The Asia-Pacific Economic Outlook and Policy Challenges in an Uncertain Global Environment
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The Asia-Pacific Economic Outlook and Policy Challenges in an Uncertain Global Environment

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Naoyuki Shinohara
Deputy Managing Director
International Monetary Fund

Asian Institute of Management
Manila, November 4, 2011

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The Asia-Pacific Economic Outlook and Policy Challenges in an Uncertain Global Environment The Asia-Pacific Economic Outlook and Policy Challenges in an Uncertain Global Environment Presentation Transcript

  • The Asia-Pacific Economic Outlook and PolicyChallenges in an Uncertain Global Environment Naoyuki Shinohara Deputy Managing Director International Monetary Fund Asian Institute of Management Manila, November 4, 2011 1
  • Plan of the Presentation1. Advanced Economies: Outlook and Risks2. Emerging Asia: Outlook, Risks, and Policies3. The Philippines: Short and Long Term Challenges 2
  • Advanced Economies Outlook and Risks 3
  • Global Outlook In advanced economies, adverse feedback loops between fiscal and financial vulnerabilities remain a key concern Bank CDS spreads Sovereign CDS spreads (5-year, basis points) (5-year, basis points)600 700 Lehman Current Lehman Current500 600 500400 400300 300200 200100 100 0 0 Euro area United States Euro area United States Note: Current refers to data as of October 28. 4
  • Global OutlookIn the U.S., household balance sheet are still repairing U.S. House Price Indices U.S. Household Net Worth (January 2006 =100) (Percent of disposable personal income; business cycle peak = 100) Case-Shiller 20-city index CoreLogic (incl. distressed) 110 CoreLogic (excl. distressed)105 Case-Shiller national index (2006Q1=100) 105 Range of previous recessions, 1953-2001100 100 95 95 90 90 85 85 80 80 75 75 Current episode 70 70 65 11 10 12 13 14 3 7 0 1 2 4 5 6 8 9 2006 2007 2008 2009 2010 2011 5
  • Global Outlook Global growth has been revised down WEO Real GDP Growth Projections (percent change from a year earlier) Euro World U.S. Area Japan Brazil Russia India China 2011 4.0 1.5 1.6 -0.5 3.8 4.3 7.8 9.5(Sep 2011) 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 6
  • Global Outlook Risks to the global economy are tilted to the downside Risks to the Global Outlook (Baseline forecast and selected confidence bands) 90 percent confidence interval 70 percent confidence interval 50 percent confidence interval 90 percent confidence interval (April 2011) 7 6 Central forecast 5 4 3 2 1 0 -1 -22007 2008 2009 2010 2011 2012 7
  • Emerging AsiaOutlook, Risks and Policies 8
  • EM Asia Outlook and Risks Financial turbulence in advanced economies has spilled over to Asia and activity is moderating Stock Indices Exchange Rate against U.S. Dollar Selected Asia: Manufacturing PMI (Percent change; (Percent change, increase = depreciation; (Seasonally adjusted; 50=neutral) as of October 31, 2011) as of October 31, 2011) Change since August 1 Change since August 1 end-2010 Aug-11 Latest Largest 2-month change since January Largest 2-month change since January 60 2008 2008 5810 50 56 0 40 54 52-10 30 50-20 20 48-30 46 10-40 44 0 42-50-60 -10 40 Australia New Zealand Singapore China Japan India Korea Hong Kong SAR Hong Kong SAR Hungary Australia Indonesia Korea Mexico Poland India Thailand Philippines Malaysia Singapore Euro Russia China Brazil New Zealand Japan Vietnam Taiwan Province of China Malaysia Japan Korea Hong Kong SAR China Australia New Zealand Vietnam Euro area Latin America Thailand Emerging Europe Indonesia India Philippines Singapore United States Taiwan Province of China Taiwan Province of China Note: latest data refer to October 2011, except for Hong Kong SAR and New Zealand (September 2011). 9
