Regional Economic and Financial Outlook in APEC Asiamddb.apec.org/Documents/2019/FMP/SFOM17/19_sfom17_004.pdf · Source: ADB calculations using data from Direction of Trade Statistics,

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2019/SFOM17/004 Session: 1.3

Regional Economic and Financial Outlook in APEC Asia

Purpose: Information Submitted by: ADB

17th Senior Finance Officials’ Meeting Arica, Chile

25-26 July 2019

APEC SENIOR FINANCE OFFICIALS’ MEETING

Arica, Chile | 25-26 July 2019

Session 1: Global and Regional Economic and Financial Outlook

Executive Summary: Regional Economic and Financial Outlook in APEC Asia

Speaker: Cyn-Young Park

Director

Regional Cooperation and Integration Division

Economic Research and Regional Cooperation Department

Asian Development Bank

Developing APEC Asia’s growth is expected to moderate, in light of weakening global growth amid

continued trade tensions. The projected growth moderation in the region is rooted in the economic

slowdown of advanced economies as well as the People’s Republic of China (PRC). As a counterweight to

a cloudy economic forecast, the integration of the region’s economies is expected to deepen, grounded

in strengthening intraregional trade and a rebound in GVC participation.

The growth prospects of Developing APEC Asian economies remain positive and robust, albeit

moderated. This is due to robust domestic demand in the region even as external demand is

increasingly uncertain. In particular, growth in Developing APEC Asia is expected to ease from

5.9% in 2019 to a still healthy 5.6% in 2020. The forecast for the whole APEC region is 3.4% in

2019 and 3.1% in 2020, with large variations across the region. Risks to the economic outlook

remain tilted downward, stemming from continued trade tensions and a growth slowdown in

advanced economies and the PRC.

Slower than expected growth in the US and euro area as well as in the PRC is expected to dampen

the growth forecast for the region. The growth forecast for the US for 2019 is 2.6%—down

considerably from a strong 2.9% in 2018 and is projected to slow further to 1.9% in 2020. The

outlook for the euro area has likewise seen a downward adjustment to 1.3% in 2019 and 1.4% in

2020. Growth moderation in the PRC, in particular, constitutes a significant downside risk to the

region. As a product of both structural factors and policy tightening, growth in the PRC is expected

to slow further to 6.3% in 2019 and to 6.1% in 2020.

The escalation of trade tensions between the PRC and the US continues to be a key risk to the

region and has moreover coincided with slowing global trade and economic activity. Protracted

trade negotiations and disagreements have heightened economic uncertainty and threatened

investment and growth in the region.

Asia’s participation in global value chains has seen a gradual increase (climbing to 68% in 2017),

contributing to the strengthening of intraregional trade. Increase in Asia’s intraregional trade

share points to the resilience of the intraregional trade linkage amidst falling global trade. APEC

Asia has played an important role in APEC Latin America’s trade activities, accounting for a third

of all APEC Latin American imports and comprising approximately 14% of APEC Latin American

exports in 2018; by contrast, the relative contribution of APEC Latin America to APEC Asia’s trade

activities has been limited, constituting only 2% of APEC Asia’s imports or exports.

Cyn-Young ParkDirector for Regional Cooperation and Integration

Economic Research and Regional Cooperation Department

Asian Development Bank

APEC Senior Finance Officials’ Meeting

25 July 2019 | Arica, Chile

Regional Economic and Financial Outlook in APEC Asia

2

Key Messages

Developing APEC Asia’s growth to moderate amid

weaker global demand and trade tensions

Slowing growth in advanced economies and PRC could

spillover to the region; PRC moderation partly reflects

efforts to control financial risks

The primary risk still centers on the trade conflict, with

uncertainty heightened by protracted negotiations

Asia’s integration continues to progress, with

deepening intraregional trade and a rebound in GVC

participation

3

Developing APEC-Asia’s growth is softening, as prospects in advanced economies dim

GDP Growth (%) GDP Growth (%)

Note: Based on seasonally adjusted annualized

rates.

