FEATURE STORY

East Asia and Pacific Economic Update, April 2013 — A Fine Balance

April 15, 2013

World Bank Vice President for East Asia and Pacific, Axel van Trotsenburg, talks about sustained long term growth.

CLICK HERE TO GET THE OCTOBER 2013 VERSION OF THE EAST ASIA PACIFIC ECONOMIC UPDATE

 

Key findings:

  • The East Asia and Pacific region continues to be an engine of global growth, contributing around 40 percent of global growth in 2012.
  • Driven by strong domestic demand, the region grew at 7.5 percent in 2012 -- higher than any other region in the world.
  • Fiscal and monetary policies to boost consumption and investment helped sustain growth in 2012 across the region, with middle-income countries performing particularly well.
  • Developing economies excluding China grew 6.2 percent in 2012, up from 4.5 percent in 2011.
  • In China, growth slowed to 7.8 percent in 2012 due to rebalancing efforts.
  • Risks emanating from the Eurozone and the U.S. have declined since the middle of last year.
  • While still fragile, there are signs of a turnaround in real activity in high income economies, thus external demand for the East Asia and Pacific region’s exports will stabilize this year.
  • As the global economy recovers, regional growth is expected to rise moderately to 7.8 percent in 2013 and ease to 7.6 percent in 2014.
  • China is projected to grow 8.3 percent in 2013 and 8.0 percent in 2014.
  • Movements in high-income country currencies, such as the yen, are likely to affect trade and investment flows in the region in the short term, but a return to sustained growth in Japan would benefit the region as a whole.
  • An emerging issue is the risk of overheating in some of the larger economies.
  • If global demand continues to revive, some major economies may reach the limits of their current production capacity, as the output gap has closed in those countries.
  • In East Asia and the Pacific, overall economic management has been effective in dealing with the global economic crisis, which has enabled the region to remain resilient and sustain growth.
  • The challenge for policy makers now is to build on these strengths and address short and long term challenges with smart policies:
    • Policymakers need to continue to be vigilant to react to shocks in the world economy, but be prepared to withdraw stimulus as the world economy recovers.  For countries that show some signs of inflationary pressures, it would be a good time to rebuild policy buffers.
    • Several countries need to manage strong capital inflows by maintaining an appropriate macro policy mix, sufficient flexibility in the exchange rate and macro-prudential policies.
    • Most countries could increase productive capacity by investing in infrastructure and human capital, and thus pave the way for continued high and equitable growth.