Economic growth in the East Asia and Pacific region - covering 14 countries, including Thailand - may slow by a full percentage point to 7.2 per cent this year, before recovering to 7.6 per cent next year, according to a World Bank report.
Economic rebalancing continues as domestic demand, propelled by huge investment in infrastructure in several countries, will play a significant role to offset negative impacts on the export sector, according to the WB’s “East Asia and Pacific Economic Data Monitor”, released yesterday.
Excluding China, the average growth rate for Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia, Fiji, Laos, Mongolia, Myanmar, Papua New Guinea, Solomon Islands and East Timor is predicted to be 5.3 per cent this year and 5.5 per cent in 2013.
The WB forecasts for Thailand’s gross domestic product are 4.5 per cent and 5 per cent respectively.
“The East Asia and Pacific region’s share in the global economy has tripled in the last two decades, from 6 per cent to almost 18 per cent today, which underscores the critical importance of this region’s continued growth for the rest of the world,” said World Bank Group president Jim Yong Kim.
Pamela Cox, WB East Asia and Pacific regional vice president, added: “Even under difficult global circumstances, poverty in the region will continue to decline, with the share of people living on US$2 [Bt61] a day expected to reach 24.5 per cent by the end of 2013, down from 28.8 per cent in 2010.
“Weaker demand for East Asia’s exports is slowing the regional economy, but compared [with] other parts of the world, it’s still growing strongly, and thriving domestic demand will enable the region’s economy to bounce back to 7.6 per cent next year,” she said.
The euro-zone crisis has already had significant impacts on developing economies. Risks are lower in light of the European Central Bank’s bond-buying programme and the launch of the European Stability Mechanism, but uncertainties remain. A crisis in the euro zone will adversely affect the economies in the East Asia and Pacific mainly through trade and links to the financial sector, the WB said.
The report considers food-price increases less of a risk for East Asia at this stage, however, as rice markets remain well supplied.
With a major crisis, GDP growth in the region could drop by more than 2 percentage points next year. As inflationary pressures are receding across the region, the WB considers that monetary policy is accommodative to crisis, while on the fiscal side, policy actions have remained more limited in the region.
Export growth for East Asia as a whole slowed to 4.5 per cent in the second quarter of this year, easily outpaced by import growth of 5.2 per cent, and trade as a whole no longer contributed to the region’s growth.
All of the other major economies in the region saw a decline in exports, a sharp change from the export-growth rates of 15-20 per cent recorded last year.
The report cites reconstruction spending in Thailand after last year’s floods as among the factors buttressing domestic demand in the region.
In addition, such countries as Indonesia – together with Thailand and Malaysia – are currently enjoying a boom in spending by their governments and the private sector on capital goods.
Large Asean economies saw an average growth rate of 9.4 per cent in the second quarter, a trend that the WB expects to continue. In particular, investment spending in Thailand, Malaysia and Indonesia is booming, and the latter has now reached investment-to-GDP levels equalling those from before the 1997 Asian financial crisis for the first time.
Policy-makers in East Asia and the Pacific will have to continue managing growth and reducing poverty in an environment that will remain volatile, the report says.
Countries that have experienced rapid expansion of credit need to be cautious, while exporters of commodities should continue to take measures and build institutions that help manage volatile commodity revenues.
“Over the medium term, increases in productivity in East Asia and the Pacific, which is increasingly becoming a middle-income region, will drive growth,” said Bert Hofman, the bank’s chief economist for East Asia and the Pacific. “Continued structural reforms, improvements in the business climate and investments in infrastructure and education systems will become more important.”