May 3, 2018 / 1:17 AM / 24 days ago

East Asian economy seen growing 5.4 percent this year - AMRO

MANILA (Reuters) - East Asian economies are expected to grow faster than previously thought this year, the ASEAN+3 Macroeconomic Research Office (AMRO) said on Thursday, driven by strong domestic demand, solid exports and stable inflation.

In its flagship report, AMRO forecast East Asia will expand 5.4 percent in 2018, up from its previous forecast of 5.1 percent. The region includes China, South Korea, Japan and the 10 countries in the Association of South East Asian Nations (ASEAN).

“Improving external demand has allowed the region to build up further buffers against potential external shocks. Regional exchange rates have become more flexible in recent years, and have played a greater role as shock absorber,” AMRO said in its flagship ASEAN+3 Regional Economic Outlook 2018 report.

But AMRO said its outlook is not without risks as it warned of the potential impact of faster-than-expected monetary policy tightening on global financial conditions, and escalation of global trade tensions, on capital flows and borrowing costs.

AMRO Chief Economist Dr. Hoe Ee Khor said it would be “prudent for policymakers to prioritise financial stability over the economic growth objective.”

Next year, growth in the region is expected to slow to 5.2 percent, AMRO said in its report released on the sidelines of the Asian Development Bank’s four-day annual meeting.

AMRO was initially established as a company limited by guarantee in Singapore in 2011, and was transformed into an international organisation in 2016 to conduct macroeconomic surveillance and support the implementation of the Chiang Mai Initiative, a multi-lateral currency swap agreement.

China, which is rebalancing its economic model to growth led by consumption rather than investment and exports, is expected to grow 6.6 percent this year before slowing to 6.4 percent next year, AMRO said. The world’s second-largest economy expanded 6.9 percent in 2017.

Fears are growing of a trade war between China and the United States after the two nations threatened each other with tariffs. A delegation of senior Trump administration officials is set to visit Beijing this week for trade talks.

U.S. and Beijing could both lose 0.2 percentage points of growth within the first year of a “limited trade war”, AMRO’s economic team said, and an additional 0.2 percentage points for the U.S. by the third year given Washington’s relatively greater openness to global trade.

“Not only will a U.S.-China trade war be a lose-lose situation for the two countries, but there will also be collateral damage to the whole of Asia due to the strong production networks between China and the countries in the region,” AMRO said.

Reporting by Karen Lema; Editing by Kim Coghill

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