Asian economic region is ‘underachieving its own potential,’ World Bank says

Asian economies are not performing as well as they could and growth in the region is expected to slow to 4.5% this year from 5.1% in 2023, the World Bank said in a report released on Monday.

Debt, trade barriers and policy uncertainty are undermining the region’s economic strength and governments need to do more to address long-standing problems such as weak social safety nets and underinvestment in education, the report says.

Asian economies are growing more slowly than before the pandemic, but faster than other parts of the world. And a recovery in global trade – trade in goods and services grew by just 0.2% in 2023 but is expected to grow by 2.3% this year – and easing economic pressures as central banks cut interest rates could help offset weak growth in China.

“This report shows that the region is doing well in the world, but it is only reaching its potential,” said Aaditya Mattoo, World Bank’s East Asia and Pacific economist.

“The leading companies in the region are not doing … what they should be doing,” he added.

The biggest risk is that the US Federal Reserve and other central banks could keep interest rates higher than before the pandemic. Another comes from about 3,000 trade-disrupting measures, such as higher prices or subsidies, which were introduced in 2023, the report said.

Many of these policies were implemented by major economies such as the US, China and India.

China’s ruling Communist Party has set a target of around 5% growth this year, down from 5.2% last year.

The World Bank predicts that growth will slow to 4.5%.

“China needs to make changes to sustain growth but willingness to introduce other drivers is difficult,” the report said.

Mattoo said Beijing still has a way to go to transform its economy away from relying on construction to drive business, and spending more alone will not solve the problem.

“China’s problem is choosing the right policies,” he said. “Fiscal stimulus cannot solve structural imbalances,” he said. What is needed is strong development and other programs that will help families spend more money, increasing demand that will encourage businesses to invest.

The region could be doing very well and doing very well and doing very well, Mattoo said.

Vietnam, for example, is attracting a lot of foreign investment as a favorite destination for foreign manufacturers, but its growth rate of about 5% is low.

“Being happy that Vietnam is growing at 5% shows a failure that we should not be happy about,” Mattoo said in an online briefing.

One of the biggest problems highlighted in the report is the decline in productivity, the report said. Asia’s leading companies are far behind the leaders of rich countries, especially in technology-related areas.

The report criticizes governments for imposing economic restrictions that prevent foreign companies from entering key sectors of the economy, the need for skills development and weak management. Opening up more competition and investing more in education would help, it said.

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