[PPT] - Economic and Social Survey of Asia and the Pacific 2015: Year-end PowerPoint Presentation

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Economic and Social Survey of Asia and the Pacific 2015: Year-end Update

United Nations Conference Centre 14 January 2016

Dr. Shamshad Akhtar

Under-Secretary-General of the United Nations and Executive Secretary of ESCAP

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Key findings and messages

The Asia-Pacific region’s growth has plateaued around 5%. This has

implications for its ability to drive global economic recovery; the region should focus more on domestic and regional demand to revive growth

While deceleration in extra-regional trade is an important factor,

domestic demand and intra-regional trade also remains constrained

Key concern is impact on trade of slowdown in China and the recent

volatility in equity and currency markets in the country and the region

Despite relatively lower inflation, monetary policy faces unenviable

trade-offs. A more proactive fiscal policy stance is recommended to provide countercyclical support and strengthen long-term and inclusive growth

Key economic policy challenges include coping with rising private debt

and higher financing costs due to US monetary policy normalization

Overarching medium-term priority is making growth more inclusive and

strengthening productivity

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Economic growth remains on a declining trend

Slowdown in global trade as well

as in Chinese economy together with domestic infrastructure constraints is holding back faster growth

– Growth estimates for 2015 and 2016 downgraded from Survey 2015 – Growth seems to have plateaued around 5% compared to an average 9.4% growth between 2005 – 2007.

Declining growth trend in AP

region is in contrast to somewhat accelerating growth in adv. eco.

– AP region is no longer the leader in global economic recovery. – Highlights that domestic and regional factors are gaining significance and focus on them is important for growth revival in the region

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2 4 6 8 10 12 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year-on-year percentage change Developing Asia (current forecast) Developing Asia (forecast as of Survey 2015) Advanced economies World

Real GDP growth in developing Asia and the Pacific, advanced economies and the world, 2006-2016

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2016 Outlook: Selected Asia-Pacific economies

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Real GDP growth and inflation of selected Asia-Pacific economies

Real GDP growth Inflation (Percentage) Latest estimates Survey 2015 Latest estimates Survey 2015 2014 2015 2016 2015 2016 2014 2015 2016 2015 2016 China 7.3 6.9 6.5 7.0 6.8 2.0 1.5 2.2 1.7 2.5 Fiji 5.3 4.0 3.5 4.0 4.0 0.5 2.0 3.0 2.5 2.5 India 7.3 7.4 7.5 8.1 8.2 6.0 5.0 5.5 5.5 5.8 Indonesia 5.0 4.8 5.3 5.6 5.8 6.4 6.6 5.3 5.5 5.0 Japan –0.1 0.5 1.1 0.6 0.8 2.7 0.8 0.7 1.0 2.2 Malaysia 6.0 4.8 4.8 4.9 5.2 3.1 2.4 3.3 3.0 2.9 Philippines 6.1 5.9 6.3 6.5 6.4 4.1 1.8 3.2 3.0 3.2 Republic of Korea 3.3 2.6 2.9 3.4 3.7 1.3 0.7 1.6 1.9 2.6 Russian Federation 0.6 –3.9 –0.5 –4.0 –1.6 7.8 15.7 9.0 13.0 10.0 Singapore 2.9 2.0 2.2 3.1 3.5 1.0 –0.5 0.5 0.3 1.5 Thailand 0.9 2.6 3.5 3.9 4.0 1.9 –0.8 1.5 0.3 2.0 Developing ESCAP economies 5.3 4.5 5.0 4.9 5.2 4.2 4.2 4.0 4.3 4.4 Least developed countries 5.6 5.7 6.0 5.7 5.8 6.4 5.3 5.4 5.5 5.4 Landlocked developing countires 4.9 2.9 3.4 3.2 3.9 5.7 6.2 6.8 7.1 6.9 Small island developing States 6.5 6.3 4.3 9.6 4.8 3.1 3.8 4.0 4.3 4.3 Total ESCAP 3.5 3.2 3.6 3.4 3.7 3.7 3.0 2.9 3.1 3.6

