East Asia and Pacific Region

Recent developments T HE YEAR 2001 WAS SHAPING UP AS A DIFficult year for East Asia and Pacific (EAP) even before the September 11 terrorist attacks on the United States. The unexpectedly sharp cyclical downturn in the world economy during the year had centered on a recession in the global high-technology (high-tech) sector, resulting in a plunge in the exports of the many East Asian economies that have become important suppliers of components and finished products for world high-tech markets. East Asian exports were also especially hurt by the fact that the slowdown in global demand has been steepest in the region's largest external markets, the United States and Japan, which together buy almost 40 percent of regional exports. By July or August economies with a high reliance on high-tech, such as the Republic of Korea, Malaysia, the Philippines, Singapore, and Taiwan (China), were seeing U.S. dollar export declines of around 20–25 percent on year earlier levels. There was, nevertheless, some comfort in the fact that, apart from the Phil-ippines, the main impact of the high-tech recession was falling on high income or upper-middle-income countries with low poverty. In the wake of the terrorist attacks, the re-gion's export downturn is likely to become broader based, as falling consumer confidence in the United States and around the world dampens demand for the region's consumer and services exports. Overall, the global economic impacts of the terrorist attacks are likely to have pushed back the prospects for a recovery in world trade and in East Asian exports by six to nine months. Growth in the developing East Asia region is expected to fall to 4.6 percent in 2001 from 7.5 percent in 2000, and to recover only mildly to around 5 percent in 2002. These would be the region's second weakest years for growth since 1990, bar only the near-zero-growth year of financial crisis, 1998. Most of the slowdown in growth is concentrated in the " Crisis 5 " countries (that is, the five countries that were most affected by the financial crisis of 1997–98—Indonesia, Korea, Malaysia, the Philippines, and Thailand). Aggregate growth in this group is expected to slow to only 2–3 percent in 2001 from around 7 percent in 2000. Growth in 2001 will still reach around 7 percent in China, which contains two-thirds of the region's poor (at the $2 a day poverty line). With a more diversified export basket …