Sustained growth in East Asia: World Bank

Monday, December 03, 2012
East Asia had moderate growth in 2011, and the World Bank predicts that with a mixture of policies and other factors the area can be moderately protected from the EuroZone crisis, according to the World Bank's biannual report on East Asia, released 22 November.

In "East Asia and Pacific Economic Update – Navigating Turbulence, Sustaining Growth," the World Bank noted that domestic demand for goods and services among all of the East Asia developing countries allowed the region to grow, but some countries are at risk due to having large percentages of foreign capital invested because the money that would otherwise have been invested in Asia will be needed in European banks, and the European banks will be giving less credit. Indonesia, which struggled through August and September of this year, is one of these countries at risk, according to the report.

"Lower growth in Europe in the course of fiscal austerity and the banks' needs to increase capital coverage would affect East Asia. Less credit from European banks can also affect capital flows to East Asia, but high reserves and current account surpluses protect most countries in the region against the impact of possible renewed financial stress," said Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region.

Meanwhile, there are positive signs for Thailand following the recent flooding: Japan returned to pre-quake production levels by June 2011, and supply-chain industries recovered soon after. According to the report, though, "Whether the levels of production in Thailand can recover in the coming months remains to be seen, and will depend on demand for electronics and cars, which in turn is linked the global growth. Like in the case of Tohoku, reconstruction after the Thai flood is likely to be beneficial for growth in 2012."

The report analysed 18 countries, including China, Indonesia, Malaysia, Philippines and Thailand. The World Bank also issued recommendations for focused stimulus, financial policies and disaster preparedness.

"Governments can take this opportunity to refocus on reforms that will enhance growth in the medium- and long- term. Higher investments in infrastructure, education and social security systems can help countries increase productivity and move toward higher value added production," said World Bank Senior Economist Ekaterina Vostroknutova, lead author. "Any possible stimulus programs should be fiscally sustainable, well-targeted and directed at promoting the structural transformation needed for stronger, domestically driven growth."

In Malaysia, growth decelerated, hitting 4.4 percent annual growth, lower than the expected 5.0-5.5 percent, which the report attributes to supply-chain exports affected by the Japanese earthquake. However, the report notes that although Malaysia is expected to increase GDP between 4.0 and 5.0 percent annually for 2012-2013, there's little room for further growth opportunities.

In the Philippines, growth is still predicted to be between 4.0 and 5.0 percent the next two years, but that is lower than previous predictions. According to the report, "The Philippines is benefitting from relative political stability and an improved fiscal position, but key downside risks to growth remain – increased global uncertainties and a slowdown in investments."

The World Bank official report page is available here.