Growth in the East Asia and the Pacific region continues to slow to a more sustainable level, with output expanding at 7.2 percent in 2013, only slightly down from 7.4 percent in 2012, but about 2 percentage points slower than the region’s pre-crisis average. In China, GDP grew by 7.7 percent in 2013, the same pace as in 2012, but well off its pre-crisis pace, which reflected the offsetting influences of growth support measures and administrative tightening introduced to rebalance the economy away from credit-fueled capital investment. Elsewhere in the region, trend growth has, thus far, been resilient to sharply slower Chinese growth in the post-crisis period, but growth slowed in 2013 in a number of large ASEAN countries, reflecting domestic adjustment in Indonesia and Malaysia, compounded by political instability in Thailand. Growth in the other economies of the region was slightly higher or broadly unchanged. Domestic adjustment has continued into 2014 as reflected in weak first quarter output growth across the region. There are, however, signs of strengthening of economic activity in the region reflecting growth supporting measures in China, easing of domestic adjustment in large middle-income economies of the region and a pick-up of global demand for exports.
Policy tightening partly prompted by tightening financing conditions during the mid-2013 financial market turmoil, led to a decline in investment and imports, while private consumption remained resilient, with the notable exception of Thailand, and exports started to rebound led by a pick-up in global recovery. Net exports emerged as a positive contributor to regional output growth in 2013. This, combined with domestic adjustment, has helped reduce vulnerabilities. In particular, current account balances have improved (Indonesia and Thailand), real credit growth started to moderate towards more sustainable rates across the region, and price pressures have eased (Indonesia). Improved fundamentals, combined with increased global risk appetite contributed to a rebound of capital flows to the region. Indonesian Rupiah and Thai Baht, two regional currencies that had been hardest hit during the mid-2013 financial market turbulence, began recouping their losses in early 2014 although they remain weaker than a year ago in both nominal and real effective terms. Similarly, stock markets recovered in early 2014, but several remain well below their levels a year ago (especially Indonesia and Thailand). Borrowing costs have also eased.