Asian Development Outlook Asian Development Outlook 20092009

Rebalancing Asia’s GrowthRebalancing Asia’s Growth

Donghyun ParkSenior Economist

Economics and Research DepartmentAsian Development Bank

31 March 2009

OutlineOutline

1. Economic prospects– Global recession– Impact on Asia– Regional outlook (2009 and 2010)

2. Rebalancing Asia’s growth

Key messagesKey messages

• Growth to decelerate further in 2009• Inflationary pressures continue to

ease • Downside risks high from global

economic uncertainty• Governments adopt policy measures

to counter crisis effects• Rebalancing needed to support long-

term growth and welfare

Developing Asia’s growth Developing Asia’s growth down this yeardown this year

7.9 8.18.9

9.5

6.3

3.4

6.0

0

2

4

6

8

10

2004 2005 2006 2007 2008 2009 2010

%

GDP Growth 5-year moving average

Inflationary pressures easeInflationary pressures ease

4.03.4 3.3

4.4

6.9

2.4 2.4

0

2

4

6

8

2004 2005 2006 2007 2008 2009 2010

%

Inflation 5-year moving average

Regional outlookRegional outlook

GDP growth

0 5 10

CentralAsia

East Asia

South Asia

SoutheastAsia

The Pacific

DevelopingAsia

%

2008 2009 2010

Inflation

0 10 20

CentralAsia

East Asia

South Asia

SoutheastAsia

The Pacific

DevelopingAsia

%

2008 2009 2010

Global recession this yearGlobal recession this year

2007 Actual

2008 Actual

2009 Projectio

n

2010 Projectio

n

GDP growth (%)

Industrial countries

2.3 0.7 -2.6 1.1

United States 2.0 1.1 -2.4 1.6

Eurozone 2.6 0.8 -2.6 0.5

Japan 2.4 -0.6 -3.5 1.1

Inflation (G3 average)

2.2 3.2 -0.3 1.2

World trade volume (% change)

7.5 6.2 -3.5 1.9

US output dropped US output dropped as domestic demand wanedas domestic demand waned

Contributions to GDP growth, United States

-9-6-3036

Q12007

Q2 Q3 Q4 Q12008

Q2 Q3 Q4

ppts

Personal consumption Government consumptionGross fixed capital formation Change in inventoriesNet exports GDP growth

Japan’s output clipped Japan’s output clipped as exports plummetas exports plummet

Contributions to GDP growth, Japan

-15-10-505

10

Q12007

Q2 Q3 Q4 Q12008

Q2 Q3 Q4

ppts

Private consumption Government consumptionGross capital formation Net exportsResidual GDP growth

Eurozone output declinedEurozone output declinedas exports and consumption fellas exports and consumption fell

Contributions to GDP growth, Eurozone

-9-6-3036

Q12007

Q2 Q3 Q4 Q12008

Q2 Q3 Q4

ppts

Private consumption Government consumptionGross capital formation Net exportsStatistical discrepancy GDP growth

Risks to the global outlookRisks to the global outlook

• Ineffective financial crisis resolution

• Insufficient fiscal stimulus• Emerging protectionism• Volatile commodity prices• Deflationary threat• Socio-political instability

Asia’s subprime losses limitedAsia’s subprime losses limited

US Japan Asia

Subprime losses($ billion)

157.7 8.7 19.5

% of bank assets

10.03 1.52 1.95

% of bank capital

1.02 0.08 0.09

Notes: Asia includes Japan.Data as of May 2008.

Asia’s banking sectors solid …Asia’s banking sectors solid …

Nonperforming loans

0 10 20 30 40 50

China, People's Rep. ofHong Kong, China

IndiaIndonesia

Korea, Rep. ofMalaysia

PhilippinesSingapore

Thailand

% of bank loans

1999 Latest

… … but there are concernsbut there are concerns

Equity prices

50

100

150

200

Jan-06 Jan-07 Jan-08 Jan-09

1Jan06=100

US Dow Jones Developing Asia

JPMorgan EMBI stripped spreads

0

500

1000

1500

2000

2500

Jan-06 Jan-07 Jan-08 Jan-09

basis points

Indonesia PakistanPhilippines Viet Nam

Exports down … Exports down … (y-o-y, 3-month moving average)(y-o-y, 3-month moving average)

East Asia

-40

-30

-20

-10

0

10

20

30

40

Jan-07

May Sep Jan-08

May Sep Jan-09

%

China, People's Rep. ofHong Kong, ChinaKorea, Rep. ofTaipei,China

South and Southeast Asia

-40

-20

0

20

40

60

Jan-07

May Sep Jan-08

May Sep Jan-09

%

India IndonesiaMalaysia PhilippinesSingapore Thailand

… … but imports more sobut imports more so(y-o-y, 3-month moving (y-o-y, 3-month moving

average)average)East Asia

-50

-25

0

25

50

Jan-07

May Sep Jan-08

May Sep Jan-09

%

China, People's Rep. ofHong Kong, ChinaKorea, Rep. ofTaipei,China

South and Southeast Asia

-40

-20

0

20

40

60

80

Jan-07

May Sep Jan-08

May Sep Jan-09

%

India IndonesiaMalaysia PhilippinesSingapore Thailand

Unemployment on the riseUnemployment on the rise

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Jan-07

Jul Jan-08

Jul Jan-09

%

Hong Kong, ChinaKoreaTaipei,China

0

2

4

6

8

10

Q12007

Q3 Q12008

Q3

%

Malaysia PhilippinesSri Lanka Thailand

Retail sales slowingRetail sales slowing(y-o-y)(y-o-y)