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Slowdown in the Chinese economy continues

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1 3 5 7 9 11 13 15 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Percentage Cosumption Investment Net exports Growth 56.6% 42.5% 45.8% 44.8% 58.2% 48.1% 64.5% 57.1% 48.1% 50.7% 31.9% 42.5% 43.7% 52.1% 87.9% 67.3% 46.2% 41.6% 54.5% 49.3% 11.5% 15.0% 10.6% 3.1%

45.1%
13.5%
8.6%

1.3%

2.6%

1.4%

China growth contributions, by expenditure, 2005-2014 China slowdown in manufacturing and Industrial output, 2012-2015

4 5 6 7 8 9 10 11 12 13 45 46 47 48 49 50 51 52 53 54 55 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Percentage change Percentage PMI (manufacturing) RHS Industrial production index

Mostly due to China’s ongoing efforts, for the right reasons, to rebalance the

economy towards domestic demand, particularly consumption

Share of (net) exports and investment is declining.
Industrial production has slowed due to both external and internal factors.
Lower demand by advanced economies for Chinese exports
Less demand for new projects due to higher supply from previous activity.

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Chinese slowdown having large spillovers to the region

Slowdown in domestic demand by China is impacting regional trade.

– Most affected are commodity-exporters ( Indonesia) and manufacturing exporters (Singapore, Republic of Korea, Taiwan Province of China)

In 2015, it has impacted both the equity and currency markets in China as

well as the region; as seen again in recent days.

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Growth of exports to China for selected Asia-Pacific economies, 2012-2015 Equity market performance for China and selected economies, 2015-2016

80 90 100 110 120 130 140 150 160 01-Jan-15 01-Mar-15 01-May-15 01-Jul-15 01-Sep-15 01-Nov-15 01-Jan-16 Index January 2015 = 100 Thailand China India Indonesia Korea Singapore

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20
15
10
5

5 10 2012 2013 2014 2015 Year-on-year percentage change

Malaysia Thailand Republic of Korea Singapore Indonesia Japan

Note: Data for 2015 is available up to November 2015.

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Moderate recovery in advanced economies also affecting the region given its export-led growth orientation

Apart from slowing demand in China,

slow recovery in advanced economies is affecting exporting economies in region directly …

– Global trade in 2015 is expected to show slowest expansion since 2009

…and indirectly through re-exports

from China.

– China has seen consecutive months

f export contraction over second

half of 2015 – This translates into less demand for products from the region for processing and onward export by China

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Monthly export growth for selected AP economies, 2010-2015

60
40
20

20 40 60 80 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul-2015 Sep-2015 Nov-2015 Percentage change Indonesia Republic of Korea Russian Federation Thailand Singapore

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Domestic demand is also not growing in a robust manner

Consumption being affected in some economies due to rapid accumulation in

private debt and relatively high inflation

Investment being affected by slow progress in reforms, a constrained private

sector, and high economic uncertainty.

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1 2 3 4 5 Malaysia Russian Federation Indonesia Thailand Percentage points 2012 2013 2014

Contributions of private consumption to economic growth in selected developing Asia-Pacific economies, 2012-2014

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1 2 3 4 5 Malaysia Russian Federation Indonesia Thailand Percentage points 2012 2013 2014

Contributions of fixed investment to economic growth in selected developing Asia-Pacific economies, 2012-2014

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Slower economic activity coupled with lower commodity prices drive inflation downwards

An important factor behind inflation

dynamics is the effect of commodity imports/exports on exchange rates

For most commodity-importers,

exchange rate impact is less pronounced due to lower commodity prices

lower imported inflation in South-

East Asia and East and North East Asia

For commodity-exporters, there is

higher exchange rate depreciation due to low commodity prices.

