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Firm Foundations of Growth: East Asia and Pacific Economic Update, April 2024
Firm Foundations of Growth
The East Asia and Pacific (EAP) region is growing faster than the rest of the world, but slower than before the pandemic. While recovering global trade and easing financial conditions will support regional economies, increased protectionism and policy uncertainty will dampen growth. Amid macroeconomic turbulence, strong microeconomic foundations are critical for longer-term growth. Firms play a pivotal role in driving productivity, but leading firms in the region are not fully leveraging new technologies. How can these firms catch up with global leaders? What can be done to spur productivity growth?
Most economies in developing East Asia and Pacific (EAP), other than several Pacific Island Countries, are growing faster than the rest of the world, but slower than before the pandemic. Economic performance in the region is being shaped by both external and domestic developments.
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The EAP region suffered in 2023 from slowing global growth and tightening financial conditions but is now expected to grow in 2024. The projected growth remains higher than that of other emerging markets and developing economies. Growth in China is projected to slow.
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In recent decades, EAP economic growth surpassed that in most other emerging market and developing economies in recent years, but this trend was driven primarily by capital accumulation rather than productivity growth. Firms play a critical role in driving productivity and while the productivity slowdown has been global, in advanced economies frontier firms continue to grow rapidly. In developing EAP however, it is the lagging firms that are catching up, while frontier firms are falling behind and are not fully leveraging new technologies.
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Policy Issues examined in recent economic updates
Previous updates have focused on a number of other policy issues, including:
(1) Vaccination to contain COVID-19;
(2) fiscal policy for relief, recovery, and growth;
(3) climate policy to build back better;
(4) smart containment of COVID-19, especially through non-pharmaceutical interventions like testing-tracing-isolation;
(5) smart schooling to prevent long-term losses of human capital, especially for the poor;
(6) social protection to help households smooth consumption and workers reintegrate as countries recover;
(7) support for firms to prevent bankruptcies and unemployment, without unduly inhibiting the efficient reallocation of workers and resources;
(8) financial sector policies to support relief and recovery without undermining financial stability;
(9) trade reform, especially of still-protected services sectors—finance, transport, communications—to enhance firm productivity, avert pressures to protect other sectors, and equip people to take advantage of the digital opportunities whose emergence the pandemic is accelerating;
(10) creating opportunities for firms and ensuring inclusion to promote equitable growth;
(11) policies to encourage technology diffusion and adoption; and
(12) policies to address new and old distortions in the areas of food, fuel and finance.
(13) Policies to face up to the major challenges of de-globalization, aging and climate change
(14) Policies to harness the potential of services to drive economy-wide growth and job creation.