  • EM Asia Outlook and Risks Growth forecast have been revised down slightly, but risks tilted decidedly to the downside Asia: Projected GDP Growth Asia: GDP Growth (in percent; year over year) (Central forecast and selected confidence intervals; in percent) Difference Actual data and 10 from April latest projections 2011 2010 2011 2012 2011 2012 9 Central forecastIndustrial Asia 3.7 0.0 2.5 -1.7 0.2 Australia 2.7 1.8 3.3 -1.2 -0.2 8 Japan 4.0 -0.5 2.3 -1.9 0.2 New Zealand 1.7 2.0 3.8 1.1 -0.3 7Emerging Asia 9.5 7.9 7.7 -0.2 -0.3 China 10.3 9.5 9.0 -0.1 -0.5 6 Hong Kong SAR 7.0 6.0 4.3 0.6 0.1 5 Korea 6.2 4.0 4.4 -0.5 0.2 Taiwan Province of 4 China 10.9 5.2 5.0 -0.2 -0.2 3 90 percent confidence interval India 10.1 7.8 7.5 -0.4 -0.3 2 70 percent confidence interval Indonesia 6.1 6.4 6.3 0.2 -0.2 50 percent confidence interval Malaysia 7.2 5.2 5.1 -0.3 -0.1 1 Philippines 7.6 4.7 4.9 -0.3 -0.1 Singapore 14.5 5.3 4.3 0.1 -0.1 0 Thailand 7.8 3.5 4.8 -0.4 0.3 2007 2008 2009 2010 2011 2012 Vietnam 6.8 5.8 6.3 -0.5 -0.5 Asia 8.3 6.3 6.7 -0.5 -0.2 10
  • EM Asia Outlook and Risks Another global recession:Would hit emerging Asia hard through the trade channel… Selected Asia: Contribution of Non-Asian Export-Oriented Asia: Private Domestic Final Demand to Value Added Demand and Exports (In percent of GDP) (Year over year percent change) 60 Private domestic demand (left scale) 1995-2000 2001-2010 50 Exports of goods (right scale) 10 50 OECD 8 40 40 average (2005) 6 30 30 4 20 2 10 20 0 0 -2 -10 10 -4 -20 -6 -30 0 -8 -40 Philippines Singapore China Thailand Indonesia Malaysia Korea of China Taiwan Province -10 -50 -12 -60 2000:Q1 2002:Q1 2004:Q1 2006:Q1 2008:Q1 2010:Q1 2011:Q2 Note: Includes China, Hong Kong SAR, Japan, Korea, Malaysia, the Philippines, Taiwan Province of 11 China, and Thailand.
  • EM Asia Outlook and Risks … and the financial channel Selected Asia: Foreign Holdings in Local Consolidated Claims of European and U.S. Currency Government Bonds Banks on Selected Asia (In percent of total outstanding local currency (In percent of GDP; as of 2011:Q2) government bond) Other European banks Indonesia Korea Malaysia Thailand U.K. banks 25 Euro area (excl. France) banks40 French banks 20 U.S. banks35 1530 1025 520 015 of China Taiwan Province Philippines China India Thailand Malaysia Indonesia Japan Australia New Zealand Korea1050 2000:Q1 2001:Q1 2002:Q1 2003:Q1 2004:Q1 2005:Q1 2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q3 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. 12
  • PoliciesDownside risks may warrant a pause in monetary tightening Fiscal normalization should be allowed to stay the course Emerging Asia: Overheating Index and Asia: Cyclically Adjusted Fiscal Balances in Vulnerability to 2012 a Slowdown in G2 Growth (Deviation from 2002-07 average, percent of GDP) 2.5 Increasing vulnerability to slowdown in G–2 2 2.0 1 Overheating index CHN 1.5 (2011:Q2) IDN KOR 0 IND MYS 1.0 SGP -1 overheating PHL THA Increasing pressure 0.5 TWN -2 0.0 0.00 1.00 2.00 -3 Change (in percentage point) in -4 Philippines Singapore of China China India Taiwan Province Thailand Indonesia Australia Japan Malaysia GDP growth following a Korea New Zealand Hong Kong SAR 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. 13
  • Policies Exchange rates: room for further appreciation Selected Asia: REER FX Reserves to Short Term Debt (index, 2007=100) (end of 2010, in remaining maturity basis) Korea Indonesia Philippines Thailand China 1000160 800140 600120 400100 20080 0 America Europe EM Eastern EM Latin60 China India East Asia ASEAN (excl. China)40 Sep-11 Jan-91 Jan-96 Jan-01 Jan-03 Jan-06 Jan-08 Jan-11 Jan-90 Jan-92 Jan-93 Jan-94 Jan-95 Jan-97 Jan-98 Jan-99 Jan-00 Jan-02 Jan-04 Jan-05 Jan-07 Jan-09 Jan-10 ASEAN includes Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. 14
  • PoliciesWhat if there is another global crisis/recession?Asia has ample room to respond: Draw on abundant FX reserves or regional reservepooling arrangements Shift aggressively to ease monetary policy Reverse fiscal consolidation (for those with fiscalspace) Guarantees bank liabilities Deploy extraordinary measures (such as expansionof central bank balance sheets or exceptional liquidityprovision) should rates approach the zero bound 15
