World Economic Outlook World Economic Outlook Legacies, Clouds, UncertaintiesLegacies, Clouds, UncertaintiesLegacies, Clouds, UncertaintiesLegacies, Clouds, Uncertainties

International Monetary Fund Regional Office for Asia and the Pacific

November 2014

Overview of PresentationOverview of PresentationOverview of PresentationOverview of Presentation

Recent Developments in the Global Economy

World Economic Outlook and Policy IssuesWorld Economic Outlook and Policy Issues

Asian Economic Outlook and Policy Implications

2

Recent Developments in the GlobalRecent Developments in the GlobalRecent Developments in the Global Recent Developments in the Global EconomyEconomy

The recovery has been uneven in AEsThe recovery has been uneven in AEs

101520

Japan: Contribution to growth(saar; percent, qoq) Private consumption

Non-residential investmentResidential investmentGovernment spending

-20-15-10

-505

10

4Source: HAVER

20

Recovery yet to be sustained in EMsRecovery yet to be sustained in EMs

GDP Growth 1/

1/ Annualized quarterly percent changeSource: HAVER and IMF staff estimates

Oct.

5

In AEs, financial conditions (until recently) easing …In AEs, financial conditions (until recently) easing …

Oct. 2014

Source: HAVER Source: HAVER

Oct. 2014

6

… and the same in EMs… and the same in EMs

Source: HAVER

Oct. 2014

7

Inflation has generally been below central bank targets in AEs while remaining stable in EMstargets in AEs, while remaining stable in EMs

AEs: Headline Inflation(y/y percent change; dashed lines are the six- to

Global Aggregates: Headline Inflation(y/y percent change)(y/y percent change; dashed lines are the six to

ten-year inflation expectation)(y/y percent change)

Source: World Economic Outlook (Oct. 2014)1/ In Japan, the increase in inflation in 2014 reflects, to a large extent, the increase in the consumption tax Source: World Economic Outlook (Oct. 2014)

8

World Economic Outlook andWorld Economic Outlook andWorld Economic Outlook and World Economic Outlook and Policy Issues Policy Issues

The drag from fiscal consolidation expected d llto moderate overall

Source: World Economic Outlook (Oct. 2014)10

Policy interest rates expected to divergePolicy interest rates expected to diverge

Source: Bloomberg, L.P; and World Economic Outlook (Oct. 2014)1/ Expectations are based on the federal fund futures for the U.S., the sterling overnight interbank average rate for the U.K., and the euro interbank offered forward rate for the euro area; updated on Sep. 22, 2014

11

Continued recovery expected but at an uneven pace

WEO Real GDP Growth Projections (percent change from a year earlier)

but at an uneven pace

World U.S. Euro Area Japan Brazil Russia India China LIDCs

2014(October

2014)3.3 2.2 0.8 0.9 0.3 0.2 5.6 7.4 6.1

)

2014(April 2014) 3.6 2.8 0.8 1.4 1.8 1.3 5.4 7.5 6.3

2015(October)

3.8 3.1 1.3 0.8 1.4 0.5 6.4 7.1 6.5

20152015(April 2014) 4.0 3.0 1.3 1.0 2.7 2.3 6.4 7.3 6.5

Source: World Economic Outlook (Oct. 2014) 12

Downside risks to the baseline have increased

5

6• Geopolitics: developments in the

Prospects for World GDP Growth (percent change)

2

3

4

5

50 percent confidence interval

70 percent confidence interval

p pMiddle East and Ukraine/Russia.

• Financial markets: sharper and faster i i US l t i t t t

(percent change)

0

1

2

2010 11 12 13 14 15

90 percent confidence interval

90 percent bands from April 2014 WEO

90 percent bands from October 2013 WEO

rise in US long-term interest rates.

• Emerging economies: shift in financial market sentiment and reversal in

30

40

April 2014 WEO: 2013:Q3–2014 Q2

capital flows.

• Advanced economies and key EMs: t ti th di t

Probability of Recession, 2014:Q3-2015:Q2(percent)

10

20

2014:Q2stagnation over the medium term.

• Ebola outbreak: the spread can add to economic costs.

