Braving the Storms - Public Documents | The World Bank

Braving the Storms

EAP Economic Update, April 2022

World Bank

Agenda

• Recent developments

• Opportunities

• Policy

East Asia and Pacific Economic Update, April 2022

https://www.worldbank.org/en/publication/east-asia-and-pacific-economic-update

GDP relative to pre-pandemic

Recovery resumed in 2021 Q4 …

Source: Haver Analytics, World Bank.

Note: The figures show seasonally adjusted real

GDP indexed to 2019Q4

85

90

95

100

105

110

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2019 2020 2021

INDEX: 2019Q4 =100

China

EAP excl. China

Delta



Change in GDP relative to pre-pandemic

Source: Haver Analytics, World Bank.

Note: Latest value is 2021 compared to 2019.

…but was uneven across countries

-25

-20

-15

-10

-5

0

5

10

15

Ch

ina

Vie

tna

mT

uva

luL

ao

PD

RN

au

ruIn

do

ne

sia

To

ng

aM

ala

ysia

Ca

mb

odia

Kirib

ati

Ph

ilip

pin

es

PN

GT

ha

ilan

dM

on

go

liaS

olo

mo

n I

sla

nd

sM

ars

ha

ll Is

lan

ds

FS

MV

an

ua

tuT

imo

r-L

este

Sa

mo

aM

ya

nm

ar

Fiji

Pa

lau

Percent



Three international developments are shaping external conditions for the EAP countries

China• Structural slowdown• Financial stress• COVID-19 shock

External economic conditions

United States• Cyclical slowdown• Inflation • Financial tightening

Financial shocks depend on country’s financial exposure

and resilience

EAP country economic

performance

Real shocks depend on country’s trade exposure

and resilience

Russia-Ukraine• Food and fuel disruptions• Financial volatility• Reduced confidence

Source: World Bank staff illustration East Asia and Pacific Economic Update, April 2022


Channel 1: The fuel and food price spikes will hurt those dependent on commodity imports

Net exports of mineral fuels Net exports of rice, corn & wheat, and fertilizers

Sources: UN Comtrade, World Bank.

Notes: Net export of selected commodities

as a share of GDP, average 2015-19.

-30

-20

-10

0

10

20

PN

G

Mo

ng

olia

Ma

laysia

Mya

nm

ar

Tim

or-

Le

ste

Ind

on

esia

Ch

ina

Vie

tna

mP

hili

ppin

es

Tha

ilan

dL

ao

PD

RC

am

bo

dia

So

lom

on

Isl.

Va

nu

atu

Sa

mo

a

Pa

lau

Fiji

To

ng

a

Kirib

ati

FS

M

Tu

va

lu

Na

uru

East Asia Island economies

Oil

Petroleum gases

Coal

Percent of GDP

-3

-2

-1

0

1

2

Th

aila

nd

Ca

mb

odia

La

o P

DR

Mya

nm

ar

Ch

ina

Vie

tna

mIn

do

ne

sia

Ma

laysia

Mo

ngo

liaP

hili

pp

ine

s

PN

GT

imo

r-L

este

Na

uru

To

ng

a

Pa

lau

Sa

mo

a

Va

nu

atu

Tu

va

lu

FS

M Fiji

So

lom

on

Isl.

Kirib

ati

East Asia Island economies

Rice

Corn and wheat

Fertilizers

Percent of GDP



Channel 2: The global growth slowdown will affect those dependent on foreign demand

Relative importance of ultimate destination for the value added produced in EAP countries

Source: OECD Trade in Value Added

database.

Note: The chart plots the share of EAP

countries’ total value added absorbed in

major economies in 2018.

China

United States

European Union

Japan

Others

0

10

20

30

40

50

60

Vie

tnam

Cam

bod

ia

Thaila

nd

Mala

ysia

La

o P

DR

Mya

nm

ar

Phili

ppin

es

Indone

sia

Percent of GDP



Channel 3: Financial tightening will affect those with large current account deficits and external debt

-10

0

10

20

30

40

50

Mo

ng

olia

Ca

mb

od

ia

Ma

laysia

So

lom

on

Isl.

La

o P

DR

Fiji

Th

aila

nd

Ind

on

esia

Ph

ilip

pin

es

Ch

ina

Vie

tna

m

Mya

nm

ar

EM

DE

Percent of GDP

Short-term debt

Debt service

Current account deficit

External financing needs

Source. International Monetary Fund. World

Development Indicators. World Bank. Fitch Solutions

Note: The figure shows decomposition of external

financing needs in 2022 estimates. EMDE shows the

unweighted average of EMDEs.East Asia and Pacific Economic Update, April 2022


-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

Mo

ne

tary

Re

al e

sta

te

CO

VID

-19

sh

ock

En

erg

y (

imp

ort

ers

)

En

erg

y (

exp

ort

ers

)

Cro

ps(im

po

rte

rs)

Cro

ps(e

xp

ort

ers

)

Fin

an

cia

l

UnitedStates

China War in Ukraine G7

Percentage points

The potential impact on EAP countries’ real income of selected international scenarios

Source: World Bank Staff estimates East Asia and Pacific Economic Update, April 2022


Hence, downgrades in growth projections for 2022

Source: World Bank staff projections.

