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Asia-Pacific Regional Economic Outlook: Navigating an Uncertain Global Environment by Mr. Naoyuki Shinohara, Deputy Managing Director, International Monetary Fund - IMF Forum held at the Asian Institute of Management
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1
The Asia-Pacific Economic Outlook and Policy Challenges in an Uncertain
Global EnvironmentNaoyuki Shinohara
Deputy Managing DirectorInternational Monetary Fund
Asian Institute of ManagementManila, November 4, 2011
2
Plan of the Presentation
1. Advanced Economies: Outlook and Risks
2. Emerging Asia: Outlook, Risks, and Policies
3. The Philippines: Short and Long Term Challenges
3
Advanced Economies Outlook and Risks
4
In advanced economies, adverse feedback loops between fiscal and
financial vulnerabilities remain a key concern
Note: Current refers to data as of October 28.
Global Outlook
Bank CDS spreads(5-year, basis points)
Sovereign CDS spreads(5-year, basis points)
0
100
200
300
400
500
600
Euro area United States
Lehman Current
0
100
200
300
400
500
600
700
Euro area United States
Lehman Current
In the U.S., household balance sheet are still repairing
Global Outlook
U.S. House Price Indices(January 2006 =100)
U.S. Household Net Worth(Percent of disposable personal income;
business cycle peak = 100)
5
65
70
75
80
85
90
95
100
105
2006 2007 2008 2009 2010 2011
Case-Shiller 20-city index
CoreLogic (incl. distressed)
CoreLogic (excl. distressed)
Case-Shiller national index (2006Q1=100)
70
75
80
85
90
95
100
105
110
0 1 2 3 4 5 6 7 8 910
11
12
13
14
Current episode
Range of previous recessions, 1953-2001
6
World U.S.Euro Area Japan Brazil Russia India China
2011 (Sep
2011)4.0 1.5 1.6 -0.5 3.8 4.3 7.8 9.5
2011(Apr
2011)4.4 2.8 1.6 1.4 4.5 4.8 8.2 9.6
2012(Sep
2011)4.0 1.8 1.1 2.3 3.6 4.1 7.5 9.0
2012(Apr
2011)4.5 2.9 1.8 2.1 4.1 4.5 7.8 9.5
WEO Real GDP Growth Projections (percent change from a year earlier)
Global growth has been revised down
Global Outlook
7
Risks to the global economy are tilted to the downside
Risks to the Global Outlook(Baseline forecast and selected confidence bands)
Global Outlook
-2
-1
0
1
2
3
4
5
6
7
2007 2008 2009 2010 2011 2012
90 percent confidence interval 70 percent confidence interval
50 percent confidence interval
90 percent confidence interval (April 2011)
Central forecast
8
Emerging Asia Outlook, Risks and
Policies
Financial turbulence in advanced economies
has spilled over to Asia and activity is moderating
9
EM Asia Outlook and Risks
Stock Indices(Percent change;
as of October 31, 2011)
Exchange Rate against U.S. Dollar(Percent change, increase =
depreciation; as of October 31, 2011)
Selected Asia: Manufacturing PMI
(Seasonally adjusted; 50=neutral)
-60
-50
-40
-30
-20
-10
0
10
Thailand
Hong K
ong S
AR
Kore
aSin
gapore
Japan
Indonesi
aChin
aPhilip
pin
es
Aust
ralia
Mala
ysi
aIn
dia
New
Zeala
nd
Vie
tnam
Em
erg
ing E
uro
pe
Euro
are
aU
nited S
tate
sLa
tin A
meri
ca
Change since August 1
Largest 2-month change since January 2008
Taiw
an P
rovin
ceof C
hin
a
-10
0
10
20
30
40
50
Chin
aH
ong K
ong S
AR
Japan
Phili
ppin
esVie
tnam
Thai
land
Mal
aysi
aA
ust
ralia
Sin
gap
ore
Indones
iaK
ore
aN
ew Z
eala
nd
India
Euro
Russ
iaB
razi
lM
exic
oPola
nd
Hungar
y
Change since August 1
Largest 2-month change since January 2008
Taiw
an P
rovin
ceof C
hin
a
4042444648505254565860
Aust
ralia
Hong K
ong S
AR
Kore
a
Sin
gapore
Japan
India
New
Zeala
nd
Chin
a
end-2010 Aug-11 Latest
Tai
wan
Pro
vince
of
Chin
a
Note: latest data refer to October 2011, except for Hong Kong SAR and New Zealand (September 2011).
