POTENTIAL output growth in East Asia and Pacific (EAP), which includes the Philippines, is projected to slow to 4.6 percent a year on average from 2022 to 2030, from 6.2 percent a year in 2011 to 2021, according to a World Bank report.
The WB report, released on Monday, stressed that EAP faces “several major challenges” to inclusive and sustainable growth.
These challenges, the report noted, include the “slowing global growth and external demand, elevated and rising debt, exacerbated by tighter financing conditions, highly volatile commodity prices and uncertainty related to the outlook for supply chains, trade, technology transfer, and investment amid the war in Ukraine and lingering geopolitical tensions.”
These developments which the report described as “negative,” are “exacerbating” the ongoing structural trends. The report noted that these tensions are “depressing” regional investment and potential growth.
“Potential GDP growth in EAP is projected to slow further to an average rate of 4.6 percent a year in 2022-30, down from 6.2 percent a year in 2011-21,” the report said.
While China accounts for much of the projected slowdown, the World Bank said the slowing potential growth is expected to spread to the rest of the region as well.
This projected slowdown in the region, the report noted, can be pointed to the pandemic and the war in Ukraine, 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.”
Meanwhile, weaker capital accumulation will drive the worsening outlook followed by falling (total factor productivity) TFP growth and labor supply growth.
According to the report, “Capital accumulation is projected to slow most steeply in China,” where policy efforts to rein in credit growth have recently resumed.
In contrast, in the Philippines, “investment is expected to pick up from depressed levels and boost potential output growth,” the report said.
Still, the report noted that regionally, “heightened geopolitical tensions may weaken investment through higher interest rates, reduced business confidence, and heightened uncertainty.”
Moving forward, the WB report also stressed that TFP growth in the region is expected to be “dampened further” by maturing electronics technologies and the slowing expansion of global value chains.
In addition, it said geopolitical tensions may also “weaken gains from increasing international division of labor and diffusion of technology.”
The report recommended that the EAP region promote further urbanization, a “major contributor to the region’s rapid growth of potential output in past decades.”
Such process, the report explained, is the reallocation of labor and other resources from agriculture to “higher-productivity sectors.”
“With a large share of the EAP workforce still engaged in agriculture, there is still scope for substantial productivity gains from resource reallocation, particularly in Cambodia, Indonesia, the Philippines, Timor-Leste, Thailand, and Vietnam,” the report noted.
To promote further urbanization, the WB report listed possible measures for adoption, including “investing in infrastructure and social services, making land more accessible on a fair and transparent basis, encouraging facilities that support recent migrants, and coordinating urban services across municipal boundaries.”
In terms of increasing productivity in agriculture, WB said countries in EAP should adopt “renewed efforts” to remove barriers that prevent a reallocation of productive resources across farms.
“Sustaining growth in agricultural productivity requires the adaptation of a steady stream of new farm practices and technologies by farmers, more efficient management of inputs, adoption of new crops and production systems, improvements to the quality of their products, and conservation of natural resources,” the report also noted.