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Macroeconomic Prospects and Challenges

1. The economic outlook for the ASEAN+3 region has improved with a recovery in global trade and investment. GDP growth is projected at 5.2 percent in 2017 with inflation under control despite the global uncertainty.

2. Growth in the region’s two largest economies, China and Japan, remains stable and robust. Regional emerging markets of Korea, ASEAN-5 (Malaysia, Indonesia, the Philippines, Singapore and Thailand) and Vietnam remain resilient even as volatility in global financial markets persists. Developing ASEAN economies of Cambodia, Lao PDR and Myanmar continue to grow and reap benefits from regional integration.

3. Growth will continue to be driven primarily by domestic demand with support from the recent rebound in exports. Individual economies can continue to reap benefits from regional integration through trade and investment.

4. Rising trade protectionism, tightening global financial conditions, rising inflation, and heightened financial volatility are risks that cloud the global economic outlook including for the ASEAN+3 region.

5. Policymakers are encouraged to prioritize financial stability, in the balance between growth and financial stability. While foreign exchange reserve buffers in the region remain ample, policy space has shrunk, and the global policy environment has become more uncertain.

Theme: ASEAN+3 Region 20 Years after the Asian Financial Crisis (AFC)

6. The AFC was a landmark event that shaped policymakers’ perspectives on crisis management and resolution and led to the establishment of AMRO and CMIM.

7. The lessons from AFC remain valuable even today: focusing policy attention on risks from financial markets and capital outflows; highlighting the speed and impact of contagion among economies; and underscoring the need for a more flexible and responsive policy framework to deal with external shocks.

8. In the first decade after AFC (1997 – 2006), crisis-hit economies in the region rebuilt foundations for economic growth through major policy adjustments, including more disciplined monetary policy frameworks with flexible exchange rate regimes, stronger regulatory frameworks, fiscal consolidation, and corporate and financial sector reforms. It was accompanied by building up reserves buffers.

9. The stronger foundations and better macroeconomic management enabled the region to weather the Global Financial Crisis (GFC) relatively unscathed. In the next decade from 2007 to now, the region benefitted from increasing intra-regional integration in trade and investment, while managing the risks from global capital inflows with more responsive policy frameworks.

10. Together with their own strengthened domestic policy frameworks and buffers, enhanced regional financial cooperation among ASEAN+3 economies will improve their resilience against shocks and allow their economies to sustain relatively strong growth.