The developing countries of the East Asia & Pacific region -- the first to recover from the global economic crisis -- can grow rapidly in the next decade even in a weakened world, but only if they implement structural reforms with renewed vigor and cooperate further on regional economic integration and climate change.

That is the message of the latest East Asia & Pacific Economic Update -- the World Bank's twice yearly assessment of the economies of the region.

Recovery in demand abroad, a sustained fiscal and monetary stimulus within developing East Asia, and a rapid rebound in consumer spending prompted the Bank to raise its projection for the region's real GDP growth in 2010 to 8.7 percent, almost a percentage point above its November 2009 forecast. The region has emerged from the crisis with manageable deficits and relatively low public and external debt, and social protection mechanisms have protected the poor from the worst effects of the slowdown.

While upbeat about the pace of East Asia's recovery, strongly influenced by China, the Update is clear that the region is facing a very different global economy over the medium term.

"The 'new normal' will be characterized by slower growth in developed countries, tighter global financial conditions, rising concerns about developed countries' debt levels, and a more difficult environment for global trade," said Vikram Nehru, World Bank chief economist for the East Asia Pacific region. "In that setting, the developing countries of East Asia will need to carefully manage the withdrawal of fiscal stimulus measures in the short term while returning to their structural reform agendas to promote growth in the long term."

The focus on structural reform means different things to different countries, the report says. For China, it means rebalancing the economy, including enabling a larger role for the service sector and private consumption and moving away from investment-heavy export-led growth as well as encouraging environmental sustainability.

For the region's middle income countries -- Vietnam, the Philippines, Indonesia, Malaysia, Thailand -- the priority is investment in physical and human capital to encourage the move up the value chain in production and exports. Low-income countries like Cambodia and Lao PDR, need to focus on breaking into manufacturing and becoming part of global and regional production networks. For commodity exporters, it will mean implementing sound fiscal rules to ensure macroeconomic stability and sustainable long-term growth while for small Pacific Island countries, greater integration with each other and with neighboring markets remains the key.

Region-wide the Update points to two common objectives that will help EAP countries navigate the realities of a new, slower-growing world: deeper regional economic integration and a massive shift to green technologies and energy efficiency.

"The regional market for goods and services will increasingly provide opportunities for expansion," said lead economist and principal author of the Update, Ivailo Izvorski. "Deeper integration will boost intra-industry trade within global and regional production networks, encourage agglomeration economies, reduce costs and increase international competitiveness."

Addressing the twin challenges of climate change and energy security will also help make the region’s rapidly growing cities more livable.

"The region has enormous scope to move rapidly towards the green technology frontier," Izvorski said. "This will not only improve the livability and sustainability of East Asia's ever growing cities, it will also give the region a competitive advantage in an industry poised for rapid global growth."

(China Development Gateway April 7, 2010)