Full Report - Subregional Office for East and North-East Asia - escap

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
in 2012, with Fiji and Papua New Guinea recording
declines in inflation. Budgetary deficits were generally
not very high in 2012 despite some increases in
the larger economies. With regard to the external
sector, these economies face high and rising current
account deficits, reflecting largely poor performance
of their merchandise exports rather than high levels
of imports. Some of these economies are highly
dependent on the remittances of overseas workers,
which slowed due to the weakening global economic
environment.
Australia and New Zealand, the two developed
economies in the subregion, suffered from natural
disasters: Australia, from floods and New Zealand,
from earthquakes. Both economies are recovering
from these natural disasters. Reconstruction activities
contributed to improved growth performance of these
economies in 2012, and at the same time inflation
rates fell. The strong Australian dollar is weighing on
the prospects for the Australian economy; however,
the overall performance of the country in 2013 will
depend on the mining sector’s continued boom.
The South and South-West Asian subregion
comprises Afghanistan, Bangladesh, Bhutan, India,
the Islamic Republic of Iran, Maldives, Nepal,
Pakistan, Sri Lanka and Turkey. The global
slowdown is having adverse impacts on exports
and consequently on economic growth in most
economies of the subregion. Moreover, there has
been slower growth as well in domestic demand,
particularly investment. A moderate pickup in growth
is expected in 2013. Inflation is remaining stubbornly
high despite the slowing of economies and is a matter
of serious concern, especially for a large number
of people living in poverty in these countries. Large
fiscal deficits are rising further in some countries.
On the external side, current account deficits are
rising and contributing to depreciation of domestic
currencies. Large remittances from overseas workers
continue to grow in some of these countries. The
global financial and economic crises have highlighted
policy lessons in terms of rebalancing economies
in favour of greater domestic and regional demand,
and for a cautious approach to financial liberalization.
Other policy priorities include pursuing reforms to
regain policy space to increase social expenditure and
close infrastructure gaps. Finally, South and South-
West Asia, which is home to the highest number
of poor and malnourished people compared with all
other subregions combined, needs to maximize its
growth potential and increase productive employment
opportunities by reviving industries and expanding
rural non-farm activities, thereby further reducing
poverty and hunger.
The South-East Asian subregion covers Brunei
Darussalam, Cambodia, Indonesia, the Lao People’s
Democratic Republic, Malaysia, Myanmar, the
Philippines, Singapore, Thailand, Timor-Leste and
Viet Nam. The subregion as a whole achieved
higher levels of economic growth in 2012 than in
2011, despite weakening external demand. Private
consumption was strong and supported by policy
measures, such as minimum wage increases,
while investment benefited from increased public
infrastructure outlays. A strong rebound was also
seen in Thailand following the floods of 2011.
With inflation largely stable across the subregion,
monetary policy was accommodative and credit
growth high, but macroprudential measures were
used to reign in potential asset bubbles. While
exports showed further signs of weakness in the
second half of the year, foreign direct investment
and remittance inflows were largely unaffected. Net
portfolio inflows remained volatile but in a number
of countries, including Malaysia, the Philippines and
Thailand, those inflows trended upward. The nearterm
economic outlook is favourable despite strong
headwinds. Productive jobs, social protection and
clean energy are among the key challenges for
achieving inclusive and sustainable growth.
EAST AND NORTH-EAST ASIA
Growth slows as the global economy
weakens again
Most of the economies in the East and North-East
Asian subregion performed broadly well in the first
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