0

United States

Euro area Japan Emerging Asia

Latin America

Rest of the world

Source: World Economic Outlook (Oct. 2014)13

Economic policy priorities …s

AEs: battle low inflation and sustain recovery AEs: battle low inflation and sustain recovery y Monetary Policy: continue supporting the recovery, although challenges are diverging Financial Stability: closely monitor risks relating to continued low interest rates Fiscal Policy: fiscal adjustment attuned to supporting recovery and long-term growth

y Monetary Policy: continue supporting the recovery, although challenges are diverging Financial Stability: closely monitor risks relating to continued low interest rates Fiscal Policy: fiscal adjustment attuned to supporting recovery and long-term growthy j pp g y g gy j pp g y g g

EMs: adapt to a changing environment Maintain financial stability, strengthen policy frameworks, and contain external

l biliti

EMs: adapt to a changing environment Maintain financial stability, strengthen policy frameworks, and contain external

l bilitivulnerabilitiesAllow exchange rates to adjust to external shocks Build buffers, to allow macroeconomic policies to support growth if needed

vulnerabilitiesAllow exchange rates to adjust to external shocks Build buffers, to allow macroeconomic policies to support growth if needed

All: further action towards sustained and balanced growth Public investment in infrastructure where conditions are right: Boost demand in the short term, help to raise potential growth in the long term

All: further action towards sustained and balanced growth Public investment in infrastructure where conditions are right: Boost demand in the short term, help to raise potential growth in the long term, p p g g Structural reforms to raise productivity and potential output, make growth more sustainable

, p p g g Structural reforms to raise productivity and potential output, make growth more sustainable 14

Asian Economic Outlook and PolicyAsian Economic Outlook and PolicyAsian Economic Outlook and Policy Asian Economic Outlook and Policy Implications Implications

Asia’s performance is expected to remain solid

Asia China Japan ASEAN Indonesia Malaysia Philippines Singapore Thailand

20142014（October 2014） 5.5 7.4 0.9 4.7 5.2 5.9 6.2 3.0 1.0

2014（April 2014） 5 4 7 5 1 4 5 0 5 4 5 2 6 5 3 6 2 5（April 2014） 5.4 7.5 1.4 5.0 5.4 5.2 6.5 3.6 2.5

2015（ b ） 5 6 7 1 0 8 5 4 5 5 5 2 6 3 3 0 4 6（October 2015） 5.6 7.1 0.8 5.4 5.5 5.2 6.3 3.0 4.6

2015（April 2015） 5.5 7.3 1.0 5.3 5.8 5.0 6.5 3.6 3.8

Source：Regional Economic Outlook （October 2014). 16

China: Growth expected to moderate, with contribution to global growth broadly unchanged

China’s Contribution to Global GDP Growth(percent)

China GDP Growth(percent)

contribution to global growth broadly unchanged

2 0 2020 (percent)(percent)

1.5

2.0

15

20

Contribution to Global Growth15

20

Average of GDP Growth (1979-2009)

1.0 10

PPP Share (Right scale)

10

0.5 55

0.0 00

-0.5 -5

Source: IMF staff estimates

-5

1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019

17

Japan: Further policy reforms needed to overcome l h d i d hstructural headwinds to growth

Components of GDP(In percent)

4

6(In percent)

0

2

-4

-2Domestic Demand

Net exports

-8

-6

Net exports

GDP

18

2009 2010 2011 2012 2013 2014 2015

Sources: Haver Analytic/IMF staff estimates

Downside risks to the outlook have increased

Leverage Ratio Comparison Currency Risk Reversal 1/ (Total debt weighted average, 2007 and 2012)

Source: Asia and Pacific Regional Economic Outlook (Apr. 2014)1/ Negative risk reversal implies disproportionate probability of

depreciation of local currencies against the U.S. dollar19

Fiscal Policy: Gradual fiscal consolidation i iremains appropriate

Cyclically Adjusted Fiscal Balancey y j( in percent of GDP)

20

Monetary policy: Measured normalization f di iof monetary conditions

O tp t Gap s Credit Gap Latest Selected Asia: Policy Rates

Hong Kong SARSingaporeTh il d

4

5

Output Gap vs. Credit Gap, Latest(In percent)

