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East Asia & Pacific is facing some great development challenges today: urbanization, protection of the environment, the need to find renewable energy sources and many others. This site wants to create a conversation around those important issues. More »

financial crisis

In Thailand, finding the way back into growth: Step 1, switch the supply chains back on

Submitted by Frederico Gil Sander on Wed, 2009-11-04 12:35

As part of its regular monitoring of the corporate sector in Southeast Asia, the World Bank economic team I am part of in Thailand has been working on a short case study of supply chains of Japanese multinational companies (MNCs) in the electrical and electronics (E&E) industry. We wanted to hear directly from firms about how the crisis affected them, how they were able to adjust so quickly to the drop in demand, what the rebound looked like, and what were the prospects going forward to upgrade along the value chain. I have learned a great deal from these interviews, and have become convinced that supply chains are central to understanding the current crisis in Thailand and East Asia more generally.

Some facts: the crisis had a disproportionate impact on manufacturing. In Thailand, manufacturing represents about 40 percent of GDP, but contractions in manufacturing value added have accounted for about 75 percent of the contraction of headline GDP. Within manufacturing, the auto and E&E industries account for the bulk of the contraction. Most of the output in those industries is exported, and more than three-fourths of the decline in Thai exports during the crisis was due to falls in shipments from the auto and E&E industries. My conclusion is that the magnitude of the crisis in Thailand has been driven primarily by these two industries.

China: Robust growth in sight provides room for shift in policy focus

Submitted by Louis Kuijs on Tue, 2009-11-03 23:11

The economic data for the third quarter of 2009, released almost two weeks ago, confirmed an impressive recovery in China’s economy, supported by very large fiscal and monetary stimulus. Real GDP growth rose to 8.9 percent year-on-year in the third quarter. This is clearly good news, for China and many other countries whose economies are benefiting at the moment from strong demand from China. As the World Bank economic team for China (which I'm part of) argues in more detail in the new China Quarterly Update, it also means that it is time to consider a less expansionary macroeconomic policy stance and focus more on the structural reforms needed to rebalance the economy and get more growth out of the domestic economy on a sustained basis.

It’s not as if China has not been hit by the global recession. China’s real economy has been hit hard. Exports fell sharply since November last year, and the contribution of net external trade to GDP growth was minus 3.6 percent points in the first three quarters of this year – with the negative contribution particularly large in the third quarter (in year-on-year terms).

Growth in China continues to influence East Asia’s economic recovery, two new World Bank reports say

Submitted by James I Davison on Tue, 2009-11-03 23:10

Regionally speaking, developing countries in East Asia and Pacific have rebounded surprisingly quickly from the financial crisis and global recession. But according to a report just released by the World Bank, the regional economic picture isn’t as rosy when China is taken out of the equation. The latest East Asia and Pacific Update report, an assessment of the economic health of the region released every six months, is titled “Transforming the Rebound into Recovery.” The rebound, the report says, was driven in part by large and timely fiscal stimulus spending led by China and Korea. Still, despite the well-performing economies of Indonesia and Vietnam, developing East Asia excluding China is projected to grow at just around 1 percent in 2009. And for Cambodia, Malaysia and Thailand, GDP is contracting.

The China Quarterly Update – a separate report released at the same time as the latest regional assessment and focusing specifically on the Chinese economy – gives a more complete picture of why the country has seen such robust economic growth and what the future may hold. The Bank now projects China to see GDP growth of 8.4 percent for 2009, says the report. The report’s lead author (and blogger) Louis Kuijs wrote an accompanying blog post, which can be read here.

I really recommend taking some time to explore the findings of both reports by visiting the East Asia Update and China Quarterly pages, where you can also download high resolution graphs and watch video interviews with the economists. Also, you'll be able to ask two World Bank economists questions about the regional report in an online chat taking place Thursday, November 12, at 10 a.m. DC time (15:00 GMT or 11:00 p.m. in Beijing). Send your questions now for a better chance of getting them answered.

Are China’s banks having a "good crisis"?

Submitted by James Seward on Wed, 2009-10-07 15:17
The crisis certainly hit China hard, but the spillover to banks has been minimal thus far. Photo courtesy of randylane under a Creative Commons license.

The story of the current financial crisis is well-known now and much has been written.  Indeed, we’re now at the point where many observers are indicating that the crisis is now at an end.  It would seem that the immediate financial sector impacts are leveling off, but in many countries the economic recovery will likely take a long time.  However, a number of emerging markets have come out of the crisis in relatively stable shape.  China is the most prominent example.  In fact, one might say that China is having a “good crisis” in certain ways as it has lifted its prominence – it is the one large country seen as leading the world out of this global crisis.  The same applies for China’s financial system given that many of its banks are now the largest in the world and (at least on the surface) posting strong performance. 

Regional Finance Roundup: Is East Asia leading the world out of the crisis?

