[Excerpt] Developing Asia continued to perform well even as recovery in the major industrial economies remained weak. The region is forecast to expand by 5.7% in 2017 and 2018, nearly the 5.8% growth achieved in 2016, as moderation in the People’s Republic of China is balanced by a healthy pickup in most other economies in the region.
Inﬂation revived to 2.5% in 2016, on the back of strong consumer demand and rebounding global commodity prices. The pace will accelerate further to 3.0% in 2017 and 3.2% in 2018, still below the average rate for the past 10 years.
The region faces risks from uncertain policy direction in the advanced economies, including the pace of interest rate normalization in the United States. While short-term risks seem manageable, regional policy makers should remain vigilant to respond to possible spillover through capital ﬂows and exchange rate movements.
Decades of rapid growth transformed developing Asia from a low-income region to middle income. Sustaining growth to power the transition into high income will depend on much greater improvement to productivity. Innovation, human capital, and infrastructure are the three pillars of productivity growth. Supportive institutions and policies, underpinned by macroeconomic stability, can strengthen all three pillars. Asia’s dynamic track record suggests that the journey to high income, while challenging, is achievable. Chief Economist