Upload
pushpa-nalawade
View
151
Download
1
Tags:
Embed Size (px)
Citation preview
Economic Outlook for the Asia Pacific Region and the
Global Financial Crisis
Reza BaqirIMF Resident Representative
22nd CACCI ConferenceManila Hotel, October 23, 2008
2
Overview The bad news
The world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s.
Risks may still be tilted to the downside
The good news To date, Emerging Asia has led global growth Nevertheless, Asia is also exposed to global
economic conditions, and perhaps more so now than before
3
An extraordinary, banking-sector shock is striking advanced economies
0.0
1.0
2.0
3.0
4.0
Interbank Markets(3-month LIBOR minus T-bill rate; in percent)
UnitedStates
Japan
Euroarea
Q1 Q2 Q3 Q4 2006
Q1 Q2 Q3 Q4 2007
Q1 Q2 Oct. 2008
0
50
100
150
200
250
300
350
400
United States
Euro area
Bank CDS Spreads(10-years; median; in basis points)
2007 Oct.08
08
4
Overnight developments Markets sold off sharply and on a broad basis today,
including equities, emerging market assets and commodities.
Global recession fears continue to grip markets while deleveraging pressures appear to be becoming broader
The selloff in emerging market debt is gaining pace, with the EMBIG selling off 5.5% amid spread widening of 69 bps to 783 bps, the highest level since 2002. Selling is across the board in the most liquid names, with the exception of the highest-rated sovereigns.
Emerging market equities also plunged, with major bourses in the EMEA region off 3 to 9%, and Latin stock markets losing 5 to 10%, except Argentina’s Merval, which has lost over 14%.
Emerging market currencies are selling off sharply virtually across the board against the dollar, and even more against the yen.
5
The financial sector shock comes on the heels of, until recently, a major commodity price shock
0
200
400
600
800
1000
1200
1400
0
50
100
150
200
250
Real Oil, Metals and Food Prices(1970 = 100)
1970 75 Q308
Food (LHS)
Metals (LHS)
Oil (RHS)
80 85 90 95 2000 05
6
As a result, advanced economies to As a result, advanced economies to come close to or move into recessioncome close to or move into recession
0
1
2
3
4
Growth
Potential
April 2008 WEO
July 2008 WEO
2007 08 09 102007 08 09 10 United StatesUnited States
2007 08 09 102007 08 09 10 Euro areaEuro area
2007 08 09 102007 08 09 10 JapanJapan
Real GDP Growth Rates(percent change)
7
Outlook for advanced economies
Source: IMF World Economic Outlook, October 2008, available at www.imf.org
8
Emerging economies have so far provided support to global growth
9
……and Asia has led growth in emerging and Asia has led growth in emerging economieseconomies
0
2
4
6
8
10Growth
HP Trend Growth
April 2008 WEO
July 2008 WEO
07 08 09 1007 08 09 10 AfricaAfrica
07 08 09 1007 08 09 10 EmergingEmerging AsiaAsia
07 08 09 1007 08 09 10Latin AmericaLatin America
07 08 09 1007 08 09 10 Middle EastMiddle East
07 08 09 1007 08 09 10 EmergingEmerging
Europe & CISEurope & CIS
Real GDP Growth Rates(percent change)
10
A note on country groupings Emerging Asia:
Newly Industrialized Asian Economies: Hong Kong SAR, Korea, Singapore, Taiwan Province of China
Developing Asia: Afghanistan, Rep. of, Bangladesh, Bhutan, Brunei Darussalam2, Cambodia, China, Fiji, India, Indonesia, Kiribati, Lao PDR, Malaysia, Maldives, Myanmar, Nepal, Pakistan, Papua New Guinea, Philippines, Samoa, Solomon Islands, Sri Lanka, Thailand, Timor-Leste, Dem. Rep. of, Tonga, Vanuatu, Vietnam.