Source: ADB. Asian Development Outlook

Supplement 2019. Manila.

f=forecast. ADB forecasts for Developing APEC-Asia, Japan,

and the US; and IMF WEO for the rest.

Sources: Asian Development Outlook Supplement 2019, ADB;

World Economic Outlook Database April 2019, IMF; and

national sources.

1.3

2.6

-1.5

0.0

1.5

3.0

2010 2012 2014 2016 2018 2020

Euro area US

3.0

3.6 3.73.4

3.1

6.1 6.06.2

5.95.6

0

2

4

6

8

2016 2017 2018 2019f 2020f

APEC Developing APEC-Asia

4

Global trade and economic activity slowed as trade tensions escalate

-2

-1

0

1

2

3

4

5

6

7

-1

0

1

2

3

4

5

6

Jun 2016 Nov 2016 Apr 2017 Sep 2017 Feb 2018 Jul 2018 Dec 2018 May 2019

Global activity indicators

Global manufacturing PMI, sa Global composite PMI, sa

World trade volume (right scale)

% change

year on year

Point

difference

from 50 US imposes tariffs on solar panels and washing machines, steel, and aluminum

US and PRC impose $34 billion worth of tariffs on each other

US and PRC impose $16 billion worth of tariffs on each other

US imposes tariffs against PRC goods worth $200 billion. PRC retaliates with $60 billion worth of tariffs

Trade tensions

PMI = purchasing manager's index, sa = seasonally adjusted

Note: Data for World trade volume is until March 2019.

Sources: Markit and CPB Netherlands Bureau For Economic Policy Analysis.

5

APEC Asia’s trade slows amid growing global trade frictions…

y-o-y = year-on-year. 3MA = 3-month moving average

Source: ADB calculations using data from CEIC (accessed June 2019).

-20

-15

-10

-5

0

5

10

15

20

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oct-

14

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oct-

15

Ja

n-1

6

Ap

r-1

6

Ju

l-1

6

Oct-

16

Ja

n-1

7

Ap

r-1

7

Ju

l-1

7

Oct-

17

Ja

n-1

8

Ap

r-1

8

Ju

l-1

8

Oct-

18

De

c-1

8

Fe

b-1

9

Developing APEC-Asia Developing APEC-Americas Advanced APEC

Monthly Trade Value Growth (%, y-o-y, 3-month moving average)

6

6.6

3.0 2.7 3.1

5.24.7

6.2

4.1

7.1

-5

0

5

10

PRC HKG KOR SIN INO MAL PHI THA VIE

Percentage points

Consumption Investments Net exports GDP growth

…while domestic demand has supported the region’s growth.

Notes: ASEAN = Association of Southeast Asian Nations; NIEs = newly industrialized economies; GDP = gross domestic

product; HKG = Hong Kong, China; INO = Indonesia; JPN = Japan; KOR = Republic of Korea; MAL = Malaysia; PHI = the

Philippines; PRC = People’s Republic of China; SIN = Singapore; THA = Thailand. Components do not add up to total due

to a statistical discrepancy.

Sources: Haver Analytics and CEIC Data Company (accessed 13 June 2019); Asian Development Outlook database.

Demand-side contributions to growth, selected economies, 2018

NIEs ASEAN-5

7

Economic outlook differs across APEC economies

f = forecast, NIEs = newly industrialized economies, PRC = People’s Republic of China.

* 2019 and 2020 forecasts for Brunei Darussalam and Papua New Guinea are from ADO 2019 released in April. The rest are from ADOS July 2019.

Note: Developing APEC-Asia based on ADB’s definition. ADB estimates and forecasts for Developing APEC-Asia, Japan, and the US; and IMF WEO

for the rest.