10
Growth forecast have been revised down slightly,
but risks tilted decidedly to the downside Asia: GDP Growth
(Central forecast and selected confidence intervals; in percent)
Asia: Projected GDP Growth(in percent; year over year)
Actual data and latest projections
Difference from April
2011
2010 2011 2012 2011 2012
Industrial Asia 3.7 0.0 2.5 -1.7 0.2 Australia 2.7 1.8 3.3 -1.2 -0.2
Japan 4.0 -0.5 2.3 -1.9 0.2
New Zealand 1.7 2.0 3.8 1.1 -0.3Emerging Asia 9.5 7.9 7.7 -0.2 -0.3
China 10.3 9.5 9.0 -0.1 -0.5 Hong Kong SAR 7.0 6.0 4.3 0.6 0.1 Korea 6.2 4.0 4.4 -0.5 0.2 Taiwan Province of China 10.9 5.2 5.0 -0.2 -0.2 India 10.1 7.8 7.5 -0.4 -0.3
Indonesia 6.1 6.4 6.3 0.2 -0.2
Malaysia 7.2 5.2 5.1 -0.3 -0.1 Philippines 7.6 4.7 4.9 -0.3 -0.1 Singapore 14.5 5.3 4.3 0.1 -0.1
Thailand 7.8 3.5 4.8 -0.4 0.3 Vietnam 6.8 5.8 6.3 -0.5 -0.5Asia 8.3 6.3 6.7 -0.5 -0.2
EM Asia Outlook and Risks
0
1
2
3
4
5
6
7
8
9
10
2007 2008 2009 2010 2011 2012
90 percent confidence interval
70 percent confidence interval
50 percent confidence interval
Central forecast
Another global recession:Would hit emerging Asia hard through the
trade channel…
11
Selected Asia: Contribution of Non-Asian Final Demand to Value Added
(In percent of GDP)
Export-Oriented Asia: Private Domestic Demand and Exports(Year over year percent change)
Note: Includes China, Hong Kong SAR, Japan, Korea, Malaysia, the Philippines, Taiwan Province of China, and Thailand.
EM Asia Outlook and Risks
0
10
20
30
40
50
60
Sin
gap
ore
Mal
aysi
a
Thai
land
Philip
pin
es
Kore
a
Indones
ia
Chin
a
1995-2000 2001-2010
OECD average(2005)
Tai
wan
Pro
vince
of Chin
a
-60-50-40-30-20-1001020304050
-12-10-8-6-4-202468
10
2000:Q
1
2002:Q
1
2004:Q
1
2006:Q
1
2008:Q
1
2010:Q
1
2011:Q
2
Private domestic demand (left scale)
Exports of goods (right scale)
12
… and the financial channelSelected Asia: Foreign Holdings in
Local Currency Government Bonds(In percent of total outstanding local
currency government bond)
Consolidated Claims of European and U.S. Banks on Selected Asia
(In percent of GDP; as of 2011:Q2)
Note: Claims are on immediate borrower basis. Uses sum of quarterly GDP in U.S. dollar between 2010:Q3 and 2011:Q2 in the denominator.