Submitted by James Seward on Tue, 2009-09-29 16:30

Given that Asia is now widely seen as leading the world out of the crisis, it is fitting that the role of Asia was more prominently recognized in the global economic system in the recent G20 meeting held in Pittsburgh.  Since we last looked in July, the outlook for the emerging markets of East Asia has continued to brighten.  The latest regional forecasts come from the Asian Development Bank in its Asian Development Outlook (pdf) published last week.  It points to “the rapid turnaround in [Asia’s] largest, less export-dependent economies” and predicts that “the regional economy is now poised to achieve a V-shaped rebound.”  These are very positive words indeed!  As the graph below shows, the ADB has in fact upgraded its growth forecasts for a number of economies for 2009.

Although the signs are pointing upwards, performance is still mixed in a number of key areas.

Do not worry about inflation in China for now, worry about asset prices and quality

Submitted by Louis Kuijs on Thu, 2009-09-24 13:20

As China’s economy seems to be recovering, many people here have expressed concerns about inflation. I was able to air my views on the subject in an Op-Ed in China’s main English language newspaper, the China Daily, together with two other experts.

In motivating their concerns on inflation, people cite the unprecedented fiscal and monetary stimulus in many countries to combat the global economic crisis, China’s own large-scale stimulus measures, or recent increases in prices of several food items as possible reasons. In my view we do not have to worry about inflation for now. There is simply too much spare capacity across the world. However, the very loose monetary conditions in China can cause other damage if left unchecked for too long. It makes sense to try to avoid future asset price bubbles and problems for banks’ balance sheets.

Health restored? Uncertainty in forecasting Thailand's economic outlook

Submitted by Frederico Gil Sander on Tue, 2009-09-22 14:05

In Laos, the government has reportedly already healed the economy from the economic flu. But in Thailand, there seems to be more uncertainty about the health of the economy, and some commentators are not ready to call the recession over. The Thai economy contracted by 4.9 percent from the previous year in the second quarter of 2009, better than the 7.1 contraction posted in the first quarter. What can we expect for the rest of 2009 and 2010?
 
This is very timely question for all World Bank economists in East Asia, who are currently finalizing their forecasts for the upcoming East Asia and Pacific Update economic report, to be launched in November. On my end, I am writing this post from Cambodia, where I am meeting with palm readers, fortune tellers and other economic healers to ensure highly accurate forecasts. Let me offer a preview of what the soothsayers are saying.

Improving investment climate important to boost economic growth in Thailand

Submitted by Xubei Luo on Wed, 2009-08-19 10:21

The investment climate is the fundamental socio-economic framework in which firms operate – the macroeconomic and trade policies they face, the labor and financial markets in which they recruit and raise money, the available infrastructure and imposed regulations, as well as all other areas of public policy impacting on private business.

In Thailand, the uncertain political situation since 2006 has negatively affected the country’s economy. The Productivity and Investment Climate Survey, which was fielded in 2007 at a time of great political instability and policy uncertainty, clearly reflected the pessimistic views of business managers. One interesting finding of the recently released Thailand Investment Climate Assessment Update is that instability and economic policy uncertainty became major issues – firms that perceived it a major or severe obstacle doubled from one-third in 2004 to two-thirds in 2007.

China's import surge: standard economic theory prevails

Submitted by Louis Kuijs on Wed, 2009-08-05 17:07

When China’s government started to work on and implement its massive stimulus program in November last year in light of a rapid deterioration of the world economy, economists working on China had to work out what it all meant for China’s growth, the composition of growth, and the rest of the world.

Many foreign observers doubted that the stimulus would be effective enough to boost domestic demand in the first place. But even among those with higher expectations in this regard—like we at the World Bank—many wondered what the stimulus would mean for the rest of the world.

Usually, when one country grows much faster than other countries, we expect imports into that country to rise much faster than exports (or, fall much less). However, in the case of China, exports had for quite some time been outgrowing imports by a large margin and many were skeptical that this would change even as economic conditions were changing in a pronounced way.

Remittances to East Asian countries now expected to fall 6 to 8.8 percent in 2009

Submitted by James I Davison on Tue, 2009-08-04 08:09

A few weeks ago, the World Bank’s migration and remittances team released its latest forecast of global remittance flows, indicating that even fewer migrants from developing East Asian and Pacific countries may be sending home money this year than they predicted in an earlier report. Remittances flowing to countries in the region are now forecast to fall by 5.7-8.8 percent in 2009, according to the report (pdf). Revised 2008 data show China, the Philippines and Vietnam are in the top 10 recipients of remittances among developing countries.

Interestingly, despite indicating falling remittance flows to the East Asia and Pacific region, the outlook states that South and East Asian countries have been relatively strong. There is, of course, a risk of a further slowing down. For example, remittance money flowing to the Philippines appears to still be growing this year. But such positive flows went from 14 percent year-on-year growth in 2007-08 to just 3 percent growth so far in 2009, according to the report.

The report’s authors write that there may be key risks that further threatening global remittance flows to developing countries – including a longer-than-projected financial crisis threatening jobs and income for immigrants in developed countries. However, they write, recovery may come by next year: “We expect that remittance flows to developing countries could decline by 7-10 percent in 2009, with a possible recovery in 2010 and 2011.”

What’s the significance of remittances? One notable example came from blogger Eric Le Borgne last April. Eric pointed out that remittances are a key factor to the economic health of the Philippines, as well as the country’s resilience so far during the global financial crisis.