Notes: Percent growth of GDP at market prices.

0

1

2

3

4

5

6

7

Vie

tna

m

Mala

ysia

Phili

ppin

es

Chin

a

Indon

esia

Mon

golia

Lao P

DR

Cam

bod

ia

PN

G

Thaila

nd

Isla

nd

coun

trie

s

Previous forecast

Baseline

Low case

Percent

0

1

2

3

4

5

6

7

Vie

tna

m

Mala

ysia

Phili

ppin

es

Chin

a

Indon

esia

Mon

golia

Lao P

DR

Cam

bod

ia

PN

G

Thaila

nd

Isla

nd

coun

trie

s

Previous forecast

Baseline

Low case

Percent

0

1

2

3

4

5

6

7

Vie

tna

m

Mala

ysia

Phili

ppin

es

Chin

a

Indon

esia

Mon

golia

Lao P

DR

Cam

bod

ia

PN

G

Thaila

nd

Isla

nd

coun

trie

s

Previous forecast

Baseline

Low case

Percent



Opportunities



Some evidence already of value chain shifts from China to EAP countries

China’s share in EAP

intermediate imports

China’s share in US final

goods imports

12Source: Author’s calculations based on customs trade data from China, European Union, Japan and the U.S.

33.1

24.2

52.5

68.2

10.0

15.3

0

2

4

6

8

10

12

14

16

18

20

10

20

30

40

50

60

702018m

1

201

8m

3

201

8m

5

201

8m

7

201

8m

9

201

8m

11

201

9m

1

201

9m

3

201

9m

5

201

9m

7

201

9m

9

201

9m

11

202

0m

1

202

0m

3

202

0m

5

202

0m

7

202

0m

9

202

0m

11

202

1m

1

202

1m

3

202

1m

5

202

1m

7

per

cen

t

perc

ent

Trade tensions

33.1

24.2

52.5

68.2

10.0

15.3

0

2

4

6

8

10

12

14

16

18

20

10

20

30

40

50

60

702018m

1

201

8m

3

201

8m

5

201

8m

7

201

8m

9

201

8m

11

201

9m

1

201

9m

3

201

9m

5

201

9m

7

201

9m

9

201

9m

11

202

0m

1

202

0m

3

202

0m

5

202

0m

7

202

0m

9

202

0m

11

202

1m

1

202

1m

3

202

1m

5

202

1m

7

per

cen

t

perc

ent

Trade tensions

33.1

24.2

52.5

68.2

10.0

15.3

0

2

4

6

8

10

12

14

16

18

20

10

20

30

40

50

60

702018m

1

2018m

3

2018m

5

2018m

7

2018m

9

2018m

11

2019m

1

2019m

3

2019m

5

2019m

7

2019m

9

2019m

11

2020m

1

2020m

3

2020m

5

2020m

7

2020m

9

2020m

11

2021m

1

2021m

3

2021m

5

2021m

7

perc

ent

perc

ent

Trade tensions COVID-19

China’s share in US final

goods imports

EAP’s share in US final

goods imports (RHS)

China’s share in EAP

intermediate imports



Gains in trade share were unevenly spread across EAP countries

Share in US final goods imports

0

2

4

6

8

10

12

14

16

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

2017 2018 2019 2020 2021

US-ChinaTrade tensions

COVID-19 AlphaCOVID-19 Delta

Percent

Vietnam

MalaysiaCambodiaThailandPhilippines

Indonesia

Source: China, EU, Japan and US customs trade data

and World Bank staff estimations.

Note: A. The figure shows the share in US final goods

imports.East Asia and Pacific Economic Update, April 2022


COVID has accelerated technology adoption

Notes: Event study plot where the x axis shows event time in weeks – relative to the first COVID cases. COVID cases taken from Oxford Covid-19 Government Response Tracker. Unweighted averages Includes country fixed effects and standard errors are clustered at country-level. Bars reflect 95% confidence intervals. Coefficients are normalized relative to the omitted category at week t-1, the week before the first COVID cases.

