WB says investment, raising productivity key to mitigating Asia-Pacific slowdown
INVESTMENT and initiatives to raise productivity could help mitigate slowing growth in the Asia-Pacific, the World Bank (WB) said.
“Potential gross domestic product growth in East Asia and the Pacific is projected to slow further to an average rate of 4.6% a year in 2022 to 2030, down from 6.2% a year in 2011 to 2021,” the World Bank said in a report, “Falling Long-Term Growth Prospects.”
“Prospects for the fundamental drivers of growth suggest that without policy reforms, the recent slowdown of potential growth in East Asia and the Pacific will accelerate and broaden in the remainder of this decade,” it added.
The Philippines is targeting growth of 6-7% this year, which is expected to pick up to 6.5-8% from 2024 to 2028.
In the World Bank’s latest Global Economic Prospects update, it projected Philippine growth to ease to 5.4% this year, slower than the 7.6% expansion recorded last year.
The World Bank attributed the projected slowdown in the region to the continued impact of the pandemic and the Russia-Ukraine war, “which are expected to be the most severe and longest-lasting in the countries that have suffered most from the collapse of global tourism and trade.”
In particular, the pandemic caused fixed capital investment in the region to decline.
“The subsequent recovery has been uneven across East Asia and Pacific countries and investment remains below pre-pandemic levels in many economies,” it said, noting that the slowest to recover in the region are Myanmar and several Pacific Island countries.
Geopolitical tensions may also continue to weaken investment in the region amid tighter financial conditions and heightened uncertainty.
“The pandemic disruptions of 2020-22 are expected to have lasting negative effects on economic growth across the region through their adverse impact on human capital and fixed capital formation,” it said.
Investment in the region rebounded in 2021 but remained below its pre-pandemic level, the bank said.
China is expected to experience the steepest decline in capital accumulation as tightening efforts to tame credit growth have recently resumed.
However, it noted that investment is expected to pick up in the Philippines “from depressed levels and boost potential output growth.”
It also cited the Philippines’ improved macroeconomic policy management and initiatives in boosting public-private partnership.
However, there are still “substantial” improvements needed in infrastructure in the Philippines, as well as Malaysia and Thailand.
“The Philippines ranks particularly low for transport and trade-related infrastructure. Although the Philippines rose two places in the World Economic Forum’s 2022 global infrastructure ranking to 57th place, this remains the country’s lowest-ranked competitiveness factor. By contrast, it ranks quite high on measures of health and education infrastructure and the quality of its seaports and airports,” it added.
The Philippines plans to spend 5-6% of gross domestic product on infrastructure until 2028.
The pandemic is also expected to continue to impact productivity and labor markets, the World Bank said.
“Weaker educational attainment, especially in countries that were the most heavily impacted by the shock (Cambodia, Myanmar, the Philippines, Thailand, and many Pacific Island economies), is expected to have a lasting effect on labor markets,” it said.
“Actual and potential output in the region was also negatively affected by pandemic-related school closures, lost working hours and job skills, and especially large declines in earnings of those working in the informal sector — a significant proportion of the workforce in some economies in the region,” it added.
Other challenges the region will face are slowing global growth and external demand; elevated and rising debt, tighter financing conditions; volatile commodity prices and uncertainty related to the outlook for supply chains, trade, technology transfer, and investment, according to the World Bank.
“These negative developments are exacerbating the ongoing structural trends and are further depressing regional investment and potential growth,” it added.
The World Bank said that the region must use policies and reforms to lift potential growth, particularly in boosting productivity and enabling a better environment for investments.
“In a scenario in which the largest 10-year improvements in investment growth, educational outcomes, life expectancy, and female labor force participation during 2000-21 are assumed to be repeated in each country in East Asia and Pacific, it is estimated that potential growth could be raised by 0.8 percentage point a year by the end of this decade,” it said. — Luisa Maria Jacinta C. Jocson