EM Asia Outlook and Risks
0
5
10
15
20
25
30
35
40
2000:Q
1
2001:Q
1
2002:Q
1
2003:Q
1
2004:Q
1
2005:Q
1
2006:Q
1
2007:Q
1
2008:Q
1
2009:Q
1
2010:Q
1
2011:Q
3
Indonesia Korea Malaysia Thailand
0
5
10
15
20
25
Mal
aysi
a
Aust
ralia
Kore
a
New
Zea
land
Philip
pin
es
India
Japan
Thai
land
Indones
ia
Chin
a
Other European banksU.K. banksEuro area (excl. France) banksFrench banksU.S. banks
Tai
wan
Pro
vince
of C
hin
a
13
Downside risks may warrant a pause in monetary tightening
Fiscal normalization should be allowed to stay the course
Emerging Asia: Overheating Index and Vulnerability to
a Slowdown in G2 Growth
Policies
Asia: Cyclically Adjusted Fiscal Balances in 2012
(Deviation from 2002-07 average, percent of GDP)
IDN
CHN
IND
PHL
KORMYS
THA
TWN
SGP
0.0
0.5
1.0
1.5
2.0
2.5
0.00 1.00 2.00
Ove
rheati
ng in
dex
(2011:Q
2)
Change (in percentage point) inGDP growth following a
slowdown in growth in G–2 by 1 percentage point
Note: Responses to a slowdown in G–2 growth are based on regression estimates, and include effects of discretionary policy measures.
Incr
easi
ng
overh
eating
pre
ssure
Increasing vulnerabilityto slowdown in G–2
-4
-3
-2
-1
0
1
2
New
Zea
land
Sin
gap
ore
Aust
ralia
Thai
land
Japan
Indones
ia
Mal
aysi
a
India
Hong K
ong S
AR
Chin
a
Philip
pin
es
Kore
a
Taiw
an P
rovi
nce
of Chin
a
14
Exchange rates: room for further appreciation
Selected Asia: REER(index, 2007=100)
FX Reserves to Short Term Debt(end of 2010, in remaining maturity basis)
Policies
40
60
80
100
120
140
160
Jan-9
0Ja
n-9
1Ja
n-9
2Ja
n-9
3Ja
n-9
4Ja
n-9
5Ja
n-9
6Ja
n-9
7Ja
n-9
8Ja
n-9
9Ja
n-0
0Ja
n-0
1Ja
n-0
2Ja
n-0
3Ja
n-0
4Ja
n-0
5Ja
n-0
6Ja
n-0
7Ja
n-0
8Ja
n-0
9Ja
n-1
0Ja
n-1
1
Korea Indonesia PhilippinesThailand China
Sep-1
1
ASEAN includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
0
200
400
600
800
1000
ASEAN
India
Chin
a
EM
Lat
in
Am
eric
a
Eas
t Asi
a (e
xcl
.Chin
a)
EM
Eas
tern
Euro
pe
15
What if there is another global crisis/recession?
Asia has ample room to respond: Draw on abundant FX reserves or regional reserve pooling arrangements Shift aggressively to ease monetary policy Reverse fiscal consolidation (for those with fiscal space) Guarantees bank liabilities Deploy extraordinary measures (such as expansion of central bank balance sheets or exceptional liquidity provision) should rates approach the zero bound
Policies
16
Advancing rebalancing would reduce the vulnerability to external shocks, and help
make growth more inclusiveGlobal Current Account Balances
(in percent of world GDP)
Policies
-4 -2 0 2 4 6 8 10 12
CEE
Lat AM
MENA
SSA
ASEAN
NIEs
Industrial Asia
South Asia
Other Asia
Population-weighted average
Simple Average
EMs: Change in Gini Index, Last Two Decades
(In Gini points, since 1990)
-3
-2
-1
0
1
2
3
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Rest of the world Emerging AsiaJapan and Germany Oil exportersChina United States
Global discrepancy
Projections
17
The Philippines: Short and Long Term
Challenges
Philippines: Growth has slowed,but inflation has remained elevated
18
Philippines: Contributions to Growth
(In percentage points; y/y)
Headline CPI Inflation(In percent; y/y)
Private Credit Growth(In percent; y/y)
The Philippines
18
-15
-10
-5
0
5
10
15
20
2008Q
12008Q
22008Q
32008Q
42009Q
12009Q
22009Q
32009Q
42010Q
12010Q
22010Q
32010Q
42011Q
