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South Asia’s Growth Resilience Faces Structural Challenges

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South Asia’s Growth Resilience Faces Structural Challenges

South Asia is poised for robust growth in 2024, with a projected GDP growth of 6.0%, primarily driven by India’s strong performance and recoveries in Pakistan and Sri Lanka. However, despite this positive outlook, persistent structural challenges threaten to impede sustained growth and hinder the region’s ability to create jobs and respond to climate shocks, as highlighted in the World Bank’s latest South Asia Development Update.

While South Asia is expected to maintain its status as the fastest-growing region globally for the next two years, the report warns that the current growth trajectory is deceptive. Most countries are still below pre-pandemic growth levels, relying heavily on public spending to fuel economic expansion. Private investment growth has notably slowed across all South Asian nations, exacerbating the challenge of job creation amidst a rapidly expanding working-age population.

Read also: Navigating Economic Dynamics: East Asia and Pacific Region’s Growth Prospects

Martin Raiser, World Bank Vice President for South Asia, cautions that fiscal vulnerabilities and escalating climate shocks loom as potential threats to the region’s growth trajectory. To fortify resilience, he emphasizes the necessity of implementing policies to stimulate private investment and foster employment growth.

South Asia’s demographic dividend presents both opportunities and challenges. Despite a surge in the working-age population, employment growth has lagged behind, resulting in a declining employment ratio compared to other emerging market regions. Franziska Ohnsorge, World Bank Chief Economist for South Asia, emphasizes that fully harnessing this demographic dividend is imperative for the region’s economic advancement, with the potential for output to increase significantly if employment levels mirror those of comparable economies.

The report underscores the urgency of addressing weak employment trends, particularly in non-agricultural sectors, through policy interventions aimed at enhancing firm growth and facilitating job creation. Recommendations include measures to enhance trade openness, improve access to finance, strengthen business climates, and promote women’s economic participation, which collectively can boost growth, productivity, and resilience.

In addition to providing a comprehensive overview of South Asia’s economic landscape, the report offers country-specific outlooks. Bangladesh faces challenges posed by high inflation and trade restrictions, while Bhutan anticipates growth supported by electricity production and tourism. India’s economy is expected to maintain robust growth, while Maldives adjusts to shifting tourism dynamics. Nepal foresees growth driven by hydropower exports, and Pakistan anticipates economic recovery as business confidence improves. Sri Lanka expects modest growth supported by improvements in reserves, remittances, and tourism.

In conclusion, while South Asia’s growth prospects are promising, addressing structural challenges is essential to ensuring inclusive and sustainable development in the region.

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Navigating Economic Dynamics: East Asia and Pacific Region’s Growth Prospects

The World Bank’s recent semi-annual economic outlook sheds light on the trajectory of the East Asia and Pacific region, revealing a landscape marked by resilience amidst global challenges. Despite outpacing global growth rates, the region faces a nuanced scenario, with factors such as recovering trade and financial conditions juxtaposed against rising protectionism and policy uncertainties.

According to the World Bank’s April 2024 Economic Update for East Asia and Pacific, regional growth is projected to moderate to 4.5% in 2024, down from 5.1% in the previous year. Within the region, developing economies are anticipated to witness a slight uptick in growth to 4.6%, while China’s growth is expected to decelerate to 4.5% amid various internal and external challenges. Pacific Island countries, on the other hand, are forecasted to experience a slowdown to 3.6%, reflecting a normalization of growth post-pandemic.

Manuela V. Ferro, Vice-President of the World Bank for East Asia and Pacific, underscores the region’s pivotal role in global economic dynamics despite facing multifaceted challenges, including demographic shifts and climate change impacts. To sustain growth momentum, she emphasizes the importance of fostering private sector investment, addressing financial sector issues, and enhancing productivity.

However, the outlook is not without risks, with potential downsides including a global economic slowdown, prolonged high interest rates in major economies, policy uncertainties, and geopolitical tensions.

A special focus of the report delves into the productivity gap among leading firms in the region, particularly evident in digital-intensive sectors. This lag raises concerns across the business spectrum, with impediments such as competition constraints, skill disparities among workers, and management inefficiencies identified as contributing factors. To address this, the report advocates for greater competition, improved infrastructure, and education reform to enhance human capital.

Aaditya Mattoo, Chief Economist for East Asia and Pacific at the World Bank, emphasizes the need for bold policy actions to unlock the region’s economic potential. While past growth has been driven by investment, Mattoo highlights the imperative of shifting towards productivity-led growth through measures such as competition enhancement, infrastructure development, and educational reforms.

In conclusion, the East Asia and Pacific region stands at a critical juncture, navigating through a complex economic landscape. By addressing structural challenges and embracing policy reforms, the region can harness its inherent strengths to foster sustainable and inclusive growth in the years ahead.