East Asia, already the fastest growing region in the world, is
set to record strong growth in the coming year, fueled by a
healthier global environment, improving domestic conditions, and
continued strength of the Chinese economy.
Growth in 2004 is expected to reach 5.7 percent, an impressive
rebound from a year in which many economies were hurt by the
financial impact of SARS and lingering uncertainty about the
strength of the global economy, according to the World Bank's half-year report
on the state of the regional economy, released today.?
"With the quick passing of SARS (at least for the time being),
clearer signs of recovery in the developed world, and healthier
domestic conditions in East Asian economies, the prospects for a
strong cyclical recovery and more sustained long term growth are
good," commented Regional Vice President for East Asia and the
Pacific, Mr. Jemal-ud-din Kassum.
Mr. Kassum said one such major change underpinning the better
outlook was the increasing integration of the region, evident most
strikingly in booming trade with China. "It is clear that East
Asian firms are vigorously seeking opportunity within the
region.? This trend augurs well, and will reinforce the sorts
of policy decisions agreed at the Bali Summit of ASEAN leaders last
week? - businesses are already pushing hard to build the sort
of economic community the leaders were discussing."?
Overall, there are a number of positive factors that bode well
for the region's economies, said Mr. Kassum. "Recovery in the
developed world is picking up, led by stronger growth in the US and
Japan, which, combined with strong growth in China, should also
propel an upturn in world trade growth. Portfolio flows to emerging
markets including East Asia are also reviving this year, helping
boost local stock markets. "?
He also cited higher activity in the long depressed world high
tech industry - important to Asian producers - and China's
emergence as an even more important global production base for
high-tech multinationals, which is energizing intra-regional
production networks and trade.
"Consumer spending is strong, and investment has also picked up
in Thailand and to some extent in Indonesia. Partly because of
restructuring, bank and corporate profitability and balance sheets
are healthier in several economies, while capital inflows are
rising, domestic bank lending is up and stock markets are
higher."
Risks to Recovery
Now the challenge for the economies of the region, stated Mr. Homi
Kharas, Chief Economist for East Asia and the Pacific, is to
consolidate the cyclical recovery into sustained long run growth by
strengthening fundamental institutions and policies that - among
other things - will increase the resilience and flexibility of the
economy.?
He noted, "This emerging cyclical recovery does face risks. The
global recovery is vulnerable because of large macroeconomic
imbalances or structural weaknesses affecting various developed
economies. Slow progress on global trade talks combined with a
revival of protectionist pressures could also sap confidence
worldwide. Within East Asia the recovery could be dampened if the
momentum of policy reforms slackens. "?
There are several priorities for policy:
·?Prudent macroeconomic policy is, if anything, even more
important, given a need?to better manage renewed capital
inflows and discourage potential speculative excesses.
·?Strengthening financial sector supervision and
regulation, corporate governance and the supporting legal and
judicial framework? also becomes more important, as well as
fostering more diversified capital markets to better handle
different kinds of risks.
·?Strengthening governance and public sector management,
not only for effective economic management, but also to buttress
political legitimacy and stability.?
·?Strengthening the delivery mechanisms for key services
such as health, education, sanitation and water - which will play a
key role in reducing poverty and meeting the Millennium Development
Goals - and the theme of the Special Focus: Making Services Work in
East Asia and the Pacific.?
·?Political commitment to continued liberalization and
expansion of global and regional trade, which has long played a key
role in the East Asian success story;
Commenting on the region's reform priorities, Mr. Kharas
observed that "Given the strong role global trade has played in
East Asia's growth expansion - and the recent boom in trade between
East Asian countries - trade talks at the multilateral and regional
levels need to progress.? World Bank calculations show that
dynamic gains from trade liberalization could amount to more than
US$500 billion a year globally, with more than a third accruing to
East Asia. The setback at Cancun may add momentum to protectionist
interests, making it more critical than ever for countries to have
a strategy for competitiveness which relies on policies supporting
higher productivity, rather than temporary protection through trade
policy," said Mr. Kharas.
