Region’s potential growth seen slowing
EAST ASIA and the Pacific’s potential growth is expected to slow over the medium term due to the impact of factors such as the Covid-19 pandemic and the war in Ukraine, the World Bank said.
In a recently released report on long-term growth prospects, the Washingtonbased lending institution said the region’s growth was likely to moderate to an average of 4.6 percent over 2022 to 2030, down from 6.2 percent in 2011-2021.
“China accounts for much of the projected slowdown, but slowing potential growth is expected to spread to the rest of the region as well,” the World Bank said.
“Part of the projected slowdown is due to the pandemic and the war in Ukraine, the effects of which are expected to be most severe and longest lasting in the countries that have suffered most from the collapse of global tourism and trade,” it added.
Countries recently affected by natural disasters, domestic policy uncertainty, and trade shocks also face worsened growth prospects.
The slowdown will primarily be the result of reduced capital accumulation, followed by declines in total factor productivity — a measure of economic output — and labor supply.
China is projected to experience the steepest decline in capital accumulation due to efforts to control credit growth.
Problems in the real estate sector and weak demand for exports are weighing on the region’s largest economy, where growth is forecast to slow to 4.5 percent this year and further to 4.3 percent in 2025.
In contrast, the Philippines is expected to see an increase in investment, positively impacting potential output growth.
“Heightened geopolitical tensions may weaken investment in the region through higher interest rates, reduced business confidence, and heightened uncertainty,” the World Bank said.
In its latest Global Economic Outlook, the Washington-based financial institution estimated 2023 growth of 5.6 percent for the Philippines and said this would likely improve to 5.8 percent this year.
The 2023 projection, which was realized, fell short of the government’s 6.0- to 7.0-percent target. The forecast for 2024 also falls below the 6.7- to 7.5-percent goal for the year.
Policy reforms are needed to avert the slowdown in potential growth, the World Bank said.
These include continued improvements in investments, educational outcomes, female labor force participation, and investments in climate change mitigation and adaptation.
“More climate-resilient infrastructure could also help mitigate a possible climate change-related reduction in annual potential growth resulting from increasingly frequent extreme weather events that damage capital stocks and erode labor productivity,” the World Bank said.
It also said that there was potential for significant productivity improvements through resource reallocation, especially in countries like Cambodia, Indonesia, the Philippines, Thailand, East Timor and Vietnam.
To encourage more urbanization, possible actions include investing in infrastructure and social services, ensuring fair and transparent access to land, supporting facilities for recent migrants, and coordinating urban services across municipal boundaries.