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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 »

Macroeconomics and Economic Growth

Possible asset bubbles in Asia: how to avoid them?

Submitted by Louis Kuijs on Thu, 2009-11-19 22:43

Just as Asian economies started to recover from the global recession, policymakers and markets have started to worry about unwarranted asset price increases. While the worries are global, especially in the case of stock markets, the risks of asset prices bubbles seem particularly high in Asia, where abundant liquidity is driving up prices of all sorts of assets, from Hong Kong and Singapore real estate to Chinese art.

Where is the liquidity coming from? Capital inflows have received a lot of attention lately. Financial capital is flowing into Asia, attracted by the continent’s relatively good economic prospects. More important, for most economies, is a dramatic easing of domestic monetary conditions since late 2008 that has fueled domestic liquidity.

In part, the easing of monetary conditions in Asia was deliberate, a policy response to sharp weaker growth. However, some of the easing of monetary conditions was not deliberate. Economies with an exchange rate somewhat or completely fixed to the US dollar and fairly open capital markets are “importing” the loose US monetary policy. In some economies, those imported monetary conditions sit oddly with domestic economic conditions. In many Asian economies, spare capacity is much smaller than in the US and cyclical unemployment much lower.

The winds of change are blowing in Malaysia

Submitted by Philip Schellekens on Wed, 2009-11-18 01:26

The winds of change are blowing in Malaysia, as the government is taking on an ambitious agenda of structural reform. The objective is to climb up the income ladder and join the league of high-income economies. This is a difficult challenge – one which not many countries have successfully met in the post-war period.

Against this backdrop, the World Bank’s launch of a new report on the Malaysian economy (full disclosure: I lead the team who authors the report) is timely. The Malaysia Economic Monitor, which will be published twice a year, aims to provide context to the challenges facing Malaysia and serve as a platform for discussion and the sharing of knowledge.

Your questions about East Asia and Pacific's rebound from the crisis, answered by World Bank economists

Submitted by Claudia Gabarain on Sun, 2009-11-15 23:01

Almost like an audience-customized appendix to the World Bank's East Asia and Pacific Update November 2009, the live online chat held last Thursday by the regional Chief Economist, Vikram Nehru, and the lead author of the report, Ivailo Izvorski, answered a good number of questions in detail.

From diversifying Cambodia's economy to the right moment to suspend governments' stimulus packages, Vikram and Ivailo also touched on the effect of a weak US dollar in East Asian economies, on the challenges to generate domestic growth in export-dependent economies, and on the risks of inflation and asset price bubbles in the region, among others. Take a look at the transcript.

Submit questions on East Asian and Pacific economy for Nov. 12 online chat

Submitted by James I Davison on Tue, 2009-11-10 12:37

The World Bank’s latest economic assessment of developing countries in the East Asia and Pacific region, released a week ago, came to some interesting conclusions and attempted to answer a lot of questions on a complex subject. Notably, the report’s authors pointed to the major role China has played in the region’s swift rebound from the crisis.

Later this week, two World Bank economists will be answering your questions about the report in a live online chat. On Thursday, Nov. 12, at 10:00 a.m. Washington DC time (15:00 GMT or 11:00 p.m. Beijing time), join Ivailo Izvorski, lead economist and author of the report, and Vikram Nehru, Chief Economist for the East Asia and Pacific region to send questions and read their answers. You’re strongly encouraged to submit your questions in advance.

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.

A quick look at 60 years of China's development

Submitted by James I Davison on Thu, 2009-10-08 16:18

Last week’s 60th anniversary celebrations marking the founding of the People’s Republic of China seemed to generate a lot of coverage and interest on news and social media websites. Business magazine Fast Company used the occasion to consider 15 different development-related statistics – comparing then to now.

Most of the figures are striking, and the graphic’s triangles illustrate how rapid and staggering the changes have been in China in just six decades. Interesting data (although the magazine doesn't specify its sources) in the infographic include:

  • The average life expectancy has increased from 35 to 73 years old.
  • The rate of illiteracy was 80 percent in 1949 and is 9.1 percent now.
  • The enrollment rate for primary-school children went from 20 percent to 99.3 percent.

Take a closer look at the chart here. (Hat tip to Cool Infographics.)

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.