|Declining revenue of tuk-tuk drivers in Cambodia shows even the informal sector isn't insulated.|
The World Bank today launches its projection of a 1 percent contraction of the Cambodian economy. This is based on an analysis of available statistics and feedback from a range of economic actors. Yet, to most of my Cambodian friends, it remains hard to conceive.
It is true that "seeing" such a contraction will be difficult. Basically, what it means is that economic activity in 2009 will be pretty much the same as in 2008. So the fact that we continue to have traffic jams in Phnom Penh, see tourists at the Royal Palace, and hear construction machines in many residential areas is consistent with such a projection. What will change, though, is that incomes will not increase this year as fast as past years and it will also become more difficult for the 250,000 young people leaving school each year to find their first job. What also will be different is that with no growth in aggregate, there will be a proportion of those with a livelihood at the end of the year worse than at the beginning.
Despite a surge in joblessness and a regional drop of the forecasted GDP growth to 5.3 percent expected in 2009, developing East Asian and Pacific countries may be able to look to China for hope during the current global economic slowdown. That's according to the World Bank's April 2009 edition of the East Asia & Pacific Update, which was released today.
The latest half-yearly assessment of the region's economic health, aptly titled "Battling the Forces of Global Recession", says there have already been signs of China's economy bottoming out by mid-2009. China's possible subsequent recovery in 2010, concludes the report, could contribute to the entire region's stabilization, and perhaps recovery.
There are a number of ways to review the findings of the report on the World Bank's website. Head over to worldbank.org/eapupdate to view specific chapters or download the full report. For an intimate view of people who are being affected by the ongoing financial crisis in East Asian and Pacific countries – including Cambodia, Thailand, Mongolia and the Philippines – check out "Faces of the Crisis". You can also view hi-res graphs from the report here.
Also, check back here in the next day or so for blog posts written by World Bank economists based in Cambodia and Lao PDR.
UPDATE: For country-specific expert perspectives on the new World Bank repot, check out blog posts from World Bank economists based in Cambodia and Laos. Stéphane Guimbert considers what contraction might look like in Cambodia. And Katia Vostroknutova takes a look at Laos' economy, which is less affected by crisis, but faces the increasing challenge of sustaining growth during the crisis.
In case you weren't able to join World Bank economists and regular bloggers David Dollar and Louis Kuijs earlier today in a live online chat, a transcript from the in-depth discussion is available here.
A few days ago, our country director David Dollar blogged about the two-sided picture we see when we look at China's economic growth. The economy saw very weak export demand, which partly carried over into weak investment in manufacturing and other "market-based" sectors. Continued growth in other parts of the domestic economy was supported by policy stimulus.
China has weathered the crisis better than many other countries because it does not rely on external financing, its banks have been largely unscathed by the international financial turmoil, and it has the fiscal and macroeconomic space to implement forceful stimulus measures. China’s government has made use of this policy space by pursuing pretty forceful fiscal and monetary stimulus. From early November last year onwards, the government's 10-point plan ("RMB 4 trillion package") is being implemented. This plan emphasizes infrastructure and other investment, financed in part by government budget spending, and in part by bank lending. And the government has taken some additional, more consumption-oriented measures.
With the release last week of its latest quarterly assessment of the Chinese economy, the World Bank lowered its projection for China's GDP growth to 6.5 percent in 2009, yet remained optimistic that the country's economy has started to show signs of stabilizing amid global financial turmoil.
|Click chart to see larger version.|
We launched our China Quarterly report today with our take on how to reconcile the conflicting data. Clearly, the global economy is in very poor shape. Global GDP declined at an annualized rate of 5% in the fourth quarter of 2008, and global industrial production declined at a 20% rate. These are shocking numbers that those of us born after the 1930s have never seen. Naturally this has had a large effect on China, which is an open, export-oriented economy. China's seasonally adjusted monthly exports peaked at around $120 billion last fall, and then fell off a cliff – dropping by about one-third (see chart).
There has been a noticeable lack of entries to the East Asia & Pacific finance blog recently, but unfortunately I've been otherwise occupied on a trip in Beijing. It has certainly been a busy time here in China's capital with the National People's Congress (NPC) going on. However, I haven't seen much of it other than the long traffic jams caused by the road closures. The NPC meetings covered some of the domestic economic stimulus plans, but it has not dealt directly with financial sector issues. Maybe it did not need to since the banks here have already responded to the stimulus.
A recent China Daily report had a great graphic that showed the recent boom in lending by the banking sector, which corresponds very nicely to the announcement of the original economic stimulus plan. As I highlighted in a prior blog post, the $586 billion economic stimulus plan announced in November was only 30 percent funded from the central government, and the expectation was that much of the rest was to come from state-owned banks. Well, it seems they have delivered with gusto!