Emerging East Asia grew at just over 6 percent in 2005 as the region's economies countered a series of threats, including rising oil prices and interest rates, the high-tech slowdown, and the end of preferential export quotas for garments, according to the World Bank's latest East Asia Update released Thursday.

Avian flu, which is endemic in the poultry flocks of many East Asian countries, is a growing concern, however, for regional economies as the disease spreads among birds and as health experts look for signs of human-to-human transmission.

The latest edition of the World Bank's twice-yearly economic survey of East Asia and the Pacific shows growth in the region moderating from 2004's exceptionally strong rate of 7.2 percent. Japan is showing signs a robust economic recovery, and China's GDP, which has continued to grow at more than 9 percent this year, is expected to slow only modestly next year to just under 9 percent.

"Economies in the region have adjusted well to some fairly serious shocks since the end of 2003, not least of which was the doubling of global oil prices," said Jamil Kassum, Vice President of East Asia and Pacific Region. Indonesia, for example, which cut fuel price subsidies, adopted bold measures to soften the impact on the poorest through a new cash transfer program and increased health, education and infrastructure spending.

"These adjustments, including Indonesia's move to cut fuel subsidies and offset effects on the poorest, may have slightly lessened the recovery in domestic consumption, but, in the longer-term, they are putting economies on much more solid footing," said Homi Kharas, Chief Economist of the East Asia and Pacific Region. Indonesia's move also shows the increasing importance for governments to take into account the social impacts of policy changes, particularly on the poorest members of society.

China's growth remains higher than expected. "The latest numbers suggest a pick-up in domestic demand, while trade's contribution to growth is coming down" Bert Hofman, Lead Economist China said. "This is good news for China's trade surpluses which are now likely to come down as a result of these demand developments. At the same time, China should watch the apparent pick-up in investment, and the recent rise in liquidity in the banking system, which may yet spill over in higher credit growth." The China Quarterly Update released together with the East Asia Update notes that measures to improve social safety nets, health and education could support the Government's strive for more balanced growth, but that in order to maintain growth such measures to promote consumption need to be flanked by structural reforms in the financial sector and corporate governance to improve the efficiency of investment.  The report warns that redistributive measures should avoid raising the tax burden to levels that could slow growth. The China Quarterly includes a special focus on China's health system. 

Poverty continues to fall in most parts of East Asia with the number of people living on less than US$2 a day falling by 37 million to just less than 32 percent in 2005, which is down from 50 percent in 1996.

Avian flu

On a more sobering note, the report notes that avian flu is now endemic in the poultry flocks of many countries in the region and indeed has spread to Europe and central Asia.  "While the costs of dealing with this have so far been limited to around 0.1 percent of GDP, from culling birds and implementation of better animal health surveillance systems, the potential impact of a serious pandemic is of grave concern," said Milan Brahmbhatt, a lead economist and main author of the report.

"Dealing with the influenza threat requires top political priority in an approach that brings together agriculture, animal health, human health, and finance, along with the best technical help from international agencies who are mobilizing to support country initiatives," Mr. Brahmbhatt added. Country representatives and international agencies, including The World Health Organization, the Food and Agriculture Organization, the World Organisation for Animal Health, and the World Bank, will be meeting in Geneva November 7 through 9 to strengthen global coordination and assess national plans, focusing on affected and at-risk countries.

Trade

Another positive development has been the way in which trade in garments has evolved, after the phase out of the Agreement on Textiles and Clothing in January, which offered preferential treatment for some exporters. Fears were that some of the poorest exporters in the region would lose out completely as China gained free access to major markets. But, in fact, poor countries like Cambodia and Lao PDR have been able to expand their market share of garment exports. The report, which includes a special focus section on trade ahead of the December World Trade Organization meeting in Hong Kong, also notes that East Asian economies have much to gain from liberalizing their services sector in addition to much-needed progress on the Doha Development Agenda.

(China.org.cn November 4, 2005)