Growth in Developing East Asia and Pacific Is Strong But Slowing

May 23, 2012

Region needs to become less reliant on exports and capture new sources of growth, says World Bank East Asia & Pacific Economic Update

Tokyo, May 23, 2012 - Growth remains strong in developing East Asia and Pacific, although it has slowed from its post-crisis peaks. With the global slowdown expected to continue, the region needs to reduce its reliance on exports and find new sources of growth, says the World Bank in its latest East Asia and Pacific Economic Update released today.    

According to the report, entitled “Capturing New Sources of Growth,” developing East Asia and Pacific grew by 8.2 percent in 2011 (4.3 percent excluding China), a sharp decline from the nearly 10 percent growth rate recorded in 2010 (7.0 percent excluding China). The region’s performance is still impressive on a global scale. In 2011, growth was about 2 percentage points higher than the developing country average world-wide, and poverty continues to fall.

"The number of people living on less than US$2 a day is expected to decrease in 2012 by 24 million. Overall the number of people living in poverty has been cut in half in the last decade in East Asia and Pacific,” said Pamela Cox, World Bank East Asia and Pacific Regional Vice President. “Despite this success, about one-third of the people in the region, roughly half a billion men, women and children still live in poverty. In an uncertain global environment, more needs to be done to create new sources of growth that provide opportunities for all.”

Slowing in 2011 was largely due to lower than expected growth in manufacturing exports as well as supply disruptions in the wake of the earthquake and tsunami in Japan, and severe flooding in Thailand. Domestic demand and investment were generally strong, aided by loosening of monetary policy in some countries.

For 2012, the report projects that annual growth will moderate further to 7.6 percent with slower expansion in China pulling down the regional aggregate. Excluding China, growth will increase to 5.2 percent as Thailand returns to normal levels of production. Commodity exporters, which experienced a boom in 2011, may be vulnerable in the event of a faster than anticipated slowdown in China, which could trigger an unexpected drop in commodity prices.

“Most East Asian economies are well positioned to weather renewed volatility. Domestic demand has proved resilient to shocks. Many countries run current account surpluses and hold high levels of international reserves. Banking systems are generally well-capitalized,” said Bert Hofman, World Bank Chief Economist for the East Asia and Pacific Region. “Still, risks emanating from Europe have the potential to affect the region through links in trade and finance.” The EU, along with the US and Japan, accounts for more than 40 percent of the region’s exports, and European banks provide one-third of trade and project finance in Asia. 

As external demand is likely to remain weak, countries in developing East Asia and Pacific need to rely less on exports and more on domestic demand to maintain high growth. Already, many countries are moving in this direction, but there is further scope for rebalancing. 

Some countries will need to stimulate household consumption. In others, enhanced investment, particularly in infrastructure, offers the potential to sustain growth provided this does not exacerbate domestic demand pressures,” said Bryce Quillin, World Bank Economist and lead author of the report. “With a changing financial sector in the aftermath of the financial crisis, new ways to finance higher levels of infrastructure investment need to be developed. Governments would need  to focus on accelerating the preparation of infrastructure projects.”

In the medium-term, investment will enhance productivity and drive growth through higher value-added activities and innovation. Although large gains have been made in labor productivity across the region since the Asian financial crisis of 1997-98, there is still large room for further gains.

Policies to support the movement of labor among countries can also be improved, suggests the report.  Improved regional migration policies could enhance the gains from regional economic integration and allow countries with declining working age populations to meet labor demand.

To download the report and see related content, please visit

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