12011Q
2
Private consumptionPublic consumptionFixed investmentChange in stocksNet exports
-4
-2
0
2
4
6
8
10
12
14
Mar-
07
Jun
-07
Sep
-07
Dec-
07
Mar-
08
Jun
-08
Sep
-08
Dec-
08
Mar-
09
Jun
-09
Sep
-09
Dec-
09
Mar-
10
Jun
-10
Sep
-10
Dec-
10
Mar-
11
Jun
-11
Sep
-11
Indonesia Malaysia
Philippines Thailand
0
5
10
15
20
25
30
35
40
Mar-
07
Jun-0
7Sep-0
7D
ec-
07
Mar-
08
Jun-0
8Sep-0
8D
ec-
08
Mar-
09
Jun-0
9Sep-0
9D
ec-
09
Mar-
10
Jun-1
0Sep-1
0D
ec-
10
Mar-
11
Jun-1
1Sep-1
1
Indonesia MalaysiaPhilippines Thailand
In the Philippines, poverty reduction remains a key issue
The Philippine Development Plan focuses on inclusive growth
Key measures for inclusive growth in the Philippine Development Plan:
Infrastructure investment
Governance reform Investment in
education and health Supporting the poor
19
Selected Asia: Change in Poverty Headcount
(In percentage points, since 1990; at 2005 PPP prices)
-75 -50 -25 0 25
Vietnam (2008, 13.1/ 38.5)
China (2005, 15.9/36.3)
Indonesia (2009, 18.7/ 50.6)
Lao P.D.R. (2008, 33.9/ 66.0)
Cambodia (2007, 28.3/ 56.5)
Nepal (2004. 55.1/ 77.6)
India (2005, 41.6/75.6)
Philippines (2006, 22.6/45.0)
Sri Lanka (2007, 7.0/29.1)
Thailand (2009, 10.8/ 26.5)
Bangladesh (2005, 49.6/ 81.3)
Malaysia (2009, 0.0/2.3)
Mongolia (2005, 22.4/ 49.1)
At $2 per day At $1.25 per day
The Philippines
As in other ASEAN economies, strengthening sustainable growth in the Philippines will involve
more infrastructure spending
20
Infrastructure GapEffect of Infrastructure on Private
Investment Spending(In percent of GDP: increase associated
with one percent increase in infrastructure)
020406080100120140160180200
0
10
20
30
40
50
60
1995
2005
Late
st
1995
2005
Late
st
ASEANOther Emerging MarketsNon-Asia Advanced Economies
Phones per 1,000 people(LHS)
Electricity generation (billion kilowatt hours per capita, RHS)
0.0
0.5
1.0
1.5
2.0
2.5
Ele
ctri
city
Tel
ephones
Cel
lphones
The Philippines
Summing up
Advanced Economies: Outlook and Risks
Emerging Asia: Outlook, Risks, and Policies
The Philippines: Short and Long Term Challenges
• Risks of adverse feedback loops from fiscal and financial fragilities persist
• G2 growth has slowed • Risks tilted to the downside • Healthy growth thanks to strong
domestic demand• But downside risks dominate—
does this call for a pause in tightening?
• Advancing rebalancing demand is key, and will also lead to more inclusive growth• Resilient growth and inflation
elevated• Over the medium term, need to
make growth more inclusive and increase infrastructure
21
22
ConclusionsAsia is still expected to continue growing at a solid rate in 2011 and 2012. But downside risks from a weakening global economy have greatly intensified. Persistent weakness in advanced economies underscores the importance of shifting the growth model in Asia. This means advancing the policies needed for rebalancing and maintaining flexible exchange rates. This would help shift the engines for growth toward domestic demand and make growth more inclusive. In the near term, Asia should pause monetary tightening in those countries where there is room, to allow time for greater clarity on the prospects for the advanced economies. But fiscal consolidation should be allowed to run its course, and Asia has still room to respond if downside risks materialize.
23
THANK YOU.