Recent investment and saving trends within East Asia

Since the mid 1990s, the global distribution of current account balances has changed substantially. Along with the sharp increase in the current account deficit in the US, there has been a significant widening of the current account surpluses in many countries, including Japan, China and the major oil producers. In addition, there has been a marked shift from persistent current account deficits to large current account surpluses in the rest of the east Asia region, which for the current purpose is defined as comprising Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. The large movements of the current account positions in this region have mainly reflected reductions in its investment to GDP ratio; the change in the region's saving ratio has had only a small effect. This trend has attracted considerable attention, including whether the region's investment spending can be raised.[2]

This article discusses the saving and investment patterns since the 1980s in the ‘other east Asia region’ going beyond the aggregates to focus on the sectoral make-up of investment in each country. It shows that much of the ‘boom and bust’ cycle can be traced to construction investment and, to a lesser extent, to a recent decline in machinery and equipment investment in the region. Looking forward, it seems unlikely that overall investment will soon return to the peak levels seen earlier. If the level of saving also remained high, the region's current account surplus would therefore persist.