East Asia’s rebound from the economic downturn has been surprisingly swift and very welcome.
A vigorous and timely fiscal and monetary stimulus in most countries in East Asia and the Pacific along with decisive measures in developed economies to prevent a financial meltdown, have stopped the decline in activity and set in motion the regional rebound. Our projection for real GDP growth in developing East Asia is set to slow to 6.7 percent in 2009 from 8 percent in 2008, or much more moderately than after the 1997-98 Asian financial crisis.
Developments in East Asia and the Pacific remain strongly influenced by China.
Take China out of the equation, and the rest of the region is recovering with less vigor. Developing East Asia excluding China is projected to grow more slowly in 2009 than South Asia, the Middle East and North Africa, and only modestly faster than Sub-Saharan Africa.
The aggregate numbers tell an incomplete story about the social and poverty impact of the crisis.
The report estimates that 14 million people who would have emerged from $2-a-day poverty if the region’s economies had kept growing at pre-crisis levels, will remain in poverty in 2010.
The rebound has yet to become a recovery.
That is why the authorities in the region are mindful of the risks of a premature withdrawal of stimulus, given the large output gaps and concerns that developed countries are converging to a slower-growth equilibrium.
The crisis has prompted countries in the region to rethink their development strategies.
For most, the choice between growth driven by exports, and growth driven by domestic demand is a false one. Countries need to resist protectionism and become more integrated into the global economy. At the same time, governments are realizing that more growth can be extracted from domestic demand if they ease or eliminate incentives that favor the quick buildup of export-led, investment-heavy manufacturing.
Downside and upside risks in consolidating the rebound into recovery:
Downside risks include a double dip in economic activity in the advanced countries as stimulus measures and inventory restocking wear off. On the upside, a more robust recovery in the advanced countries could remove some of the imperative for rebalancing in developing East Asia and encourage sustaining the pre-crisis export-oriented growth model.
Can East Asia and the Pacific sustain rapid growth, even if the rest of the world grows slowly?
This will depend on whether East Asia and Pacific can integrate further regionally – through better facilitation of trade in goods and by extending its liberal trade policies to services.
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