Danial Norjidi
Following a sharp slowdown in 2022, growth in the East Asia and Pacific (EAP) region is recovering, supported by strong activity in China following the re-opening of its economy and a rapid decline in COVID-19 infections, according to a new report from the World Bank.
The regional update in the World Bank’s Global Economic Prospects June 2023 report states that growth in the EAP region is projected to strengthen to 5.5 per cent in 2023, with a recovery in China offsetting moderating growth in several other economies.
“In 2024 and 2025, growth in EAP is expected to edge down to 4.6 per cent and 4.5 per cent, as growth in China slows alongside broadly stable growth in the rest of the region,” said the report.
“Compared with January projections, growth in EAP is expected to be 1.2 percentage points higher in 2023 and 0.3 percentage point lower in 2024. The revisions primarily reflect the earlier-than-expected re-opening of China, where growth has been revised up by 1.3 percentage points in 2023 but down by 0.4 percentage point in 2024.”
The study notes that in China, growth is projected to rebound to 5.6 per cent in 2023, as the re-opening, together with accumulated excess savings, supports household spending, particularly on services. Growth is then projected to moderate to 4.6 per cent in 2024 and 4.4 per cent in 2025, as re-opening effects fade.
“Investment growth is expected to pick up modestly this year, supported by infrastructure-related stimulus and a gradual recovery in the property sector.
“Inflation is expected to remain below target given economic slack, including in labour markets,” the report said.
Meanwhile, in the EAP (excluding China), growth is expected to be 4.8 per cent in 2023 as the tailwinds from re-opening and pent-up demand fade.
As the World Bank explained, “Positive spillovers from China’s recovery are expected to be limited given its concentration on domestic services activity.
“Furthermore, these positive spillovers are likely to be outweighed in some cases by domestic headwinds, particularly elevated inflation and the continued effects of domestic monetary policy tightening.
“While both core and headline inflation are expected to ease through 2023, in the near term, headline inflation is likely to remain above central bank targets in some countries (Mongolia and the Philippines), owing to the delayed pass-through of increases in global commodity prices and domestic supply shocks.
“Moderating commodity prices will help reduce headline inflation this year but it will also weaken the terms of trade of commodity exporters, including Indonesia.”
The World Bank in a press statement said that global growth has slowed sharply and the risk of financial stress in emerging market and developing economies (EMDEs) is intensifying amid elevated global interest rates.
Global growth is projected to decelerate from 3.1 per cent in 2022 to 2.1 per cent in 2023.
In EMDEs other than China, growth is set to slow to 2.9 per cent this year from 4.1 per cent last year. The World Bank said that these forecasts reflect broad-based downgrades.
“Most EMDEs have seen only limited harm from the recent banking stress in advanced economies so far, but they are now sailing in dangerous waters. With increasingly restrictive global credit conditions, one out of every four EMDEs has effectively lost access to international bond markets. The squeeze is especially acute for EMDEs with underlying vulnerabilities such as low creditworthiness. Growth projections for these economies for 2023 are less than half those from a year ago, making them highly vulnerable to additional shocks.”
The statement noted that the latest forecasts indicate that the overlapping shocks of the pandemic, the war in Ukraine, and the sharp slowdown amid tight global financial conditions have dealt an enduring setback to development in EMDEs, one that will persist for the foreseeable future.
“By the end of 2024, economic activity in these economies is expected to be about five per cent below levels projected on the eve of the pandemic.
“In low-income countries – especially the poorest – the damage is stark: in more than one-third of these countries, per capita incomes in 2024 will still be below 2019 levels. This feeble pace of income growth will entrench extreme poverty in many low-income countries.”
The report stated that in advanced economies, growth is set to decelerate from 2.6 per cent in 2022 to 0.7 per cent this year and remain weak in 2024.
“After growing 1.1 per cent in 2023, the United States economy is set to decelerate to 0.8 per cent in 2024, mainly because of the lingering impact of the sharp rise in interest rates over the past year and a half. In the euro area, growth is forecast to slow to 0.4 per cent in 2023 from 3.5 per cent in 2022, due to the lagged effect of monetary policy tightening and energy-price increases.”
World Bank Group President Ajay Banga said, “The surest way to reduce poverty and spread prosperity is through employment – and slower growth makes job creation a lot harder. It’s important to keep in mind that growth forecasts are not destiny. We have an opportunity to turn the tide but it will take us all working together.”
World Bank Group Deputy Chief Economist Ayhan Kose said, “Many developing economies are struggling to cope with weak growth, persistently high inflation, and record debt levels.
Yet new hazards – such as the possibility of more widespread spillovers from renewed financial stress in advanced economies – could make matters even worse for them.”
He said, “Policymakers in these economies should act promptly to prevent financial contagion and reduce near-term domestic vulnerabilities.”
