Danial Norjidi
The World Bank’s East Asia and Pacific April 2023 Economic Update was recently released, highlighting that growth in developing East Asia and the Pacific is forecast to accelerate in 2023 as China’s economy re-opens, while the pace of growth in most economies in the rest of the region is anticipated to ease after a strong rebound last year.
The study noted that while robust, economic performance across the region could be held back this year by slowing global growth, elevated commodity prices and tightening financial conditions in response to persistent inflation.
According to the report, growth in developing East Asia and the Pacific is forecast to accelerate to 5.1 per cent in 2023 from 3.5 per cent in 2022. China’s re-opening helps the economy rebound to a 5.1-per-cent pace from three per cent last year.
Meanwhile, growth in the region outside China is anticipated to moderate to 4.9 per cent from the robust post-COVID-19 rebound of 5.8 per cent in 2022, as inflation and elevated household debt in some countries weigh on consumption.
The report stated that economic activity in most developing East Asia and the Pacific has recovered from the recent shocks, with goods exports and private consumption leading the way.
“However, output remains below pre-pandemic levels in many Pacific Island countries.”
It also shares that inflation remains higher than the target ranges in some countries.
“Near-term growth will depend on: global growth, projected to be slower in 2023 than in 2022, though recent projections are more optimistic; commodity prices, which have moderated; and financial tightening, which is likely to continue in the face of inflationary pressures in the United States (US).
“Taking a longer view of more than two decades since the Asian Financial Crisis, growth in the developing economies of East Asia and the Pacific has been faster and more stable than in much of the world. The result has been a striking decline in poverty and, in the last decade, a decline in inequality. During both the Great Recession and the COVID pandemic, the region’s economies proved more resilient than most.”
The report added, however, that it would be a mistake to let these achievements obscure vulnerabilities, past, present, and future.
“Looking back, sound macroeconomic management after the Asian Financial Crisis was accompanied only to a limited extent by productivity-boosting structural reforms.
“The convergence of the East Asia and Pacific countries with high-income countries, which was previously faster than in other emerging market and developing economies, has recently stalled.
“The damage done by the pandemic, war, and financial tightening to people, firms, and governments, threatens to reduce growth and increase inequality. The region must cope with these problems even as it faces up to the major challenges of de-globalisation, ageing and climate change, to which it is particularly susceptible because it has thrived through trade, is growing old fast, and is both a victim of and contributor to climate change.”
As a World Bank press statement elaborates, “The catch-up to the per capita income levels of advanced economies has stalled in recent years as productivity growth and the pace of structural reforms has slowed.
“Addressing the significant ‘reform gap’, especially in services, could magnify the digital revolution’s impact and boost productivity in sectors from retail and finance to education and health.”
The statement states that the region’s economies must also cope with three important challenges as policymakers act to sustain and accelerate economic growth in the aftermath of COVID-19. “Rising tensions between major trading partners will affect regional trade, investment, and technology flows. The rapid ageing of the major economies of East and Southeast Asia heralds new challenges and risks with implications for economic growth, fiscal balances, and health. Finally, the region is particularly exposed to climate risks, partly due to the high population density and economic activity along its coasts.”
The report highlights that four types of policy action are necessary, namely: macro-financial reforms to support recovery today and inclusive growth tomorrow; structural reforms to boost innovation and productivity across the economy; climate-related reforms to enhance resilience through efficient adaptation; and international cooperation on climate mitigation, and to ensure openness to trade, investment, and technology flows, ideally multilaterally, but also regionally and bilaterally.
The statement includes comments from World Bank East Asia and Pacific Vice President Manuela V Ferro: “Most major economies of East Asia and the Pacific have come through the difficulties of the pandemic but must now navigate a changed global landscape.”
“To regain momentum, there is work left to boost innovation and productivity and to set the foundations for a greener recovery.”
Meanwhile, World Bank East Asia and Pacific Chief Economist Aaditya Mattoo said, “De-globalisation, ageing, and climate change are casting a shadow over the growth prospects of a region that has thrived through trade and is growing old fast.”
“However, promoting trade, addressing population dynamics, and enhancing climate resilience could strengthen growth,” added Mattoo.
