East Asia's economies delivered another solid performance in 2005, now surpassing Europe as the region most open for trade in the world, according to the World Bank's latest East Asia Update.

In 2005, developing country economies grew by 8.2 percent and this solid growth is expected to continue at a 7.8 percent, rate in 2006.

Growth in East Asia was broad based for the second year in a row, exceeding 4 percent in every country, except Timor-Leste. Even in many Pacific Island countries, per capita growth has been positive thanks to improved macro-economic stability.

This impressive performance was in spite of rising oil prices -- the highest in 25 years -- rising interest rates, continued worries over the financing of the United States' current account deficit and over the prospect of the spread of avian flu, reports the twice-yearly look at the economies of East Asia and Pacific.

In the first half of 2005, high oil prices, slower growth in China, and slowing high-tech exports briefly reduced growth across the region. But from mid 2005 economies have rebounded, boosted by strong export growth to China, Japan and other regional economies as well as the United States.

"East Asia's exports surged to over US$2 trillion last year, and this powered the region's growth.  Strong growth in turn is having a dramatic impact on poverty reduction" said Homi Kharas, Chief Economist for East Asia and the Pacific. "Although 580 million people in the region still live on less than US$2 a day, this number has been falling by about 50 million people each year over the past five years."

On a more cautionary note, the report notes that investment in the region, which had rebounded in 2004, slowed in 2005, and capital flows in many countries reversed course last year, including short-term flows, which fell due to the narrowing of the interest-rate gap between Asia and the United States.

Open economies

East Asia has now surpassed Europe as the most open region in the world with exports almost doubling over the past three years, but this level of openness also exposes economies to some new challenges.

Challenges like checking the potential spread of avian flu, particularly among humans, are bringing countries together, most recently in Beijing, to collaborate on steps to prepare, control, and prevent future outbreaks among poultry.

"So far the impact of bird flu outbreaks has been isolated to the poultry sector and some farm households and has not spilled into the overall economy," said Milan Brahmbhatt, lead economist and author of the report, "The key focus now is on national preparedness to appraise and implement integrated country programs."

The region's economies have much to gain from a successful completion of the Doha round of trade talks, but increased trade also means some domestic challenges, including boosting efforts to innovate and build skills, improve the climate for investment, and better protect vulnerable segments of the society.

"To take advantage of these new export opportunities, the region's going to have a lot of job turnover," Kharas said. "And most countries in the region don't have unemployment insurance. New mechanisms to help people as they move from one job to another will be important."

Climate change

The East Asia and Pacific region is already among the most vulnerable to natural disasters, whose intensity could be affected by climate change, the subject of the East Asia Update's special focus section. While the region is still largely rural, most of the gross domestic product and large cities, are coastal and at risk from rising sea levels and weather-related disasters. Some Pacific Island nations could even disappear. Countries need to urgently take steps to strengthen their disaster preparedness and to climate proof construction and development.

Rapid economic growth has also meant the fast growth of greenhouse gas emissions from the region. The report notes that countries will need to reduce emissions and adopt policies to promote greater energy efficiency and conservation. A variety of international schemes exist to encourage countries to act.

(China.org.cn March 30, 2006)