Asia and Pacific

Managing Spillovers and Advancing Economic Rebalancing

April 2012

Executive Summary also available in Korean, Laotian, Thai, and Vietnamese

Regional Economic Outlook: Asia and Pacific

Barring the realization of downside risks to the global economy, growth in the Asia and the Pacific region is expected to gain momentum over the course of 2012, according to this report, and now projected at 6 percent in 2012, rising to about 6½ percent in 2013. Stronger economic and policy fundamentals have helped buffer the region's economies against the global financial crisis, by limiting adverse financial market spillovers and ameliorating the impact of deleveraging by European banks, but a sharp fall in exports to advanced economies and a reversal of foreign capital flows would have a severe impact on the region. The region's policymakers now face the difficult task of calibrating the amount of insurance needed to support stable, noninflationary growth. Some Asian and Pacific economies can afford to lengthen the pause in the normalization of their macroeconomic policies that was initiated when the global recovery stalled late in 2011; others may need a faster return to more neutral policy stances. Similarly, the pace of fiscal consolidation should be calibrated to country-specific circumstances. Additional chapters in the report discuss whether China is rebalancing and the particular challenges facing Asian low-income and small island economies.

Executive Summary
I. Ensuring Stable Growth: Risks and Challenges
  A. Signs of Stabilization during Global Uncertainty
  B. A Turnaround in 2012 and a Stronger 2013
  C. What Are the Main Risks to the Outlook?
  D. The Policy Challenge: How Much Insurance Is Still Needed?
  E. Laying the Foundations for Sustainable Growth
II. The Evolution of Asian Financial Linkages: Key Determinants and the Role of Policy
  A. How Sensitive Are Asian Financial Markets to Market Movements in Systemic Economies?
  B. Can Macroeconomic Policies Reduce Financial Sensitivities in Asia?
III. The Likely Effect on Asia of a Sharp Deleveraging by European Banks
  A. The Role of European Banks in Asia
  B. What Happened during the Lehman Crisis?
  C. What Are the Implications of a Future Shock?
IV. Is China Rebalancing? Implications for Asia
  A. Is China Rebalancing?
  B. What Are the Implications for Asia?
  C. Conclusion
V. Asian Low-Income and Pacific Island Countries: Opportunities and Risks from Increased Regional Integration
  A. Regional LICs Receive More Investment from within Asia
  B. Pacific Island Countries: Links to Regional Economies Already Matter More