The East Asia and Pacific region is set to maintain strong economic growth, with a projected expansion of 5% in 2023, reported the World Bank.
However, the region anticipates a mild slowdown in the latter half of 2023, with growth expected to ease to 4.5% in 2024, according to the World Bank's East Asia and Pacific October 2023 Economic Update.
Strong Growth in 2023:
The region is expected to surpass the average growth of emerging markets and developing economies. China, a linchpin of the region's economic engine, is predicted to lead the way with a growth rate of 5.1% in 2023. The rest of the region is also set to maintain a healthy growth rate of 4.6%. The Pacific Island Countries are positioned for the highest growth rate, projected at 5.2% for the year.
Challenges for 2024:
Favorable external conditions are expected to support growth in the rest of the region, but China faces domestic hurdles. Issues include the waning effects of its economic reopening, escalating debt levels, vulnerabilities in the property sector, and the structural implications of an aging population. China's growth is expected to slow down to 4.4% in 2024. While, the rest of the region is anticipated to experience a modest uptick in growth to 4.7% in 2024, driven by a global economic recovery and improved financial conditions.
Additional Risks:
The presence of potential downside risks to the region's economic outlook includes the escalation of geopolitical tensions and the looming threat of natural disasters, such as extreme weather events.
Optimism Amid Challenges:
World Bank East Asia and Pacific Vice-President Manuela V. Ferro said, "The East Asia and Pacific region remains one of the fastest-growing and most dynamic regions in the world, even if growth is moderating." Ferro emphasized the importance of reforms to sustain high growth, including maintaining industrial competitiveness, diversifying trading partners, and harnessing the productivity-enhancing potential of the services sector.
The Ascendance of the Services Sector:
A dedicated section of the report highlights the growing prominence of the services sector in the region's development. Over the past decade, services have emerged as vital contributors to labor productivity growth, surpassing goods exports in terms of growth. Notably, foreign direct investment in services has eclipsed that in manufacturing by a factor of five in several countries, such as China, Indonesia, Malaysia, the Philippines, and Thailand.
Digitalization and Reforms:
The integration of digital technologies and services reforms has played a pivotal role in enhancing economic performance. The report cites examples from the Philippines and Vietnam, where the adoption of software and data analytics led to substantial increases in firm productivity. In Vietnam, the removal of policy barriers in sectors such as transport, finance, and business services resulted in a 2.9% annualized increase in value-added per worker from 2008 to 2016. This policy change also triggered a 3.1% surge in labor productivity for manufacturing enterprises, benefiting small and medium-sized private enterprises in particular.
Enhancing Human Capacity:
Initiatives such as distance education and telemedicine, supported by well-trained local staff, have led to improved learning and health outcomes in the region.
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