ISLAMABAD: The United Nations says that positive economic
outlook is widespread across the South Asian region, with most economies
projected to see stronger growth rates in 2018 compared to 2017.
The
‘World Economic Situation and Prospects 2018’ published on Thursday
says that economic outlook remains steady, largely favourable in the
region, driven by robust private consumption and sound macroeconomic
policies.
Monetary policy stances are moderately
accommodative, while fiscal policies in several economies maintain a
strong emphasis on infrastructure investment. The recovery of external
demand is also buttressing growth.
Against this backdrop,
regional GDP growth is expected to strengthen to 6.5 per cent in 2018
and 7.0pc in 2019, following an estimated expansion of 6.3pc in 2017.
Among
the smaller economies in the region, economic activity in Pakistan is
expected to remain vigorous, with GDP growth projected to reach 5.5pc
and 5.2pc in 2018 and 2019, respectively.
Economic
activity will be supported by a pickup in exports and rising investment
demand, which is expected to benefit from an improving business
sentiment, the China-Pakistan Economic Corridor (CPEC) and other
infrastructure initiatives.
However, a rising current
account deficit coupled with a recent deterioration of fiscal accounts,
poses risks to the baseline projection, notes the survey published by UN
Department of Economic and Social Affairs (DESA).
The
regional inflation is expected to remain stable and at relatively low
levels. The favourable prospects for inflation, coupled with mostly
sustainable current account deficits, will facilitate macro-economic
policy management across the region in the near term.
Overall,
this positive outlook is a continuation of the improvement in economic
conditions in South Asia over the past several years, and will
contribute to gradual progress in labour market indicators and a
reduction in poverty rates, the survey notes.
Notwithstanding
this short-term outlook, South Asian economies face several downside
risks and uncertainties, which could significantly alter the projected
growth trajectory.
On the domestic front, the reform
agenda, a crucial element of higher productivity growth, could
experience setbacks in some countries, while heightened regional
geopolitical tensions may restrain investment projects.
On
the external front, the monetary normalisation process in the United
States poses risks to financial stability across the region.
Tighter
global liquidity conditions could significantly affect capital flows
into the region, leading to a spike in financing costs, depreciation in
exchange rates and a decline in equity prices.
This could
adversely impact banking and corporate sector balance sheets as well as
the capacity to roll over debt, especially in countries with relatively
low financial buffers and high dollar denominated debt, survey points
out.
Inflation prospects remain benign across the region.
Consumer price inflation reached a multi-year record low of 4.9pc in
2017, due to relatively low commodity prices, waning depreciation
pressures and good harvest seasons in most countries that have supported
lower food prices, notably in India.
In the outlook,
consumer price inflation in South Asia is expected to rise moderately to
5.8pc in 2018 and 5.9pc in 2019, still well below historical levels in
the region.
Against this backdrop, monetary policy
stances are mostly accommodative in the region, following an easing
cycle initiated in previous years.
Amid relatively high
levels of public debt, fiscal policies are officially in a moderately
tight stance in most economies. Ongoing fiscal consolidation efforts,
however, have yielded different levels of progress, as public budgets
have been in reality more expansionary.
In Sri Lanka, the
fiscal deficit has also narrowed, amid strong consolidation pressures
under the Extended Fund Facility arrangement with the IMF.
By
contrast, the fiscal deficit has recently expanded in Pakistan, and it
continues to be moderately high in Bangladesh, at about 5pc of GDP.
The
survey emphasised that beyond the favourable economic situation and its
short-term risks and uncertainties, there are crucial areas that South
Asia needs to address to unleash its growth potential and to promote a
more sustained and inclusive development path in the medium term.
