Hanoi (VNA) - Theeconomy of the ASEAN+3 region is projected to grow 5.4 percent in 2018,underpinned by resilient domestic demand and export growth with stableinflation, said a new report released on May 3 by the ASEAN+3 MacroeconomicResearch Office (AMRO).

The ASEAN+3 comprises theten member countries of the Association of Southeast Asian Nations (ASEAN), andChina, Japan and the Republic of Korea (RoK). ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,the Philippines, Singapore, Thailand and Vietnam.

The report, titled “ASEAN+3Regional Economic Outlook (AREO) 2018,” predicts a robust growth this year inChina and Japan, the region's two largest economies.

With improving externaldemand, growth in the region is expected to be sustained at 5.4 percent for2018 and 5.2 percent for 2019, according to the report.

However, the report warnedthe region to remain vigilant given the significant external risks in the nearterm of trade protectionism and a faster-than-expected tightening in globalfinancial conditions.

In the longer term, it saidstructural trends in regional production and trade networks and technology areprompting policymakers in the region to relook at appropriate policies tosecure growth and development in future.

Despite resilient domesticdemand and stronger external demand for exports, the report says the region isfacing two near-term risks: faster-than-expected tightening in global financialconditions and an escalation of global trade tensions.

If these risks materialise,there would be spillovers to the region through capital outflows, higherborrowing costs, and lower trade and investment flows, the report said.

The report said improvingexternal demand has allowed the region to build up buffers further againstpotential external shocks.

Regional exchange rates have become more flexible in recent years, and haveplayed a greater role as a shock absorber, the report said.

To enhance resilience, thereport said policymakers in the region should continue to build policy space,particularly in monetary policy, in anticipation of tighter global financialconditions ahead.

Fiscal policy may have toplay a greater role in supporting growth while macroprudential policy can helpsafeguard financial stability, the report said.

The AREO 2018 also containsa thematic study on how the region can maintain its resilience and growth inview of fundamental and global changes in technology and in trade andproduction networks.

Technology has proven to bea double-edged sword as manufacturing is becoming more capital and skillsintensive and will no longer employ as much labour as in the past, according tothe report said.

To address these challenges,the report said the region as a whole should strengthen intra-regionalconnectivity and individual economies should build resilience through developingmultiple engines of growth, said the report./.