Source: Asian Development Outlook 2019 and Asian Development Outlook Supplement July 2019 , ADB; World Economic Outlook Database April

2019, IMF; and national sources.

GDP Growth Rates (y-o-y,%)

Economy 2018 2019f 2020f Economy 2018 2019f 2020f

Advanced APEC Developing APEC-Asia

Australia 2.7 2.1 2.8 NIEs 2.8 2.4 2.5

Canada 2.2 1.5 1.9

Japan 0.8 0.8 0.6 Brunei Darussalam* 0.1 1.0 1.5

New Zealand 2.8 2.5 2.9 PRC 6.6 6.3 6.1

Russian Federation 2.3 1.6 1.7 Indonesia 5.2 5.2 5.3

US 2.9 2.4 1.9 Malaysia 4.7 4.5 4.7

Developing APEC-Americas Papua New Guinea* 0.2 3.7 3.1

Chile 4.0 3.4 3.2 Philippines 6.2 6.2 6.4

Mexico 2.0 1.6 1.9 Thailand 4.1 3.5 3.6

Peru 4.0 3.9 4.0 Viet Nam 7.1 6.8 6.7

8

PRC moderation reflects both structural factors and policy tightening

Supply-side contribution to

growth

Source: National Bureau of Statistics.

Money supply growth

Sources: People’s Bank of China; ADB estimates.

9.0

7.36.9 6.7 6.8 6.6 6.3 6.1

0

2

4

6

8

10

Percentage points

Services

Industry

Agriculture

Gross domestic product

Forecast

9

The greatest risk centers on prolonged US-PRC trade tensions, which heighten uncertainty

Growth in the advanced economies and the PRC may slow by more than expected

Rapid Fed hikes less likely, but risk of financial volatility remains

Risks to the outlook remain tilted to the downside

10

Asian integration at a glance

11

Asia’s GVC participation deepens…

Note: The GVC participation rate is the share of gross exports that involves

production in at least two countries using cross-border production networks.

12

Source: ADB calculations using data from Direction of Trade Statistics, International Monetary Fund.

… and drives regional trade integration

Asia Intraregional Trade Shares (%)

232932

525556

293540

626868

576972

0

10

20

30

40

50

60

70

80

90

100

200020102018200020102018200020102018200020102018200020102018

Central AsiaEast AsiaSouth AsiaSoutheast AsiaThe Pacific andOceania

Rest of the world Intraregional

13

APEC = Asia-Pacific Economic Cooperation, LAC = Latin America and Caribbean, EU = European Union, and

ROW = Rest of the World.

Note: Figures inside the stacked bars indicate share to total.


Asia becomes increasingly important for Latin America’s trade…

13% 13% 12% 12% 14%2% 2% 2% 2%

1%

0

100

200

300

400

500

600

700

2010 2012 2014 2016 2018

$ b

illio

n

APEC-LAC's Exports by Destination

APEC-Asia APEC-LAC Other Asia Other LAC

North America EU ROW

31% 29%31% 34%

33%2%

2% 2%2%

1%

0

100

200

300

400

500

600

700

2010 2012 2014 2016 2018$

bill

ion

APEC-LAC's Imports by Source

APEC-Asia APEC-LAC Other Asia

Other LAC North America EU

14





… while Latin America’s relative contribution to Asia’s trade remains limited

54%55% 54% 53%

54%

2%

2% 2%2%

2%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2010 2012 2014 2016 2018

$ b

illio

n

APEC-Asia's Exports by Destination



56%53% 53% 57%

56%

1%

1% 1%2%

2%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2010 2012 2014 2016 2018

$ b

illio

n

APEC-Asia's Imports by Source



15

0

10

20

30

40

50

60

0

50

100

150

200

250

300

2001 2003 2005 2007 2009 2011 2013 2015 2017

%$

bil

lio

n

East Asia (left) South Asia (left)

Southeast Asia (left) Central Asia (left)

The Pacific and Oceania (left) Intraregional share (right)

FDI = foreign direct investment.

