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In Bangkok: Kimberly Versak (66-2) 686-8324 kversak@worldbank.org BANGKOK, April 7, 2006 – East Asia’s economies delivered another solid performance in 2005, now surpassing Europe as the most open region in the world, according to the World Bank’s East Asia Update issued recently (available online at http://www.worldbank.org/eapupdate). In 2005, developing country economies grew by 8.2 percent and this solid growth is expected to continue at a 7.8 percent, rate in 2006. According to the latest Thailand Economic Monitor, Thailand’s real GDP growth slowed down to 4.5 percent in 2005 relative to 6.1 percent in 2004, with the tsunami, the drought, and a large rise in oil prices, taking a toll on the confidence of consumers and investors last year. Mr. Kazi Matin, Lead Economist for South East Asia based in Bangkok said, “We expect GDP growth in 2006 to increase to 5 percent, with better performance of Thai exports of goods and services and a slowdown in import growth in line with slower growth in investment.” He continued “Private investment growth is projected to fall for the second year and in the face of higher oil prices, priority should be given to actions for raising its level and its productivity.” Ms. Kirida Bhaopichitr, Country Economist and author of the upcoming Thai Monitor, noted, “The fiscal situation remains strong, with the Government running a balanced budget, and revenue collection buoyant. Public debt as a share of GDP remains below 47 percent of GDP and is expected to continue declining over the next few years.” Furthermore, she noted that Thailand’s external situation remains robust – with end of 2005 figures showing that external reserves stood at US$52 billion (3.1 times short-term external debt), and total external debt has fallen to around 29 percent of GDP as of end-2005. Private investment also grew at 11 percent in 2005, slower than in 2004, though foreign direct investment grew strongly reaching US$9.2 billion i.e. a growth of 21 percent relative to 2004. Ms. Bhaopichitr commented, “Thailand will have to implement policies to improve competitiveness -- raising returns on private investment and sustaining high export growth -- and to share that growth with the poor in the North East. Those actions will drive strong growth and continued poverty-reduction over the medium term.” Moving to the Regional Update, the World Bank noted that growth in East Asia was broad based for the second year in a row, exceeding 4 percent in every country, except Timor-Leste. The Pacific Islands, however, show a much weaker performance with only two out of ten countries growing above 4 percent. This impressive performance was in spite of rising oil prices – the highest in 25 years – rising interest rates, continued worries over the financing of the United States’ current account deficit and over the prospect of the spread of avian flu, reports the twice-yearly look at the economies of East Asia and Pacific. In the first half of 2005, high oil prices, slower growth in China, and slowing high-tech exports briefly reduced growth across the region. But from mid 2005 economies have rebounded, boosted by strong export growth to China, Japan and other regional economies as well as the United States. “East Asia’s exports surged to over $2 trillion last year, and this powered the region’s growth. Strong growth in turn is having a dramatic impact on poverty reduction” said Homi Kharas, Chief Economist for East Asia and the Pacific. “Although 580 million people in the region still live on less than $2 a day, this number has been falling by about 50 million people each year over the past five years.” On a more cautionary note, the report notes that investment in the region, which had rebounded in 2004, slowed in 2005, and capital flows in many countries reversed course last year, including short-term flows, which fell due to the narrowing of the interest-rate gap between Asia and the United States. Open economies East Asia has now surpassed Europe as the most open region in the world with exports almost doubling over the past three years, but this level of openness also exposes economies to some new challenges. Challenges like checking the potential spread of avian flu, particularly among humans, are bringing countries together, most recently in Beijing, to collaborate on steps to prepare, control, and prevent future outbreaks among poultry. “So far the impact of bird flu outbreaks has been isolated to the poultry sector and some farm households and has not spilled into the overall economy,” said Milan Brahmbhatt, lead economist and author of the report, “The key focus now is on national preparedness to appraise and implement integrated country programs.” The region’s economies have much to gain from a successful completion of the Doha round of trade talks, but increased trade also means some domestic challenges, including boosting efforts to innovate and build skills, improve the climate for investment, and better protect vulnerable segments of the society. “To take advantage of these new export opportunities, the region’s going to have a lot of job turnover,” Kharas said. “And most countries in the region don’t have unemployment insurance. New mechanisms to help people as they move from one job to another will be important.” Climate change The East Asia and Pacific region is already among the most vulnerable to natural disasters, whose intensity could be affected by climate change, the subject of the East Asia Update’s special focus section. While the region is still largely rural, most of the gross domestic product and large cities, are coastal and at risk from rising sea levels and weather-related disasters. Some Pacific Island nations could even disappear. Countries need to urgently take steps to strengthen their disaster preparedness and to climate proof construction and development. Rapid economic growth has also meant the fast growth of greenhouse gas emissions from the region. The report notes that countries will need to reduce emissions and adopt policies to promote greater energy efficiency and conservation. A variety of international schemes exist to encourage countries to act.
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