korean village of Gijungdong across the border on Sept. 28, 2017. (Reuters Photo/Kim Hong-ji)

By : Tabita Diela | on 3:17 PM October 04, 2017
Category : Business, Economy

Jakarta. Rising geopolitical tension in East Asia and the Pacific is threatening growth in the region despite improved global prospects and strong domestic demand, a World Bank report published on Wednesday (04/10) said.

The Washington-based lender raised its growth forecast for East Asia and the Pacific — which incorporates China — to 6.4 percent this year and 6.2 percent next year in the October 2017 edition of its Economic Update report, entitled "Balancing Act."

The April issue of the same report had forecast a 6.2 percent growth this year and 6.1 percent next year.

"Growth outlook for the region remains positive," the October report said.

Despite the positive outlook, the World Bank said rising protectionism and economic nationalism have a "chilling effect" on world trade while the escalation of geopolitical tension could cause capital outflows in the region.

Hostile statements by US President Donald Trump directed at North Korean leader Kim Jong-un in recent weeks have created fears that Pyongyang's continued nuclear tests may provoke the superpower and its South Korean ally into military action.

"The recovery of the global economy and the expansion of global trade are good news for the region and its continued success in improving living standards," Victoria Kwakwa, World Bank's vice president for East Asia and the Pacific said in a statement.

"The challenge will be for countries to strike a balance between prioritizing short-term growth and reducing medium-term vulnerabilities so the region has a stronger foundation for sustained and inclusive growth," he added.

The World Bank released its Indonesian economic forecast a day earlier, which presented a slightly dimmer outlook for this year but maintaining its prediction for next year due to lower-than-expected private consumption growth.

In the regional report, the World Bank left a note for Indonesia stressing that liberalizing regulations for foreign investments remain important for the time being.

The Bank also improved its growth forecast for Malaysia this year by 0.9 percentage points and for Thailand by 0.3 percentage points, but cut the forecast for Myanmar slightly by 0.5 percentage points and the Philippines by 0.3 percentage points.

It expects Thailand and Malaysia to grow faster than expected on stronger exports. Vietnam's growth will be boosted by a rebound in agriculture and manufacturing while the Philippines' economy is projected to expand slightly slower due to sluggish implementation of public investment projects.

Meanwhile, the outlooks for smaller countries in the region are mixed: Mongolia and Fiji are expected to benefit from its macroeconomic stabilization program, whereas Cambodia and Laos are likely to record moderate growth compared to last year though they will still grow faster than other countries in the region.

"Improved prospects for global growth offer a window of opportunity for countries to reduce vulnerabilities while pursuing reforms that can yield growth dividends over the longer term," Sudhir Shetty, the Bank's chief economist for East Asia and the Pacific, said.

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