11
Emerging economies account for a rising share of global growth
-6
-4
-2
0
2
4
6
8
10
12
14
Other Developing
India
China
Advanced economies
Contributions to Global Growth(percent change)
12
In general, the resilience in emerging and developing economies has grown, notably since the Asia crisis...Emerging and Developing Economy External Indicators
(percent of total GDP)
-4
-2
0
2
4
6
8
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 200715
20
25
30
35
40
45
Change inreserves
External Debt
(left scale)
Current account
13
...but countries with vulnerabilities are feeling the pressure
0
200
400
600
800
1000
1200
1400
1600
Countries with current account deficits > 5%
Countries with current account surpluses (or smalldeficits)
Emerging Economies: Credit Default Swap Spreads, 2004–08(In basis points, July 2007 = 100)
2004 Sep.08
070605
14
Risks to global growth are to the downside
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2005 2006 2007 2008 2009
90% Confidence interval
70% Confidence interval50% Confidence interval
Global GDP Growth(percent change, ppp-GDP weighted
average)
15
According to one indicator, a global recession is more likely than not
16
Major down side factors include potential further deterioration in financial conditions and domestic demand in the US.
17
Outlook for Asia
18
Outlook for Asia
19
Trade exposure to the US has risen
1994 2006 1994 2006
Japan 2.5 3.4 3.0 4.4Australia 0.9 1.1 1.6 2.1New Zealand 2.8 3.0 3.7 4.0
China 5.6 9.6 7.6 12.2India 1.7 2.4 2.0 3.1
Hong Kong SAR 16.7 14.8 20.0 21.8Korea 4.9 5.1 6.1 8.7Singapore 23.9 17.3 31.9 30.8Taiwan POC 10.4 9.9 12.9 15.5
Indonesia 3.3 3.5 4.5 5.6Malaysia 18.0 22.7 25.0 31.7Philippines 8.8 8.0 9.8 12.0Thailand 7.0 10.5 8.9 15.1Vietnam 1.4 15.2 2.8 18.5
Asia 7.7 9.0 10.0 13.3Industrial Asia 2.1 2.5 2.8 3.5Emerging Asia 9.2 10.8 12.0 15.9
Sources: UN COMTRADE Database; and IMF staff calculations.
Export Exposure to the United States(In percent of GDP)
Direct Total
20
…as has exposure to financial assets
Dec-94 Dec-06 Dec-94 Jun-06
Japan 2.5 13.0 4.4 25.0Australia 6.8 20.4 2.6 15.0New Zealand 10.5 9.3 2.9 12.7
China 0.3 2.2 2.3 28.8India … 5.5 … 2.5
Hong Kong SAR 12.6 42.2 14.8 61.3Korea 1.4 12.4 1.2 14.2Singapore 8.6 35.8 42.9 129.2Taiwan POC 0.2 19.4 13.1 39.8
Indonesia 1.2 3.7 1.0 3.4Malaysia 11.5 9.2 6.8 10.5Philippines 3.1 7.9 3.3 7.9Thailand 3.1 5.7 4.4 8.2Vietnam … 0.1 … 4.1
Asia 5.1 13.3 8.3 25.9Industrial Asia 6.6 14.2 3.3 17.6Emerging Asia 4.6 13.1 10.0 28.2
Financial Exposure to the United States(In percent of GDP)
U.S. Holdings of Asian Portfolio Securities
Asian Holdings of U.S. Portfolio Securities
Sources: U.S. Department of the Treasury, Treasury International Capital System; CEIC Data Company Ltd.; Haver Analytics; and IMF, Information Notice System, and staff calculations.
21
Perhaps due to higher exposure, growth in Asia is now more correlated with U.S. growth than in the 1990s.
1990-96 2000-07
Japan -0.06 0.41Australia 0.74 0.38New Zealand 0.28 0.23
China … 0.08India … 0.14
Hong Kong SAR 0.16 0.61Korea -0.32 0.30Singapore 0.31 0.62Taiwan POC 0.24 0.61
Indonesia 0.06 0.05Malaysia -0.26 0.52Philippines 0.28 0.47Thailand -0.20 0.47Vietnam … 0.20
Growth Correlation with the United States
Sources: CEIC Data Company Ltd.; and IMF staff calculations.
