The Outlook for East Asia and Pacific in Five Charts

Growth in the East Asia and Pacific region is projected to slow from an estimated 5.8 percent in 2019 to 5.7 percent in 2020. While growth in the region is projected to remain robust in the near term, underlying potential growth is likely to continue to decline over the long term. The slowdown is expected to be broad-based. Despite the recent slowdown, the region has the fastest labor productivity growth among emerging market and developing economy regions, although productivity levels remain below the EMDE average in most of the region’s economies. Moreover, most of the drivers of productivity growth are expected to become less favorable in the future. Being less able to rely on export growth than in the past, the region’s economies need to unleash domestic sources of productivity growth. Priority areas include enhancing human capital, addressing informality, fostering innovation, and facilitating urban development. In addition, debt overhangs should be addressed and excessive leverage should be avoided.

 

1. Growth is projected to slow in China

Growth in the region is projected to slow in 2020 as growth in China slows gradually to 5.9 percent. In the rest of the region, growth is expected to recover slightly to 4.9 percent in 2020.

GDP Growth

^{Source: World Bank.}

^{Note: EAP excl. China = Cambodia, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, Philippines, Thailand, and Vietnam. Pacific Island excl. PNG includes Fiji, Kiribati, Marshall Islands, Micronesia, Palau, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. 1990-2019 average for EAP excl. China excludes Myanmar and 1990-2019 for Pacific Island excl. PNG excludes Marshall Islands, Micronesia, Palau, Timor-Leste, and Tuvalu. Aggregate growth rates are calculated using GDP weights at 2010 prices and market exchange rates. Data in shaded areas are forecasts.}

 

2. Underlying potential growth is likely to continue declining

A slowdown in potential growth is expected to be broad-based, reflecting deteriorating demographic trends, especially in China, Thailand, and Vietnam, combined with a projected slowdown in capital accumulation and lower total factor productivity in China as credit growth is reined in.

 

Output and potential growth

^{Source: International Monetary Fund; Penn World Tables; The Consensus Forecasts; World Bank.}

^{Note: Potential growth estimates are from a multivariate filter model of WB (2018a). Aggregate growth rates are calculated using GDP weights at 2010 prices and market exchange rates. Includes China, Indonesia, Malaysia, Mongolia, the Philippines, and Thailand. Output growth in 2020 is a forecast.}

 

3. Productivity growth has slowed, but rate is still strongest among developing regions

The region has the fastest labor productivity growth among EMDE regions, averaging 6.3 percent a year in 2013-18, even though its deceleration in productivity post-financial crisis was the second fastest among EMDE regions.

 

Annual productivity growth in EAP

^{Source: Barro and Lee (2015); Haver Analytics; International Monetary Fund; Penn World Tables; United Nations; Wittgenstein Centre for Demography and Global Human Capital; World Bank (World Development Indicators).}

^{Note: Unless otherwise specified, productivity refers to labor productivity, defined as output per worker in 2010 U.S. dollars at market exchange rates. Average growth rates calculated using 2010 U.S. dollars at market exchange rates.}

 

4. Despite gains, productivity levels lag those in other regions

Although productivity growth has been strong, productivity levels remain below the EMDE average in most EAP economies. Moreover, while factor reallocation toward more productive sectors, high investment, and trade integration with product upgrading have promoted above-average productivity growth, most of these drivers are expected to become less favorable in the future.

 

Productivity compared to advanced economies

_{Source: Barro and Lee (2015); Haver Analytics; International Monetary Fund; Penn World Tables; United Nations; Wittgenstein Centre for Demography and Global Human Capital; World Bank (World Development Indicators).}

_{Note: Aggregate growth rates calculated using GDP weights at 2010 prices and market exchange rates. Samples comprise 35 advanced economies, 127 EMDEs and 16 EAP economies.}

 

5. Sustain growth will require tapping domestic sources of productivity growth

Being less able to rely on export growth than in the past, EAP countries need to unleash domestic sources of productivity growth. Priority areas include reforms to enhance human capital, address informality, foster innovation, and facilitate urban development. In addition, achieving long-term sustainable development calls for debt overhangs to be addressed and excessive leverage to be avoided.

 

_{Source: Elgin et al. (forthcoming); Haver Analytics; World Bank (World Development Indicators).}

_{Note: Productivity refers to labor productivity, defined as output per worker. Total debt comprises bank credit to households, non-financial corporations, and general government debt (broad definition).}