E-commerce Data analytics

-1

0

1

2

3

-8 -4 0 4 8 12 16 20 24

Event weeks

Percent of firms

-1

0

1

2

3

-8 -4 0 4 8 12 16 20 24

Event weeks

Percent of firms

Weeks since first COVID cases Weeks since first COVID cases



Policy



Firms: Shrinking sales

Sales Employment

-25

-20

-15

-10

-5

0

Micro Small Medium Large

Perc

ent

-60

-50

-40

-30

-20

-10

0

Micro Small Medium Large

Perc

ent

and employment

Source: World Banks Business Pulse Surveys,

2020-21 East Asia and Pacific Economic Update, April 2022


Households: Shrinking incomes

Food insecurity

93

95

91

85

90

95

100

105

2019 2020 2021

Industry Agriculture Services

Index: 2019 =100

Real earnings (Indonesia)

Source: World Bank staff estimates; World

Bank High-frequency Household Phone

Surveys 2020-21.

and rising prices

0

10

20

30

40

50

Q1 Q2 Q3 Q4 Q5

Perc

en

t of hou

se

ho

lds

Wealth quintilePoorest households Richest households



1.Fiscal policy space is shrinking because of increasing debt,

Public and private investment

contribution to investment growth

General government debt

Source: Fitch Solutions, IMF Investment and Capital Stock Database 2021, Government

Financial Statistics, International Monetary Fund, Haver Analytics.World Bank

Notes: B. Shows decomposition of real investment growth. 2015-19 and 2020-21 refers to

average during each respective period. Decomposition of investment growth for 2020-21

represents team’s assessment for Cambodia, China, Indonesia, Philippines, and Vietnam.

impeding the revival of public investment

-12-9-6-30369

1215

20

15-1

9

20

20-2

1

20

15-1

9

20

20-2

1

20

15-1

9

20

20-2

1

20

15-1

9

20

20-2

1

20

15-1

9

20

20-2

1

20

15-1

9

20

20-2

1

20

15-1

9

20

20-2

1

Philippines Vietnam China Cambodia Indonesia MalaysiaThailand

Public PrivatePercent



-4

-3

-2

-1

0

Universal BasicIncome

TargetingHouseholds w/

Children Under 6Geographical

Targeting Proxy Means Test

Poverty Gap Poverty Rate

Percent

Government assistance has not been selective;

Simulated poverty impacts of cash transfers using different

targeting approaches, given a fixed budget

Source: World Bank EAP Economic Update April 2022, International Monetary Fund,

Haver Analytics, Fitch Solutions, World Bank, national sources.

Note: A. Simulations illustrate the poverty impacts of better targeting social assistance

resources in a large middle-income country. B. shows latest quarterly data in 2021

Share of households receiving government

assistance during the pandemic

targeted fiscal assistance could have a bigger impact



2. Monetary policy needs to strike a fine balance between external pressures and domestic needs

Real interest rate differential with the US (Jan. 2022) Inflation (Feb. 2022 or latest)

-3

0

3

6

9

12

Ch

ina

Ind

on

esia

Vie

tna

m

Mala

ysia

Ph

ilip

pin

es

Th

aila

nd

Mon

go

lia

Percent

Source: Haver Analytics

Note: The real interest rate denotes nominal

policy rate minus CPI inflation at the end of

January 2022.

0

1

2

3

4

5

6

Vietnam China Indonesia Malaysia Philippines Thailand

CPI Core CPI Inflation targetPercent

0

1

2

3

4

5

6

Vietnam China Indonesia Malaysia Philippines Thailand

CPI Core CPI Inflation targetPercent



Financial sector risks need to be identified and addressed

Solvency (Deposit to loan ratio) Liquidity (Liquid assets to short term liabilities)

0

20

40

60

80

100

120

140

160

EMDE medianPercent

0

20

40

60

80

100

120

140

160

EMDE medianPercent

Source: International Monetary Fund, Fitch

Solutions, World Bank, national sources.

Notes: Refers to 2021 data. East Asia and Pacific Economic Update, April 2022


3. Eliminating non-tariff barriers to trade could open new trade opportunities

22

Digital services trade restrictiveness index (2021)

0

0.1

0.2

0.3

0.4

0.5

0.6

Ch

ina

Lao

PD

R

Ca

mb

odia

Indo

ne

sia

Th

aila

nd

Kore

a,

Re

p.

Mala

ysia

Van

ua

tu

Jap

an

OE

CD

ave

rag

e

Index

0

10

20

30

40

50

60

70

80

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cambodia Indonesia Malaysia

Singapore Thailand Vietnam

Percent

Share of import value subject to new import restrictions

Source: Global Trade Alert; World Integrated Trade

Solution (WITS) database, OECD. East Asia and Pacific Economic Update, April 2022


Difficulty hiring adequately skilled workers –

across a range of skills (Malaysia)

Inadequate workforce skills

4. Strengthening human capital and infrastructure would boost technology diffusion

0 20 40 60 80 100

Work ethic and commitment

Interpersonal andcommunication skills

Computer orgeneral IT skills

Technical (other than IT),vocational, or job-specific skills

Writing skills

Managerial and leadership skills

Foreign language skills

Percent

Access to broadband

Source: World Bank Enterprise Survey, 2015; Ookla fixed broadband speed test data for Q4 2020.

Note: Left panel shows the share of firms cited difficulty by skill, based on. IT = Information

technologies. Right: Colors reflect the average reported speeds within each 25 kilometers cell, subject

to a minimum number of 100 tests per cell. Gray areas reflect either lack of broadband availability or

an insufficient number of reported tests. East Asia and Pacific Economic Update, April 2022


Braving the Storms - Public Documents | The World Bank

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