Note: Based on balance of payments (BOP) data. Due to limited availability of bilateral FDI data, missing values were imputed with gravity model

estimates.

Sources: ADB calculations using data from Association of Southeast Asian Nations Secretariat. ASEANstats Database; Eurostat. Balance of Payments.;

United Nations Conference on Trade and Development. Bilateral FDI Statistics; and World Investment Report 2018 Statistical Annex Tables.

Intraregional FDI Inflows—Asia

Amid slowdown in inward FDI, intra-Asia FDI expands

16

Total FDI to APEC-LAC by Source Region Total FDI to APEC-Asia by Source Region

Sources: ADB calculations using data from Association of Southeast Asian Nations Secretariat. ASEANstats Database.

https://www.aseanstats.org/ (accessed July 2018); and United Nations Conference on Trade and Development. World

Investment Report 2018 Statistical Annex Tables.

http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/AnnexTables.aspx (accessed June 2018).

3 4 3 3 3

-10

0

10

20

30

40

50

2010 2012 2014 2016 2017

$ b

illio

n


Other LAC North America European Union

Rest of the World

181211 233 227 230

-50

0

50

100

150

200

250

300

350

400

450

2010 2012 2014 2016 2017$ b

illio

n


Other LAC North America European Union

Rest of the World

APEC Asia-Latin America FDI ties remain weak

17

Regional Integration Index

18

Regional integration is a multi-dimensional process

18

Regional Integration

Trade and investment

Money and finance

Regional value chain

Infrastructure and

connectivity

Movement of people

Institutional and social integration

19

0

0.2

0.4

0.6

0.8

Trade andInvestment

Money andFinance

RegionalValue Chain

Insfrastructureand

Connectivity

Movement ofPeople

Institutionaland SocialIntegration

Asia EU Latin America Africa

19

Regional integration by dimension:

Asia vs Other Regions, 2016

Source: ARCII webpage https://aric.adb.org/database/arcii

20

Infrastructure and connectivity as main driver of regional integration in Asia

0%

20%

40%

60%

80%

100%

2006 2016 2006 2016 2006 2016 2006 2016

Institutional and social integration Movement of people

Infrastructure and connectivity Regional value chain

Money and finance Trade and investment

Asia European Union Latin America Africa

Dimensional Contribution to Regional Integration Index

Source: Park and Claveria (2018b).

21

Key regional integration trends from ARCII

21

• Pace of regional integration in Asia has been

broadly steady

• Infrastructure and connectivity is main driver of

regional integration

• Asia comes second to EU in terms of regional

integration but several Asian economies have

broken through top tier dominated by EU

economies

22

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Extra Slides

23

24





Asia becomes increasingly important for Latin America’s trade…

13% 13% 12% 12% 14%

2% 2% 2% 2%1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2012 2014 2016 2018

APEC-LAC's Exports by Destination

APEC-Asia APEC-LAC Other Asia Other LAC North America EU ROW

31% 29% 31%34% 33%

2% 2% 2%2% 1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2012 2014 2016 2018

APEC-LAC's Imports by Source

APEC-Asia APEC-LAC Other Asia Other LACNorth America EU ROW

25





… while Latin America’s relative contribution to Asia’s trade remains limited

54% 55% 54% 53% 54%

2% 2% 2% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2012 2014 2016 2018

APEC-Asia's Exports by Destination

APEC-Asia APEC-LAC Other Asia Other LAC North America EU ROW

56% 53% 53%57% 56%

1%1% 1%

2%2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2012 2014 2016 2018

APEC-Asia's Imports by Source

APEC-Asia APEC-LAC Other Asia Other LAC

North America EU ROW

19_sfom17_004_cover19_sfom17_004_yRegional Economic and Financial Outlook in APEC Asia19_sfom17_004_zRegional Economic and Financial Outlook in APEC Asia