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2017/FMM/003 Session: 1

Regional Economic Outlook and Integration in Asia and the Pacific

Purpose: Information Submitted by: ADB

24th Finance Ministers’ MeetingHoi An, Viet Nam

20-21 October 2017

Regional Economic Outlook and Integration in Asia and the Pacific

Stephen P. GroffVice-President (Operations 2) Asian Development Bank

APEC Finance Minister’s Meeting20-21 October 2017 | Hoi An, Viet Nam

Key Messages• Broad-based recovery across APEC economies but

o Policy and reform uncertainty in advanced economieso High level private and external debt remains a concern

• Synchronized trade recovery in Asia

• Intraregional trade and FDI linkages boost economic resilience in Asia

• Asia takes the lion’s share of global trade in services

• Technology can be leveraged to improve inclusiveness of trade-driven growth

2

APEC Economic Outlook and Risks

3

Higher growth in 2017 for APEC as a whole

4

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

3.3 3.32.9

3.4 3.3

6.46.0 5.9 6.0 5.8

0

2

4

6

8

2014 2015 2016 2017f 2018f

APEC Developing APEC-Asia

Note: f = forecasts; weighted using gross national income (Atlas method). Source: Asian Development Outlook Update September 2017, ADB and World Economic Outlook Database July 2017, IMF.

55

Source: Bloomberg; Haver Analytics; and CEIC Data Company (accessed 1 September 2017).

PRC growth exceeding expectations

45

50

55

-20

-10

0

10

20

30

Jan2014

Jan2015

Jan2016

Jan2017

Index

% change, year on year, 3-months moving average

Merchandise Exports and Purchasing Managers’ Index

Export growth PMI

expansion

contraction-2

0

2

4

6

8

10

Q12015

Q3 Q12016

Q3 Q12017

Demand-side Contributions to Growth (percentage points)

Net ExportsInvestmentsConsumptionGross domestic product

Risks have become more balanced

Monetary policy divergence between advanced and developing economies

Uncertainty over policy and economic reforms

Geopolitical risks and weather shocks

6

7

0

50

100

150

200

250

300

350

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

1996

Q2

2006

Q2

2016

Q4

PRC HKG INO IND JPN KOR MAL SIN THA

Households Non-financial corporations

Asia’s high private sector and external debt presents risks to the region’s financial stability

GDP= gross domestic product; HKG = Hong Kong, China; INO = Indonesia; IND = India; JPN = Japan; KOR = Republic of Korea; MAL = Malaysia; PRC = People’s Republic of China; SIN = Singapore; THA = Thailand. Notes: Credit to the private sector refers to total credit to the private non-financial sector, capturing total borrowing from all domestic and foreign sources. In terms of financial instruments, credit covers the core debt, which is equal to loans and debt securities. For India, data starts second quarter of 2007.Source: Bank for International (accessed July 2017).

Credit to Private Sector (% of GDP) External Debt (% of GDP)

GDP = gross domestic product, IND = India, INO = Indonesia, KOR = Republic of Korea, MAL = Malaysia, PHI = Philippines, PRC = People’s Republic of China, THA = Thailand.Note: Columns show the share of external debt as a percentage of GDP. The bold areas indicate the fraction of short-term external debt as a percentage of GDP. Latest data available are for 2016.Source: ADB calculations using data from CEIC; and World Bank Quarterly External Debt Statistics SDDS (accessed June 2017).

0

10

20

30

40

50

60

70

80

PRC IND INO KOR MAL PHI THA VIE Asia

2005 2010 2016

Updates on Regional Integration in Asia

and the Pacific

8

Asia’s integration trends at a glance

9

— = data unavailable; FDI = foreign direct investment (flows data); Equity = equity asset holdings (stock data); Debt = debt asset holdings (stock data).Note: Where 2016 data is not available, the latest year for available data is indicated in parenthesis (year).Source: ADB calculations using data from ADB. Asian Economic Integration Report 2017 (forthcoming).

