After bottoming out last year, the emerging economies of East Asia are recouping their losses and setting out onto the fast growth track. But short-term growth does not necessarily indicate a prosperous future—the region still needs to rebalance its economies and precipitate a massive shift to green technologies and energy efficiency. The World Bank discussed this issue in the latest East Asia & Pacific Economic Update, a biannual assessment of economies in the region. Edited excerpts follow:
The developing countries of the East Asia and Pacific region—the first to recover from the global economic crisis—can grow rapidly in the next decade even in a weakened world, but only if they implement structural reforms with renewed vigor and cooperate on regional economic integration and climate change.
The region has emerged from the crisis with manageable deficits and relatively low public and external debt. But with uncertainties looming large, these developing countries will need to carefully manage the withdrawal of fiscal stimulus measures in the short term while returning to their structural reform agendas to promote long-term growth.
With the normalization of economic activities, the monetary authorities across the region have begun removing exceptional policy support. Measures have included allowing additional liquidity schemes to lapse and increasing required reserves. But it may be premature at this stage to withdraw fiscal stimulus in many countries, as private investment has yet to become the engine of growth and the poor are still suffering.
There are two common objectives that will help these countries navigate the realities of a new, slower-growing world.
First, the process of regional integration—driven by ASEAN's (Association of Southeast Asian Nations) commitments to creating a single economic area—will need to continue. Deeper integration will boost intra-industry trade within global and regional production networks, encourage agglomeration economies, reduce costs and increase international competitiveness.
Second, addressing climate change must be a high priority in the region. Mitigation measures must be strengthened to improve land and water use, bolster energy efficiency and conservation, and foster a much larger role for renewable sources of energy. Increased energy efficiency is not only good for energy security but is also environmentally sustainable and will help make rapidly growing cities more livable. Moreover, with investment rates in the region higher than in developed countries, there is the wherewithal for the region to move rapidly into the green technology frontier. Such a move will give the region a competitive advantage in a sector poised for rapid global growth.
The focus on structural reform means different things to different countries. For China, it means rebalancing the economy, including enabling a larger role for the service sector and private consumption and moving away from investment-heavy export-led growth as well as encouraging environmental sustainability.
For the region's middle-income countries—Viet Nam, the Philippines, Indonesia, Malaysia, Thailand—the priority is investment in physical and human capital to encourage a move up the value chain in production and exports. Low-income countries like Cambodia and Laos need to focus on breaking into the manufacturing sector and becoming part of global and regional production networks. Commodity exporters will need to strengthen fiscal rules and frameworks to translate volatile external revenues into long-term sustainable growth. And, last but not least, the Pacific islands will need deeper integration with their nearest large market.