Reforms for Recovery: East Asia and Pacific Economic Update, October 2022
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Recovery has been uneven across East Asia Pacific (EAP) countries, and output remains below pre-pandemic levels in many of the region¡¯s economies. Nonetheless, growth rebounded in most EAP countries in the first half of 2022. Most of the region is projected to grow faster and have lower inflation than other regions. China, however, lost momentum; its activity slowed in the second quarter of 2022. Poverty in the region is expected to decline, supported by continued recovery from the pandemic. Beyond the end of this year however, three factors could be a drag on growth: global deceleration, rising debt, and policy distortions...
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Four broad factors are shaping the recovery across EAP countries: the scale of the COVID-19 shock, the measures by which the disease is being contained, the extent to which external conditions are favorable to recovery, and the capacity of the government to provide support.
EAP country performance is shaped by COVID-19 containment, external conditions, and governments support
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East Asia and Pacific governments are striving to protect households from the increased cost of living and firms from the increased cost of production. Inflation has eroded purchasing power, by between 2 percent in Vietnam and 11 percent in Mongolia. However, policies needed to reduce inflation in high-inflationary environments, including tighter monetary policies, are likely to suppress economic growth. The muddying of price signals in food, fuel, and finance, as well as other long-standing policy-induced distortions in these markets, will inhibit efficient reallocation in a post-COVID world.
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This section describes a set of reforms that can help households and firms cope with current difficulties, without undermining long-term growth. For instance, support through income transfers is preferable to price regulation, because transfers do not distort choices and can be targeted to those most in need.
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Box 1. The Omicron variant and economic activity in China
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Box 2. The real estate market in China
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Box 3. The response of consumer prices to external factors
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Box 4. Price distortions and economic growth
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Box 5. Misallocation in EAP
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Box 6. Financial Sector Vulnerabilities in the Pacific Islands
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Box 7. Potential income effects of food prices
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Box 8. Government of Thailand responses to the food and fuel price crisis: The effects of fuel subsidies and cash transfers on poverty and their relative cost-effectiveness
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Box 9. Why do governments choose to control prices?
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Box A1. The new 2017PPP-based international poverty lines and their implications for poverty monitoring in EAP
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COVID-19¨CRELATED POLICY ISSUES EXAMINED IN RECENT ECONOMIC UPDATES
Previous updates have focused on a number of other policy issues, including:
(1) to contain COVID-19;
(2) for relief, recovery, and growth;
(3) to build back better;
(4) of COVID-19, especially through non-pharmaceutical interventions like testing-tracing-isolation;
(5) to prevent long-term losses of human capital, especially for the poor;
(6) to help households smooth consumption and workers reintegrate as countries recover;
(7) to prevent bankruptcies and unemployment, without unduly inhibiting the efficient reallocation of workers and resources;
(8) to support relief and recovery without undermining financial stability;
(9) , especially of still-protected services sectors¡ªfinance, transport, communications¡ªto enhance firm productivity, avert pressures to protect other sectors, and equip people to take advantage of the digital opportunities whose emergence the pandemic is accelerating;
(10) creating and to promote equitable growth; and
(11) policies to encourage .