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East Asia and the Pacific

2013 marked another year of weakening growth in the East Asia and Pacific region. Growth moderated to 7.2 percent in 2013 from 7.4 percent in 2012 with growth in China unchanged from the 7.7 percent recorded in 2012. A one percentage point slowdown in growth in the rest of the region reflects a moderation of economic activity in Indonesia, Malaysia, and Thailand where weak commodity revenues and policy tightening to address economic imbalances accumulated during the years of above-potential growth cut into activity. Toward the end of 2012, authorities in the region began to tighten policies to unwind imbalances, contributing to sharp declines in economic activity in the first quarter of 2013 when external demand was still weak. The impact of domestic adjustment was also exacerbated by a tightening of international financial conditions in the second quarter of 2013. Despite the mid-year financial turbulence, growth in the region has been strengthening since 2013Q1, supported by improved external demand, lower imports, and policy stimulus in China. Since August 2013, capital inflows to the region have also rebounded, although pressures on regional assets and currencies, especially in Indonesia and Thailand, continued throughout 2013. Sentiment has turned up and both industrial production and exports have started to firm, but performance remains uneven across the region. In China, quarterly GDP growth picked up to a 9.3 percent annualized rate in the third quarter. Quarterly GDP growth in the rest of the region also accelerated to an annualized rate of 5.2 percent in Q3, mainly because of better net exports resulting from lower imports.

Economic prospects for the region reflect several counterbalancing factors, including the impact of normalization of long-term interest rates, which is projected to weigh on prospects for several middle-income countries (Indonesia, Malaysia, and Thailand). At the same time, the recovery in import demand from high-income countries should spur acceleration in global trade and regional exports. Declining commodity prices are, however, projected to weigh on outturn for commodity exporters (Indonesia, Malaysia, Mongolia, and Papua New Guinea). Overall growth in the region is expected to stay flat at around 7.2 percent in 2014 and ease insignificantly to 7.1 percent in 2015 and 2016. This is about 2 percentage points slower than during the pre-crisis boom years but broadly in line with potential. Aligning growth with the potential growth rate in several major middle-income economies in 2014 will help alleviate domestic vulnerabilities generated during the years of expansionary policies. Full-year growth for China is expected to remain at around 7.7 percent in 2014, but the quarterly pace should slow somewhat toward the second half of the year, with growth projected to stabilize at around 7.5 percent in 2015 and 2016. Growth in the rest of the region should also be broadly stable in 2014 but is projected to pick up in 2015 to 5.7 percent reflecting modest acceleration in Indonesia and Thailand, reconstruction efforts in the Philippines.

The outlook is subject to significant domestic and external risk. An abrupt tightening of international financing conditions could reduce capital flows, exerting financing pressures in the region. The baseline assumes a gradual adjustment of global financial conditions, but a more disorderly reaction of financial markets to a normalization of conditions in the United States and elsewhere cannot be excluded. Although major tail-risks have subsided, they have not been eliminated and include rebalancing in China, protracted recovery in the Euro Area and fiscal policy uncertainty in the United States. In China, policy makers face formidable challenges in reorienting the economy away from an investment-led model, with reforms required across a range of sectors if private consumption is to underpin future growth. In the Euro Area much has been achieved, but the remaining formidable challenges make protracted recession a continued downside risk. Setbacks in sustainable resolution of debt and fiscal issues in the United States could spark an acute global crisis in case of a debt default. In addition, although currently contained, an escalation of country-level (Thailand, for example) as well as bilateral and geo-political tensions may undermine regional growth prospects.

East Asia and the Pacific regional forecast
(annual percent change unless indicated otherwise)

Source: World Bank
Notes: e = estimate; f = forecast
*Unless otherwise indicated, regional aggregates are computed for low and middle-income countries in the region and do not include any of the region's high-income countries
a. Growth rates over intervals are compound weighted averages; average growth contributions, ratios and deflators are calculated as simple averages of the annual weighted averages for the region.
b. GDP at market prices and expenditure components are measured in constant 2010 U.S. dollars.
c. Sub-region aggregate excludes Fiji, Myanmar and Timor-Leste, for which data limitations prevent the forecasting of GDP components or Balance of Payments details.
d. Exports and imports of goods and non-factor services (GNFS).

East Asia and the Pacific country forecasts
(annual percent change unless indicated otherwise)

Source: World Bank
Notes: e = estimate; f = forecast
World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
Samoa; Tuvalu; Kiribati; Democratic People's Republic of Korea; Marshall Islands; Micronesia, Federated States; N. Mariana Islands; Palau; and Tonga are not forecast owing to data limitations.
* Published forecasts are for only low and middle-income countries in the region, hence no high-income countries are included.
a. GDP growth rates over intervals are compound average; current account balance shares are simple averages over the period.
b. GDP measured in constant 2010 U.S. dollars.
c. The start of production at Papua-New-Guinea-Liquefied Natural Gas (PNG-LNG) is expected to boost PNG's GDP growth to 20 percent and shift the current account to a 9 percent surplus in 2015. PNG's GDP deflators are expected to be updated in 2014 and the new GDP series is expected to be significantly different from the existing one.
d. Non-oil GDP. Timor-Leste's total GDP, including the oil economy, is roughly four times the non-oil economy, and highly volatile, subject to global oil prices and local production levels.

East Asia and the Pacific net capital flows
US$ billions

Source: World Bank
Note: e = estimate; f = forecast

See the regional audio slideshow by the author.