Intraregional Shares (% of total)

-40 -20 0 20 40

MongoliaKyrgyz Republic

KazakhstanArmenia

AzerbaijanGeorgia

Viet NamIndonesia

Republic of KoreaSri Lanka

PhilippinesMalaysia

IndiaSingapore

Hong Kong, ChinaThailand

NepalBrunei Darussalam

People's Rep. of ChinaTajikistan

CambodiaPakistan

BangladeshMyanmar

Jan 2015 to Sep 2016 Oct 2016 to Jul 2017

-40 -20 0 20 40 60

NepalCambodia

PakistanArmenia

Viet NamIndia

MongoliaKazakhstan

Republic of KoreaPeople's Rep. of China

IndonesiaThailandMalaysia

PhilippinesSingapore

BangladeshGeorgia

Hong Kong, ChinaKyrgyz Republic

Sri LankaBrunei Darussalam

MyanmarAzerbaijanTajikistan

Jan 2015 to Sep 2016 Oct 2016 to July 2017

Synchronized rebound in trade

Note: Unless otherwise indicated, 2017 data refers to the period January to July 2017. KGZ 2017 data ends in April; Cambodia, in May; and Bangladesh and Brunei Darussalam in June.

Sources: CEIC Data Company and Haver Analytics (accessed 15 September 2017).

Growth in Nominal Exports (%, y-t-d) Growth in Nominal Imports (%, y-t-d)

11

Asia’s IntraregionalTrade Shares (%)

Source: ADB calculations using data from ADB. Asian Economic Integration Report 2017 (forthcoming).

Regional integration deepens in Asia

0 20 40 60 80 100

2000

2010

2016

2000

2010

2016

2000

2010

2016

2000

2010

2016

2000

2010

2016

Cen

tral

Asi

aE

ast A

sia

Sou

th A

sia

Sou

thea

stA

sia

The

Pac

ific

and

Oce

ania

Intraregion Rest of the world

0

10

20

30

40

50

60

0

100

200

300

400

500

600

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

% s

hare

$ bi

llion

FDI Inflows to AsiaGlobal inward FDI in Asia (left)Asia's intraregional share (right)

12

Note: Services include six aggregate sectors: transport and storage;communications; energy; banking and finance; business and otherservices; tourism.Sources: ADB calculations using data from OECD. Creditor ReportingSystem; and UN Trade in Services Database..

Asia global player in services trade, e-commerce

0200400600800

1,0001,2001,4001,600

Services Trade by Region ($ billion)

Africa AmericasAsia and the Pacific Europe

0.7

0.8

2.6

3.1

4.5

0.0 1.0 2.0 3.0 4.0 5.0

Middle East andNorth Africa

Latin America

Europe

North America

Asia-Pacific

E-commerce as % of GDP, 2015

Source: E-commerce Foundation

Technology can be leveraged to improve inclusiveness of trade-driven growth

13

0

10

20

30

40

50

60

2000 2005 2010 2015

Internet users (per 100 people)

Central Asia East AsiaSouth Asia Southeast AsiaPacific

Source: World Bank. World Development Indicators.

Improve market access and remove regulatory barriers to digital trade

Intensify regional efforts to modernize and harmonize service trade, e-commerce, and digital regulations

Ensure compatibility of internet infrastructure across the region

Summary Economic Outlook: Broad-based recovery across APEC

economies

Risks are more balanced but geopolitical and global policy uncertainties remain elevated while the region continues to face pockets of fragility

Strong intraregional trade and FDI linkages provide a buffer against potential global headwinds

More efforts are needed to improve digital connectivity and address digital divide for inclusive growth

Regional cooperation to standardize and harmonize internet networks and transaction rules is needed to improve e-commerce and services trade

14

Thank you!

15

Spare Slides

16

APEC Economic Size

17

Numbers in brackets are in % of global population and nominal GDP. Sources: CEIC and IMF World Economic Outlook April 2017 Database.

Global outward FDI

18

0

5

10

15

20

25

30

35

40

45

0

500

1000

1500

2000

2500

% s

hare

$ bi

llion

Global outward FDI (left) Asia's share in global outward FDI (right)

Source: ADB calculations using data from UNCTAD.