Current nominal policy ratesReal policy rates (deviation from 2002–07 average, in percentage points)Nominal policy rates end 2012

Selected Asia: Policy Rates(In percent)

Australia

China

Taiwan POCIndonesia

Philippines

SingaporeThailand

India1

2

3

t g

ap

2

4

6

8Nominal policy rates end-2012

Japan

New Zealand

Korea

Malaysia

3

-2

-1

0

Cre

dit

-4

-2

0

2

New Zealand

-4

-3

-3 -2 -1 0 1 2Output gap

4

Jap

an

Th

ailan

d

Ko

rea

Au

stra

lia

Ch

ina

Mala

ysi

a

ew

Zeala

nd

Ph

ilip

pin

es

Vie

tnam

Ind

on

esi

a

Ind

ia

wan

Pro

vin

ce

of C

hin

a

Sources: CEIC Data Company Ltd.; IMF, World Economic Outlook; and IMF staff calculations.Credit-to-GDP as of May 2014 or latest available. Credit gap is calculated as a percent deviation from the trend credit-to-GDP ratio (approximated using the H-P filter over the period 2000‒2012). Output gap is based on country estimates for 2014.

N

Taiw

Sources: CEIC Data Company Ltd.; Haver Analytics; and IMF staff calculations.Note: Data is the latest available for each country. 21

Exchange rates have been a shock absorber…Exchange rates have been a shock absorber…

Change in Reserves and Currency Appreciation Asia: Resistance Index

Indonesia Vietnam6

7

Mo

ney

g y pp(In percent)

0 9

1Asia Non-Asia

Asia: Resistance Index(Larger=more intervention; 3-month moving average)

Indonesia

ChiIndia3

4

5

2013)/

Bro

ad

0.7

0.8

0.9

Japan Australia

New ZealandHong Kong SARKorea

SingaporeTaiwan POC

Thailand

China

0

1

2

es

(sin

ce A

ug

.

0.4

0.5

0.6

p

MalaysiaPhilippines

Thailand

-3

-2

-1

ng

e in

Rese

rve

0 1

0.2

0.3

3-8 -6 -4 -2 0 2 4 6 8 10 12C

han

FX Appreciation (Against US$)

Sources: CEIC Data Ltd.; and Haver Analytics

0

0.1

2001M1 2003M1 2005M1 2007M1 2009M1 2011M1 2013M1Sources: Haver Analytics; IFS; and IMF staff calculations.

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Structural reformsStructural reforms

• China: implement its reform blueprint—including financial, fiscal, and SOE reforms; better manage local government borrowing

• Japan: ensure the effective implementation of the third arrow of Abenomics (including d l b k d l )services and labor market deregulation)

• India: remove structural impediments to investment; liberalize its FDI regime and labor k l imarket regulations

• Fiscal reforms: energy subsidy reforms (e.g., India, Malaysia, and Indonesia); and i th ffi i f SOE ( Chi d Vi t )improve the efficiency of SOEs (e.g., China and Vietnam)

• Other EM/FEs: promote investment in infrastructure and enhance labor market fl ibilit d d t d iflexibility; reduce red tape and improve governance

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All told: Key messages

• Despite setbacks, an uneven global recovery continues

• Downside risks have increased since the spring

• Given these increased risks, raising actual and potential growth remains a priorityo In advanced economies this will require continued support from monetary policy and fiscalo In advanced economies, this will require continued support from monetary policy, and fiscal

adjustment attuned in pace and composition to supporting both the recovery and long-term growth.

o In a number of economies, an increase in public infrastructure investment can also provide support to demand in the short term and help boost potential output in the medium termsupport to demand in the short term and help boost potential output in the medium term.

o In emerging markets, the scope for macroeconomic policies to support growth if needed varies across countries and regions, with space limited in countries with vulnerabilities.

o In advanced economies as well as emerging market and developing economies, there is a general, urgent need for structural reforms to strengthen growth potential or make growth more sustainable.

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Thank you !Thank you !Thank you !Thank you !