The East Asia and Pacific (EAP) region experienced a rebound in economic growth in 2023, reaching 5.1 percent from the previous year's 3.4 percent, primarily driven by a temporary surge in economic activity in China after the lifting of pandemic restrictions. However, the effects were short-lived as China's reopening lost momentum. Investment growth faced challenges from a weak real estate sector, with declining sales and prices putting financial strain on property developers. Export sectors struggled due to weak external demand, and although consumption improved towards the end of the year, consumer confidence remained below pre-pandemic levels.
In 2024 and 2025, growth in the EAP region is expected to decelerate to 4.5 percent and 4.4 percent, respectively, largely influenced by slower growth in China. Excluding China, the EAP region is projected to see modest strengthening, reaching 4.7 percent in both 2024 and 2025. Pacific Island economies, driven by recovering tourism, are expected to experience a more marked uptick in growth this year. Compared to previous projections, the growth forecast for the EAP region has been downgraded by 0.1 percentage point for 2024 and 2025, indicating a further deviation from its pre-pandemic trend.
In China, growth is anticipated to slow to 4.5 percent in 2024 and further to 4.3 percent in 2025. Weaker domestic demand, a sharp slackening of consumption, and subdued investment growth due to ongoing weaknesses in the property sector are cited as contributing factors. Structural challenges like rising indebtedness, an aging workforce, and limited room for productivity catch-up growth are expected to impede economic activity over the forecast horizon.
For EAP excluding China, solid domestic demand, especially private consumption, is expected to be the primary driver of growth. Modest inflation, robust labor markets, and increased government spending on social protection and public sector wages are anticipated to sustain household spending. However, investment growth is projected to be more subdued due to various headwinds, including the lagged effects of monetary policy tightening, policy uncertainty, rising indebtedness, and limited fiscal space. The baseline growth forecast is subject to downside risks, including weaker-than-expected growth in China, geopolitical tensions, escalating conflicts in the Middle East, prolonged global trade weakness, tighter financial conditions, and climate change-related extreme weather events. Conversely, stronger-than-expected growth in the United States poses an upside risk to the forecast.
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