Manufacturing as a share of output has peaked in most East Asia and Pacific (EAP) economies and began to decline among early industrializers, but still-industrializing Vietnam and Cambodia were the exceptions to this trend, the World Bank said Friday.
In its April economic update released in Washington D.C., the bank noted EAP countries had experienced two decades of faster and less volatile growth compared to other economies until some 25 years ago.
But after the Asian financial crisis of 1997-1998, “the region saw only limited structural reforms and therefore little productivity-enhancing structural change,” the Washington D.C.-based lender said.
And despite being open to trade and investment in manufacturing, it remained “reluctant” to liberalize service sectors. As a result, productivity growth in many regional economies has been declining since the global financial crisis of 2008-2009.
“Limited growth in labor productivity had been driven more by capital deepening than total factor productivity growth,” the bank said. These trends in growth and productivity have coincided with a shift in the pattern of structural change."
In the decade between the Asian and global financial crises, “the share of manufacturing in GDP peaked and began to decline in the early industrializers” but “Cambodia and Vietnam were the exceptions to this trend.”
The bank’s April update revised downward its forecast for Vietnam at 6.3% this year, down from 6.7%. Cambodia’s GDP forecast for this year is unchanged at 5.2%.
Similarly, lower forecasts are also made for Indonesia (to 4.9% from 5.1%); 5.6% for the Philippines (down from 5.8 percent; 3.6% for Thailand (down from 4.1%). The prediction for Myanmar is 3% this year (no forecast was available in October).
The bank upwardly revised forecasts to 5.1% for China (from 4.5%), 3.9% for Laos (from 3.8%), and 4.3% for Malaysia (from 4.2%).
The global institution said it expected growth in the EAP region, which includes China, to pick up to 5.1%, up from its 3.5% growth last year, thanks to China's reopening and economic rebound, but high inflation and household debt will weigh on consumption in some countries.
"Most major economies of East Asia and the Pacific have come through the difficulties of the pandemic but must now navigate a changed global landscape," said the World Bank's vice president for the region, Manuela Ferro.
"To regain momentum, there is work left to do to boost innovation, and productivity, and to set the foundations for a greener recovery."
Economies of the region must also cope with three important challenges as policymakers act to sustain and accelerate economic growth in the aftermath of Covid-19. Rising tensions between major trading partners will affect trade, investment, and technology flows across the region. The rapid aging of the major economies of East and Southeast Asia heralds a new set of challenges and risks with implications for economic growth, fiscal balances, and health.
Finally, the bank said, the region is particularly exposed to climate risks, in part due to the high density of population and economic activity along its coasts.
Also Friday, Singapore’s United Overseas Bank (UOB) trimmed its 2023 GDP growth forecast for Vietnam down to 6%, compared with the 6.6% UOB put earlier this week. The updated 6% is lower than the World Bank’s 6.3%.
UOB said, “The revised projection assumes a rebound of GDP growth to 5.9% year-on-year in the second quarter of this year, and an average pace of 7.4% year-on-year in the second half of this year on the back of a recovery in global demand and strengthening of domestic services activities.”
Vietnam posted economic growth of 3.32% in the first quarter of 2023 compared to a year earlier, the General Statistics Office said Wednesday.
With last year’s 8.02% expansion, the highest in 12 years, Vietnam was one of Asia’s fastest-growing economies. However, the high growth rate in 2022 was partly derived from the low growth base in the pandemic years of 2020-2021, at 2.91% and 2.58% respectively.