East Asia

-15

-10

-5

0

5

10

15

20

25

Q1 2007 Q3 Q1 2008 Q3 Q1 2009

%

China, People's Rep. ofHong Kong, ChinaKorea, Rep. ofTaipei,China

Southeast Asia

-20

-10

0

10

20

30

40

Q12007

Q3 Q12008

Q3 Q12009

%

Malaysia SingaporeThailand Viet Nam

Regional growth to decelerateRegional growth to decelerate

0

2

4

6

8

CentralAsia

East Asia South Asia SoutheastAsia

The Pacific DevelopingAsia

%

2008 2009 2010

Inflation easesInflation eases

0

3

6

9

12

15

18

CentralAsia

East Asia South Asia SoutheastAsia

The Pacific DevelopingAsia

%

2008 2009 2010

Current account to remain in Current account to remain in surplussurplus

-15

-10

-5

0

5

10

15

CentralAsia

East Asia South Asia SoutheastAsia

The Pacific DevelopingAsia

% of GDP

2008 2009 2010

Policy responses Policy responses

• Cut policy rates and reserve requirements

• Increase foreign exchange swaps• Hike deposit guarantees• Cut taxes• Target cash transfers• Hike infrastructure spending• Frontload disbursements

Policy rates cutPolicy rates cut

-800 -600 -400 -200 0 200 400

Viet NamIndia

Korea, Rep. ofHong Kong, China

Taipei,ChinaThailand

China, People's Rep. ofIndonesiaMalaysia

PhilippinesKazakhstan

SingaporeSri LankaPakistan

basis points

Fiscal stimulus packages Fiscal stimulus packages announcedannounced

Economy Size of package

% of GDP

China, People’s Rep. of

CNY4 trillion 13.3

Hong Kong, China HK$24.1 billion

1.4

India Rs800 billion 1.7

Indonesia Rp73.3 trillion

1.5

Korea, Rep. of W33 trillion 3.2

Malaysia RM67 billion 9.0

Philippines P330 billion 4.4

Singapore S$20.5 billion 8.0

Taipei,China NT$605 billion

4.8

Thailand B117 billion 1.3

East Asia’s domestic demand East Asia’s domestic demand unable to counter export unable to counter export

slowdownslowdownGDP Growth

-6

-3

0

3

6

9

12

EastAsia

PRC HKG KOR TAP

%

2008 2009 2010

Inflation

0

2

4

6

8

EastAsia

PRC HKG KOR TAP

%

2008 2009 2010PRC=China, People’s Republic ofHKG=Hong Kong, China

KOR=Korea, Republic ofTAP=Taipei,China

South Asia less affected by South Asia less affected by global recessionglobal recession

GDP Growth

0

3

6

9

SouthAsia

IND PAK BAN SRI

%

2008 2009 2010

Inflation

0

5

10

15

20

25

SouthAsia

IND PAK BAN SRI

%

2008 2009 2010IND=IndiaPAK=Pakistan

BAN=BangladeshSRI=Sri Lanka

Southeast Asia Southeast Asia near stagnationnear stagnation

GDP Growth

-6

-3

0

3

6

9

SEA INO MAL PHI SIN THA VIE

%

2008 2009 2010

Inflation

0

5

10

15

20

25

SEA INO MAL PHI SIN THA VIE

%

2008 2009 2010SEA=Southeast AsiaINO=Indonesia

SIN=SingaporeTHA=Thailand

MAL=MalaysiaPHI=Philippines

VIE=Viet Nam

Central Asia’s growth Central Asia’s growth to slow furtherto slow further

GDP Growth

0

3

6

9

12

CentralAsia

AZE GEO KAZ UZB

%

2008 2009 2010

Inflation

0

5

10

15

20

25

CentralAsia

AZE GEO KAZ UZB

%

2008 2009 2010AZE=AzerbaijanGEO=Georgia

KAZ=KazakhstanUZB=Uzbekistan

Expansion in the Pacific to Expansion in the Pacific to abateabate

GDP Growth

-3

0

3

6

9

12

Pacific PNG FIJ TIM SAM

%

2008 2009 2010

Inflation

0

5

10

15

Pacific PNG FIJ TIM SAM

%

2008 2009 2010PNG=Papua New GuineaFIJ=Fiji Islands

TIM=Timor-Leste, Dem. Rep. ofSAM=Samoa

Rebalancing Asia’s growthRebalancing Asia’s growth

• Asia’s sharp slowdown underlines risk of excessive reliance on external demand

• Region’s current account surplus an integral part of global imbalances

• Need to rebalance growth toward domestic demand

• Mix of policies required to shore up domestic and regional demand

Global imbalances remain largeGlobal imbalances remain large

-2

-1

0

1

2

3

1990 1994 1998 2002 2006 2010

% of world GDP

United States JapanChina, People's Rep. of RussiaMiddle East Rest of developing AsiaOther industrial countries Rest of world

Policy options to rebalance Policy options to rebalance growthgrowth

• Use fiscal and other policies to strengthen domestic consumption

• Enhance investment climate• Promote small- and medium-sized

enterprises and service industries• Adopt financial development and

exchange rate policies to promote better supply-demand balance

Policy options to rebalance Policy options to rebalance growthgrowth

• Strengthen regional cooperation• Encourage international dialogue to

resolve global imbalances

Asia’s rebalancing will contribute to orderly unwinding of global imbalances

Developing Asia should rebalance for its own growth and welfare

Thank youThank you

Contact:Asian Development Bank

6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippines

www.adb.org

Key messagesKey messages

• Growth to decelerate further in 2009• Inflationary pressures continue to

ease • Downside risks high from global

economic uncertainty• Governments adopt policy measures

to counter crisis effects• Rebalancing needed to support long-

term growth and welfare