According to a report by the World Bank, East Asia’s developing economies are facing their lowest growth rates in five decades due to factors such as US protectionism and rising levels of debt. The institution has revised its GDP growth forecast for East Asia and the Pacific for 2024 from 4.8% to 4.5%. This slow pace of growth is said to be the region’s slowest since the late 1960s, excluding major events like the coronavirus pandemic, the Asian financial crisis, and the global oil shock in the 1970s.
The World Bank report highlights several negative factors that are impacting the region’s economic outlook. Rising geopolitical tensions and the potential for natural disasters, including extreme weather events, pose additional risks. Additionally, softer global demand and increasing levels of household, corporate, and government debt are also dampening growth prospects.
One of the key contributors to the region’s economic slowdown is the implementation of new US industrial and trade policies, such as the Inflation Reduction Act and the Chips and Science Act in 2022. These policies were designed to boost US manufacturing and reduce American dependency on China. However, they have had a detrimental impact on southeast Asian countries, leading to a decline in their exports to the US.
The World Bank report specifically mentions a drop in electronics and machinery exports from China and southeast Asian countries like Indonesia, Vietnam, the Philippines, Malaysia, and Thailand since the implementation of these trade policies. Interestingly, US trade with countries exempt from these restrictions, such as Canada and Mexico, has not experienced the same decline.
Aaditya Mattoo, the World Bank’s chief economist for East Asia and the Pacific, comments on the situation, stating that the whole region, which initially benefited from US-China trade tensions in terms of trade diversion, is now suffering from trade diversion away from it.
In conclusion, East Asia’s developing economies are grappling with their slowest pace of growth in decades. Factors such as US protectionist trade policies, rising debt levels, geopolitical tensions, and potential natural disasters are contributing to this economic slowdown. The region’s export decline to the US, as a result of new trade policies, has further exacerbated the situation. These challenges highlight the need for countries in the region to find alternative avenues for growth and diversify their trade relationships to mitigate the impact of external factors.