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

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
market, strong construction activity and vigorous
public sector infrastructure works. Gambling, which
attracted 28 million visitors in 2011 and accounts
for more than 40% of GDP, is one of the factors
behind the rapidly growing economy of Macao, China.
GDP growth was still strong at 9% in 2012 but
much lower than 20% in 2011. There are concerns,
however, that this aspect has made the economy
excessively vulnerable to external shocks and that
more efforts are required to diversify the domestic
economy and improve social services.
Growth slows in China
but still among the highest
in the region
The Democratic People’s Republic of Korea does
not release official economic data. However, available
information suggests that the country’s economy
has contracted during 4 of the last 6 years, and
some 16 million of the country’s 24 million people
suffer from chronic food insecurity and malnutrition
(United Nations, 2012b).
In Japan, following a contraction of the economy by
0.6% in 2011, GDP increased by 2% in 2012 as
growth picked up strongly in the first quarter, driven
by government reconstruction expenditures related
to the earthquake and tsunami of March 2011,
and the export sector’s recovery from the effects
of severe flooding in Thailand in late 2011. Japan,
however, then entered into a technical recession of
two consecutive quarters of contraction, underscoring
the difficulties facing the economy as a result of
weak exports and softening domestic demand.
Capital spending decelerated and net exports made
a negative contribution to growth in the second
half, when Sino-Japanese tensions also took a toll
via different channels, including declines in export
volume, in the sales of China-based subsidiaries of
Japanese firms and in the number of tourists from
China visiting Japan.
Mongolia is a commodity-based economy and strong
mining activities helped the country to achieve
double-digit growth at 12.3% in 2012, which was
lower than the rate of 17.3% in 2011. Thanks to
development of the mining sector financed by foreign
direct investment (FDI), living standards have been
improving and poverty declining significantly in the
country. Moreover, the economy’s prospects are
promising as copper and coal production are set
to expand considerably over the next few years.
However, uncertainty regarding the “rules of the
game” is halting some major FDI projects.
In the Republic of Korea, GDP growth slowedto
2% in 2012 from 3.6% in the previous year.
A weaker global economic environment and
gloomier consumer sentiment served to offset
investment in the information technology sector
and the frontloading of the budget to slow GDP
growth in the Republic of Korea. The pickup at
the beginning of the year proved to be shortlived,
with domestic consumption, exports and
fixed investment weakening sharply since the
second quarter of 2012. Economic activity was
basically flat in the third and fourth quarters,
despite the one-off momentum provided by such
special circumstances as the release of new
telecommunications equipment.
Inflation slows but volatile food and fuel
prices continue to affect households
Inflation slowed in all economies of the subregion
in 2012, except in Mongolia (see figure 2.1). On the
other hand, consumer prices became more stable in
Japan. Inflation, which was a major policy concern
in China and the Republic of Korea over 2011, has
been on a declining trend. Slowing growth, stable
commodity prices and cooling property markets
combined to drive inflation within reach of policy
objectives. In China, consumer price inflation fell
to an average of 2.7% in 2012, down from the
previous year’s inflation rate of 5.4%. In the Republic
of Korea, growth in consumer prices dropped to
1.2% in August – a 12-year low – before rising
slightly to 1.5% in December, remaining below the
bottom of policymakers’ 2-4% target range. For
the year as a whole, inflation fell to 2.2% in 2012
from 4% in 2011.
73