  • PoliciesAdvancing rebalancing would reduce the vulnerability to external shocks, and help make growth more inclusive Global Current Account Balances EMs: Change in Gini Index, Last Two Decades (in percent of world GDP) (In Gini points, since 1990) Rest of the world Emerging Asia Population-weighted average Japan and Germany Oil exporters China United States Simple Average 3 Projections Other Asia 2 South Asia 1 Industrial Asia NIEs 0 ASEAN -1 SSA MENA -2 Global discrepancy Lat AM -3 CEE 2000 2004 2008 2012 2013 2001 2002 2003 2005 2006 2007 2009 2010 2011 2014 2015 -4 -2 0 2 4 6 8 10 12 16
  • The Philippines: Short and Long Term Challenges 17
  • The Philippines Philippines: Growth has slowed, but inflation has remained elevated Philippines: Contributions to Growth Headline CPI Inflation Private Credit Growth (In percentage points; y/y) (In percent; y/y) (In percent; y/y) Private consumption Indonesia Malaysia Indonesia Malaysia Public consumption Philippines Thailand Fixed investment Philippines Thailand20 Change in stocks 14 40 Net exports 12 3515 10 3010 8 25 5 6 20 0 4 15 2 -5 10 0-10 5 -2-15 -4 0 2008Q1 2008Q2 2009Q1 2009Q4 2010Q3 2008Q3 2008Q4 2009Q2 2009Q3 2010Q1 2010Q2 2010Q4 2011Q1 2011Q2 Mar-11 Mar-07 Mar-08 Mar-09 Mar-10 Sep-10 Sep-11 Sep-07 Sep-08 Sep-09 Dec-07 Dec-08 Dec-09 Dec-10 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Mar-07 Mar-10 Mar-11 Mar-08 Mar-09 Sep-07 Sep-09 Sep-10 Sep-11 Sep-08 Dec-07 Dec-08 Dec-09 Dec-10 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 18 18
  • The Philippines In the Philippines, poverty reduction remains a key issue The Philippine Development Plan focuses on inclusive growth Selected Asia: Change in Poverty Headcount (In percentage points, since 1990; at 2005 PPP prices) Key measures for inclusive At $2 per day At $1.25 per day growth in the Philippine Mongolia (2005, 22.4/49.1) Development Plan: Malaysia (2009, 0.0/2.3)Bangladesh (2005, 49.6/81.3)  Infrastructure investment Thailand (2009, 10.8/26.5) Sri Lanka (2007, 7.0/29.1)  Governance reformPhilippines (2006, 22.6/45.0) India (2005, 41.6/75.6)  Investment in education and Nepal (2004. 55.1/77.6) health Cambodia (2007, 28.3/56.5) Lao P.D.R. (2008, 33.9/66.0)  Supporting the poor Indonesia (2009, 18.7/50.6) China (2005, 15.9/36.3) Vietnam (2008, 13.1/38.5) -75 -50 -25 0 25 19
  • The PhilippinesAs in other ASEAN economies, strengthening sustainable growth in the Philippines will involve more infrastructure spending Effect of Infrastructure on Private Infrastructure Gap Investment Spending (In percent of GDP: increase associated with one percent increase in infrastructure) ASEAN Other Emerging Markets 2.5 Non-Asia Advanced Economies Phones per 1,000 Electricity 2.060 people generation (billion 200 (LHS) kilowatt hours per 180 1.550 capita, RHS) 16040 140 1.0 12030 100 0.5 8020 60 0.010 40 Electricity Cellphones Telephones 20 0 0 Latest Latest 1995 1995 2005 2005 20
  • Summing up • Risks of adverse feedback loops from fiscalAdvanced Economies: and financial fragilities persistOutlook and Risks • G2 growth has slowed • Risks tilted to the downside •Healthy growth thanks to strong domestic demandEmerging Asia: Outlook, • But downside risks dominate—does this callRisks, and Policies for a pause in tightening? •Advancing rebalancing demand is key, and will also lead to more inclusive growthThe Philippines: Short and •Resilient growth and inflation elevated •Over the medium term, need to make growthLong Term Challenges more inclusive and increase infrastructure 21
  • ConclusionsAsia is still expected to continue growing at a solid rate in 2011and 2012. But downside risks from a weakening global economyhave greatly intensified. Persistent weakness in advanced economies underscores theimportance of shifting the growth model in Asia. This means advancing the policies needed for rebalancing andmaintaining flexible exchange rates. This would help shift theengines for growth toward domestic demand and make growthmore inclusive. In the near term, Asia should pause monetary tightening in thosecountries where there is room, to allow time for greater clarity onthe prospects for the advanced economies. But fiscal consolidationshould be allowed to run its course, and Asia has still room torespond if downside risks materialize. 22
  • THANK YOU. 23