Just as the East Asia and Pacific (EAP) region was weathering recurrent COVID storms, 3 new clouds have gathered over the economic horizon: financial tightening in the U.S., structural slowdown in China, and the war in Ukraine. These difficulties should not, however, obscure the new avenues for growth in the region through trade and innovation.
The East Asia and Pacific (EAP) region is suffering a reversal of fortune. In 2020, many EAP countries successfully contained COVID-19 and economic activity swiftly revived. Now the region is being hit hard by the COVID-19 Delta variant while many advanced economies are on the path to economic recovery.
A year after the first case was confirmed in Wuhan, COVID-19 is proving hard to suppress, while the emergence of more transmissible variants poses new challenges. The economies of the region began to bounce back in the second half of 2020. However, only China and Vietnam have followed a V-shape recovery path with output surpassing pre-COVID-19 levels.
COVID-19 has delivered a triple shock to the developing East Asia and Pacific (EAP) region: the pandemic itself, the economic impact of containment measures, and reverberations from the global recession. Without action on multiple fronts, the pandemic could reduce regional growth over the next decade by 1 percentage point per year.
The COVID-19 virus that triggered a supply shock in China has now caused a global shock. Developing economies in East Asia and the Pacific (EAP), recovering from a trade war and struggling with a viral disease, now face the prospect of a global financial shock and recession.
Growth in the developing East Asia and Pacific region slowed in the first half of 2019 given weakening global demand and heightened policy uncertainty amid ongoing trade tensions. Steady consumption growth helped to partly offset the effects of weakening exports and investment on growth. The region's growth prospects face intensified downside risks, including further escalation of trade disputes.
Despite global economic volatility, growth in developing East Asia and Pacific (EAP) was resilient during 2018, and in the first quarter of 2019. The growth outlook for developing EAP is expected to soften in 2019. Downside risks remain, including expected moderated global demand, continued trade tensions, the risk of a faster-than expected financial tightening in developed economies, the risk of weaker-than-expected growth in China, and continued financial market volatility.
Growth in developing East Asia and Pacific (EAP) was resilient during the first half of 2018. Although the external environment has become less favorable in some respects, the outlook for the region remains positive. After peaking in 2017, growth in developing EAP is expected to slow modestly in 2018, primarily reflecting the continued moderation in China’s economic expansion as its economy continues to rebalance.
Developing EAP grew slightly faster than anticipated in 2017. The growth of regional GDP excluding China is forecast to remain stable in 2018, while China's GDP growth is expected to moderate as the economy keeps rebalancing. Major downside risks include volatility associated with faster than expected monetary policy tightening in advanced economies and a rising threat of trade restrictions.
The economic outlook for the developing EAP region remains positive, and will benefit from an improved external environment as well as strong domestic demand. The growth of regional GDP excluding China is forecast to accelerate in 2018, while China's GDP growth is expected to decline in 2018 and 2019, although remaining higher than most countries in the region.
The region's growth outlook for 2017-19 remains broadly positive. China's growth moderation and rebalancing are expected to continue. In the region's other large developing economies, growth is projected to pick up slightly. Poverty has continued to decline in most countries and is projected to fall further.