Official Bank Sites Related Information Multimedia March 30, 2006—Strong growth in China, Vietnam and Indonesia helped pave the way for better than expected economic performance in East Asia economies in 2005. That’s the assessment of the latest regional economic report for East Asia and the Pacific which says developing countries in the region grew by about 8.2 percent last year – countering a series of threats including rising oil prices and interest rates and worries over the financing of the United States current account deficit. The report says growth for emerging East Asian economies was 6.8 percent for 2005. The East Asia Update says the prospects for 2006 also look reasonably firm, with aggregate regional growth expected to exceed 6.5 percent for the third year in a row. Effect of Avian Flu The Bank’s Chief Economist for East Asia, Homi Kharas, says the risk of avian flu remains the “big unknown” for the region, as a potential human influenza pandemic could – in a bad or worst case scenario – impose an enormous cost in human suffering and economic losses. To date, Kharas says the impact has been limited to countries where avian flu is now endemic in poultry flocks. “It has had a serious impact on those sectors and a serious impact on households that rely on those sectors. But when you think about it in aggregate terms, we’re probably talking about impacts of around 0.2 to 0.3 percent of GDP – so sizeable, but not something that will seriously derail growth from a macroeconomic point of view.” He says one real surprise was that oil prices – the highest in 25 years – did not inflict more serious economic damage. Dramatic Impact “While oil prices played a role in moderating growth in 2005, surprisingly, the impact has been less that what we had feared,” Kharas says. ”But I think that many of the economies are still in the process of adjusting to high levels of oil prices. We’ll see average oil prices remaining high in 2006 and so some of the impact is still to come.” In the first half of 2005, the report points out that high oil prices, slower growth in China and slowing high tech exports did slow growth across the region. But in the second half through the early part of this year, economies in the region rebounded. Strong growth in the region, Kharas says, is having a “dramatic impact “on poverty levels. “Although 580 million people in the region still live on less than $2 a day, this number has been falling by about 50 million people each year over the past five years.” But Kharas says a worrying challenge for the region is falling investment levels. The report notes there was a weakening in 2005 in fixed investment growth in the economies outside China, dipping to only (a simple average) 3.4 percent from 8.5 percent in 2004. Other challenges for the region identified in the report include the need for East Asian countries to play their part in a successful outcome to the Doha Round of trade talks and on the domestic front, dealing with expected high job turnovers. The report says emerging East Asia’s exceptional economic openness has been one of the conditions for its great economic success. The region’s exports exceed $2 trillion and the share of its trade to GDP is now the highest in the world, exceeding even that of the European Union. “To take advantage of these new export opportunities, the region’s going to have a lot of job turnover, “Kharas says. “And most countries in the region don’t have unemployment insurance. They don’t have the mechanisms to help people as they move from one job to another, and thinking through what kind of schemes can be put in place to do this better will be important for the region.” Climate Change: Challenges and Opportunity Another key challenge for the region identified in a special section of the report is the problem of greenhouse gas emissions and the danger of global climate change.
East Asia is an important emitter of greenhouse gases, and likely to become more of one over time, while at the same time one of the regions likely to be more affected by the potential ill effects that could flow from climate change. The report says countries will need to reduce emissions and adopt policies promoting greater energy efficiency and conservation, as well as look seriously at dealing with the issue of climate change. “The region is one of the areas of the world that is most seriously affected by natural disasters, which are increasing in their intensity and perhaps their frequency as a result of climate change,” Kharas says. “So countries in the region need to think that this is something that will continue and therefore they will need to climate proof most of their development projects.” |
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