22
Financial correlations have also increased over time
1990-96 2000-07
Japan 0.26 0.52Australia 0.52 0.71New Zealand … 0.49
China … 0.08India -0.01 0.45
Hong Kong SAR 0.35 0.69Korea 0.12 0.59Singapore 0.49 0.61Taiwan POC 0.16 0.49
Indonesia 0.26 0.43Malaysia 0.37 0.30Philippines 0.34 0.45Thailand 0.38 0.43Vietnam … 0.10
Asia 0.29 0.45High financial exposure 0.35 0.57Low financial exposure 0.23 0.34
Correlations in Stock Market Returns
Sources: Bloomberg LP.; and IMF staff calculations.
23
Key results from investigating spillovers from US to Asia: On average over the last fifteen years, a one
percentage point slowdown in the U.S. has led to an estimated ¼ percentage point slowdown in Japan, and a ¼-½ point slowdown in emerging Asia.
The average spillover for emerging Asia masks wide cross-country variation within the region, with particularly large spillovers for the most-trade/financially exposed countries.
These long-sample estimates of spillovers may understate current vulnerabilities.
24
Estimated spillovers show large variations within the region
Cross-Country Regressions
VAR with Financial Variables
Japan 0.3 0.2Australia 0.7 0.5New Zealand 0.9 0.3
China 0.1 0.0India -0.2 0.0
Hong Kong SAR 1.0 0.8Korea 0.1 0.1Singapore 1.1 0.9Tawan POC 1.2 0.9
Indonesia 0.2 0.4Malaysia 0.5 0.7Philippines 0.6 0.4Thailand 1.0 0.5
Asia 0.3 0.2Emerging Asia 0.2 0.2Emerging Asia(excl. China and India) 0.5 0.5
(In percentage points)
Source: IMF staff estimates.
Summary of Results: Impact of one percentage point U.S. Slowdown
25
Key results (cont’d) Why might long-sample estimates understate
spillovers at the current juncture?→ Reestimating our regressions over shorter samples suggests that spillovers have increased over time, not least for China, consistent with our finding of growing trade and financial integration with the United States.
→ When U.S. demand shocks are accompanied by realistic declines in global confidence, model simulations predict substantially larger spillovers (0.7 percentage point growth slowdown in Asia for a one percentage point slowdown in the U.S.)
→ Specific U.S. recessions have in the past generated large negative spillovers to Asia, as witnessed by the 2001 recession.
26
Finally, U.S. slowdowns can have very large impacts on Asia, as evidenced by the 2001 recession.
Hodrick-Prescott Baxter-KingFilter Filter
United States -1.90 -1.89
Japan -1.41 -1.49Australia -0.70 -0.92New Zealand -0.04 -0.18China -0.42 -1.53India 0.16 -0.73
Hong Kong SAR -2.84 -3.39Korea -0.94 -1.01Singapore -7.80 -7.72Taiwan POC -5.54 -5.59
Indonesia 0.48 0.61Malaysia -3.41 -3.51Philippines -1.17 -1.63Thailand -0.98 -1.15Vietnam -0.60 …
Asia2 -1.80 -2.17High trade exposure2 -3.19 -3.83Low trade exposure2 -0.41 -0.75
Impact of 2001 U.S. Recession1
(In percent)
Sources: CEIC Data Company Ltd.; and IMF staff calculations.
1 Measured as the average change in the output gap during the recession relative to preceding four quarters.
2 Arithmetic nonweighted average.
27
To conclude The world is facing a major economic
shock To date, Asia has held up better than the
rest of the world But Asia is exposed and the spillover
effects could be larger than expected
28
Thank you
REZA BAQIRIMF Office Manila
(02) 536 0785, 400 4985