As countries in the East Asia and Pacific region prepare themselves for an expected surge in joblessness resulting from the global slowdown, a ray of hope may be emerging with signs of China's economy bottoming out by mid-2009, says the World Bank's latest half-yearly assessment of the region's economic health.

The latest East Asia and Pacific Update, titled Battling the Forces of Global Recession, says a recovery in China -- fueled largely by the country's huge economic stimulus package -- is likely to begin this year and take full hold in 2010, potentially contributing to the region's stabilization, and perhaps recovery. But with China still heavily reliant on exports to world markets that continue to contract, the update warns that a truly sustainable recovery in the East Asia and Pacific region ultimately depends on developments in the advanced economies.

In the face of much weaker exports and a slowing down in domestic demand, the World Bank is forecasting that real GDP growth in developing East Asia [1] will reach only 5.3 percent in 2009, down from 8 percent in 2008 and 11.4 percent in 2007. (Last month, in its China Quarterly Update, the bank downgraded its forecast for China's growth to 6.5 percent this year from 13 percent in 2007.)

The region's low income countries are expected to be among the worst affected by the slowdown and the limited room for government intervention to help those in need. Cambodia is likely to experience the strongest decline in growth because of declines in the garment and tourism sectors, while Lao, Mongolia, Papua New Guinea and Timor-Leste will be especially hard hit due to lower commodity prices.

On departing for the 13th ASEAN Finance Ministers' Meeting in, Pattaya, Thailand later this week, the World Bank's vice president for the East Asia and Pacific region, Jim Adams, applauded the region's governments for responding quickly to the financial crisis with multi-pronged policy efforts -- from fiscal stimulus packages to monetary policy interventions to social safety net programs.

"The measures the authorities have taken to counteract the crisis across the region are helping to cushion the impacts on the most vulnerable people," Adams said. "With unemployment likely to increase -- especially as jobs in manufacturing and construction disappear -- social protection efforts will have to expand to meet very real human needs."

Weaker growth is expected to slow the pace of poverty reduction in the region, with over 10 million more people likely to stay below the poverty line this year compared to estimates of a year ago, the update says. Cambodia, Malaysia, Thailand and Timor-Leste are projected to see absolute increases in poverty this year.

The report says the region is stepping-up efforts to support the region's poor and vulnerable people, especially in the middle-income countries. In late 2008, China provided a one-time cash transfer to 74 million people, including to millions of rural householders, and introduced tax cuts as well as a major health reform package to increase access to healthcare for the poor. Indonesia has reached out to 19 million poor households by reviving a targeted cash assistance program and the Philippines is boosting the number of poor people covered by its recently introduced conditional cash transfer program.

"There is no doubt that the East Asia and Pacific region is confronting very difficult times," said Vikram Nehru, the World Bank's chief economist for the region. "The countries that are able to tackle short-term challenges while staying focused on longer-term priorities will likely emerge better placed after the crisis to resume growth."

As the world economy slowly recovers, East Asian and Pacific countries can achieve high rates of growth if they boost their competitiveness, penetrate new markets and support their companies to innovate rather than imitate, Nehru said.

The World Bank is supporting East Asia and Pacific countries as they face the impacts of the financial crisis through increased financing and stepped-up policy advice on ways to protect the poor and vulnerable.

[1] Developing East Asia includes China, Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Lao PDR, Mongolia, Papua New Guinea and the island economies of the Pacific.

(China Development Gateway April 7, 2009)