On governance he noted that recent World Bank data on
perceptions of public sector governance around the world show that
while governance in East Asia is rated as better than in Latin
America, it is significantly poorer than in Central and Eastern
Europe.? Viewed over time the quality of governance in East
Asia is assessed as having remained fairly static over the last 6-7
years, while that in emerging Europe - which now attracts much more
FDI (as a share of GDP) than East Asia - has improved
substantially.
Improving cyclical outlook in East Asia: 2003 and
beyond
In 2003, growth in the low- and middle-income countries
(developing economies) of the region has turned out stronger than
expected, with solid 7-8 percent growth in China and Vietnam, and
near 6 percent growth in Thailand.? East Asian GDP growth in
the second quarter of 2003 fell to a year on year rate of 3 percent
- down from almost 6 percent in the first quarter of the year,
mainly as a result of the SARS crisis, although the SARS impact was
less than had been initially feared, and overall growth for 2003
should remain about 5 percent, as expected in April this year.
China, which saw growth dip from 9.7 percent in the first
quarter, still showed robust growth of nearly 7 percent in the
second.? Year on year growth turned negative in Hong Kong,
Singapore and Taiwan (China), the three newly industrializing
economies most affected by SARS, while overall growth in Southeast
Asia has held up better than initially feared, continuing to run at
y-o-y rates of 3-5 percent in the second quarter.
Chart: East Asia Economic Growth (World Bank East Asia
Region; October, 2003)
| Percent |
1 Quarter |
2 Quarter |
3 Quarter |
4 Quarter |
| East Asia |
3.5 |
5.8 |
5.0 |
5.7 |
| Develop. E.Asia |
5.5 |
6.6 |
6.5 |
6.5 |
| S.E. Asia |
2.4 |
4.4 |
4.5 |
4.9 |
| Indonesia |
3.4 |
3.7 |
3.5 |
4.0 |
| Malaysia |
0.4 |
4.2 |
4.6 |
5.4 |
| Philippines |
3.2 |
4.6 |
4.0 |
4.2 |
| Thailand |
1.9 |
5.2 |
5.8 |
6.0 |
| Transition Econ. |
|
|
|
|
| China |
7.3 |
8.0 |
7.8 |
7.4 |
| Vietnam |
5.2 |
6.0 |
7.0 |
7.0 |
| Small Countries |
1.4 |
1.5 |
3.7 |
4.1 |
| Newly Ind. Econ. |
0.7 |
4.5 |
2.6 |
4.6 |
| Korea |
3.0 |
6.3 |
3.0 |
5.1 |
| 3 other NIEs |
-1.3 |
2.9 |
2.2 |
4.3 |
| Japan |
0.4 |
0.2 |
1.9 |
1.2 |
Poverty continued to fall in East Asia, with the number of poor at
the $2 per day level expected to drop by around 30 million to
around 680 million in 2003, with the poverty rate at the $2/day
level expected to fall to about 37 percent, its lowest ever level,
down from 39 percent in 2002.? This follows an especially
strong performance in 2002, when the total numbers of poor in the
region at the $2 level are estimated to have fallen by over 60
million, thanks to strong gains in rural incomes in countries like
China, Thailand and Vietnam.?
However, while progress in reducing poverty in East Asia over
the last decade has been impressive - even in the face of the
financial crisis - future progress may be more difficult as poverty
becomes more concentrated in remote areas and among ethnic
minorities or other socially disadvantaged groups. "This will put a
premium on developing detailed information about poverty so we can
develop more carefully targeted and cost-effective poverty
reduction strategies. Because poverty has many dimensions beyond
just lack of income, including lack of access to basic services
such as education and health, making progress on these dimensions
cannot rely entirely on income growth," said Mr. Milan Brahmbhatt,
Lead Economist and principal author of the report.
(China.org.cn October 16, 2003)