KUALA LUMPUR (Jan 11): Malaysia is one of three large, financially-integrated economies in the East Asia and Pacific region to be most exposed to an adverse reaction to the U.S. Federal Reserve’s (Fed) anticipated rise in interest rates, or an increase in global risk aversion which could also slow growth, said the World Bank today.

Malaysia, Indonesia and Thailand are large, financially-integrated economies with sizable external, foreign currency-denominated and/or short-term debt, it added.

In its latest Global Economic Prospects report released today, the World Bank said activity softened in 2016 among commodity exporters, including Malaysia, where adjustment needs were significant.

"Financial markets (in the East Asia and Pacific region) experienced an uptick in volatility toward the end of the year, amid heightened policy uncertainty in the U.S.," it noted.

This year, growth among commodity exporting economies in the region is forecast to accelerate, with Malaysia's gross domestic product (GDP) expected to rise to 4.3%, from an anticipated 4.2% in 2016, as adjustment to lower energy prices eases and as commodity prices stabilise, the World Bank added.

It said the local economy is expected to grow at 4.5% in 2018 and 2019.

The World Bank also warned an unexpected deceleration of major economies in the region or weaker-than-expected global trade would dampen growth in the region, and a faster-than-expected slowdown in China would have sizable regional spillovers in 2017.

"Risks have tilted further to the downside since mid-2016 and include heightened policy uncertainty in advanced economies (Europe and the U.S.), amid a rise in support for trade protection.

"Financial market disruption and weak growth in advanced economies would pose further risks to growth," it said.

It also pointed to rising political opposition to trade, which had contributed to a post-crisis high in new trade restrictions in the past year.

"The imposition of trade barriers by major trading partners would disproportionately affect the relatively more open economies of East Asia and Pacific," said the World Bank. 

Meanwhile, the World Bank is projecting growth in the East Asia and Pacific region to ease to 6.2% this year, from an estimated 6.3% in 2016, as slowing growth in China is moderated by a pickup in the rest of the region.

“Output in China is anticipated to slow to 6.5% in 2017. Macroeconomic policies are expected to support key domestic drivers of growth, despite softness of external demand and overcapacity in some sectors.

“Excluding China, growth in the region is seen advancing at a more rapid 5% rate in 2017,” it said. In comparison, global economic growth is forecast to accelerate moderately to 2.7% in 2017.