Publication: South Asia Economic Focus, Spring 2019: Exports Wanted
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2019-04-07
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2019-04-03
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South Asia remained the fastest growing region in the world last year, but growth remained driven by domestic demand – and not exports – which resulted in another year of double-digit volume growth of imports. The value of imports was further pushed up by rising oil prices. The widening current account deficits became more difficult to finance and these tensions triggered capital outflows, depreciation pressures, increases in credit default swap spreads, and falling stock prices. In recent months, however, the data shows a more positive picture. The growth outlook for South Asia assumes that the recent acceleration of export growth continues and that import growth slows. Under these conditions, GDP growth is expected to accelerate. Under current circumstances fiscal tightening is appropriate, not only to make government debt more sustainable, but also to bring the economy back into balance, and thus become less vulnerable to deteriorating conditions in international financial markets. Using a gravity model, we show that South Asian countries export only a third of their potential. If countries export closer to potential, not only would short-term adjustments be easier, but also the long-term growth potential would be higher. Closing the export gap is an essential step in addressing both short-term and long-term macroeconomic challenges in South Asia.
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“World Bank. 2019. South Asia Economic Focus, Spring 2019: Exports Wanted. © World Bank. http://hdl.handle.net/10986/31498 License: CC BY 3.0 IGO.”
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Publication South Asia Economic Focus, Spring 2017(World Bank, Washington, DC, 2017-04)South Asia remains the fastest growing region in the world. With a strong performance in the eastern part of the region – in particular in Bhutan, Bangladesh and India – the region defied disappointing world growth in 2016. Inflation slowed down in the second half of 2016, mainly due to lower food prices, but appears to be turning up again. Despite recent real exchange rate appreciation, current account balances are mostly in order throughout the region. After a sharp decline triggered by lower oil prices, remittance inflows are stabilizing in most countries and international reserves are mostly at comfortable levels. Progress on fiscal consolidation has been more gradual and public debt levels remain high. South Asia’s performance will maintain momentum, with the gap between its growth rate and that of East Asia slightly widening over time. Regional growth is expected to surpass 7 percent from 2018 onwards. Robust domestic demand, an uptick in exports, and steady FDI inflows underlie this positive outlook. But with financial sector risks remaining, creating financing opportunities for private investment remains a challenge. Pressures against international trade are mounting. The negotiation of mega-regional trade agreements stalled, the number of protectionist measures has increased, and existing agreements may be reconsidered. South Asia was already less integrated in global merchandise trade than other regions. In light of current pressures, a legitimate question is whether it should focus on exports as a driver of economic growth and job creation. However, the prospects for the region are better than it seems. The stalled mega-regional trade agreements, which did not include any South Asian country, were expected to reduce South Asia’s competitiveness. Simulations on the impact of hypothetical new trade barriers applied across the board suggest that the harm for the region would be limited. And in a scenario where hypothetical new trade barriers would be applied selectively, South Asia could actually benefit from trade diversion. The region also stands to gain from the observed growth recovery in advanced economies, because they are the main markets for its exports. The current globalization backlash should thus not dissuade South Asian countries from having a stronger outward orientation. But the gains for the region would be larger if its exports were more diversified and its supply response were more elastic.Publication South Asia Economic Focus, Fall 2019(Washington, DC: World Bank, 2019-10-13)Global GDP growth is decelerating, while trade and industrial production are stagnating. The slowdown has been severe in South Asia, which in recent quarters was no longer the fastest growing region in the world. In most South Asian countries, growth is expected to be below long-run averages this year but there is significant diversity evident in the high frequency data of industrial production. Current account deficits have declined, as is often the case during economic downturns. Inflation remains near target in most countries, but food price inflation is picking up. Growth forecasts for South Asia are revised downward considerably as uncertainty in global markets and a worsening global outlook have become more important drivers of the forecast. The expected modest recovery to 6.3 percent in 2020 and 6.7 percent in 2021 is tentative as forecasts under current circumstances, particularly for investment, are highly uncertain. In many countries across the region, further decentralization is a high policy priority. These policies are part of a global decentralization trend, which aims to improve local service delivery. Empirical evidence of the effectiveness of decentralization is mixed, a result which is often attributed to partial decentralization. Successful development requires both decentralization and centralization at the same time. In the interplay between central and local governments, the allocation of resources plays a crucial role. In South Asia, a lack of geospatial data on expenditure and development outcomes remains a major constraint.Publication South Asia Economic Focus, Spring 2018(Washington, DC: World Bank, 2018-04-15)South Asia is again the fastest growing region in the world. And growth should further strengthen to 7.1 percent on average in 2019-20, reflecting an improvement across most of the region. But are countries generating enough jobs? The demographic transition is swelling the ranks of the working-age population across most of South Asia. 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The results in this chapter call for better employment data, and for a focus on the economic policies that can boost job creation.Publication South Asia Economic Focus, Spring 2016(2016-04-10)South Asia by now has consolidated its position as fastest growing developing region in the world. Against the backdrop of relative external stability and some monetary policy space, growth is expected to continue a gradual acceleration on the back of strong investment performance and a return to solid contributions from export growth. India remains the motor of the region and on its way closer to 8 percent real GDP growth, though on a relatively more gradual path than previously anticipated. At the same time, economies across the region will have to tackle fading tailwinds and face ever more binding domestic constraints in the form of persistently high fiscal deficits together with high debt levels as well as some vulnerabilities in the financial sector. The focus section of this report will delve deeper into evaluating the quality of fiscal consolidation and policy, trying to assess short and longer term impact across major South Asian economies.Publication South Asia Economic Focus, Spring 2014 : Time to Refocus(Washington, DC, 2014-04-06)South Asia experienced a strong cyclical rebound in 2013Q3 growth but has since slowed again. The strong regional growth performance between July and September 2013 can be largely attributed to a temporary pick up in export growth, investment activity, as well as stronger agricultural output. Since the large impact of global portfolio rebalancing in May 2103, emerging markets have separated into a diverse group ranging from continuously fragile to resilient vis-a-vis external pressures. India has managed to turn around the wheel and minimize exposure to further tapering in 2014. Weak growth and exchange rate depreciation have characterized India for some time. Capital inflows into South Asia have regained some momentum and proved more resilient in January 2014 as opposed to May 2013. This report presents recent economic developments; outlook and policy; focus: from external to domestic risk; South Asia country briefs for Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka; and South Asia at a glance.
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