higher imported inflation in North

and Central Asia

Inflation for developing Asia-Pacific region, 2009-2016 Oil and commodity price trends, 2009-2015

40 50 60 70 80 90 100 110 120 50 70 90 110 130 150 170 190 210 230 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Average crude price (USD per Barrel) All commodity price Index (2005 = 100) All commodity price index (LHS) Average crude price (RHS)

3 4 5 6 7 2009 2010 2011 2012 2013 2014 2015 2016

Year-on-year percentage change

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Currency depreciation has accelerated due to US MP policy normalization and Chinese growth concerns

General outflow of portfolio capital
US policy normalization will be an
ngoing factor. Initial impact in

December 2015 was factored in but uncertainty regarding path of increase could lead to volatility

Weaker economic data from China and

managed depreciation of the Renminbi is a growing concern, as seen again in recent days

Countries have allowed currency

weakness due to concerns about export prospects

However competitive devaluations

are not beneficial.

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Exchange rate indices in selected Asia-Pacific economies, 2013-2015

40 50 60 70 80 90 100 110 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Index January 2013 = 100 China India Indonesia Malaysia Philippines Russian Federation Thailand Turkey Republic of Korea Note: A declining trend represents depreciation and vice versa

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Monetary policy constrained by capital outflow concerns

Most economies have lowered

policy rates recently.

However, despite subdued growth

and inflation outlook, risk of capital

utflow and financial stability

considerations hampers further monetary easing

Countries more at risk of excessive
utflow are those with weak

macroeconomic fundamentals and substantial commodity dependence

2 4 6 8 10 12 14 16 18 China India Indonesia Malaysia Thailand Russian Federation

Policy rates in selected developing Asian developing economies, 2012-2015

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Domestic financing costs in the region may rise due to increase in US interest rate

US federal funds rate expected to

gradually rise in 2016 and could reverse part of the foreign funds invested in the region

– Impact on equity and debt market and cross-border bank loans, and pressure on exchange rates

Whether domestic interest rates will

increase accordingly depends on country-specific factors, such as ...

– Exchange rate regime, external debt, asset prices, effectiveness of macro- prudential measures, etc.

Asia-Pacific policy rate and United States federal funds rate, 2012-2015

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Household, corporate and sovereign debt in 2014, % of GDP

Rapid increases in private debt call for vigilance

Household debt in Malaysia,

Thailand on a par with OECD levels, while China holds more corporate debt than the US

– Exposure to real estate sector and concentration in low income households and low profit firms

Risks for financial stability and

economic growth prospects

– Pressure on debt servicing capacity if financing costs rise when income growth is slowing

Debt service ratios (DSR) for the private non-financial sector

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Fiscal policy can play a proactive role

…to stabilize the economy

– More countercyclical and expansionary policy can be adopted

… and support inclusive, long-

term growth

– Spending on education, health and infrastructure is low or uneven

Fiscal space contingent on tax

and other reforms

– But there are no mechanical and universally accepted thresholds

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5 10 15 20 25 Pakistan Philippines Indonesia Georgia Sri Lanka Armenia Tajikistan Iran Bangladesh Russia Kazakhstan India Cambodia Azerbaijan Lao PDR Afghanistan Nepal Bhutan Fiji Thailand Viet Nam Mongolia Malaysia Maldives China Percentage of GDP

Selected current and capital expenditures, % of GDP

infrastructure health education

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3
2
1

1 Mean, unweighted Median

Fiscal balance, regional average, 2001-2016

Percentage of GDP

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Medium term economic challenge is to strengthen productivity and make economic growth more inclusive

Despite tremendous progress,

development has not been inclusive in the region.

Higher economic growth has not

created enough decent jobs, and higher labour productivity has not translated into commensurate increases in real wages.

With growth of total factor

productivity having declined in recent years, greater effort is needed to strengthen productivity and ensure that its benefits are passed on to the labour force.

40% 42% 44% 46% 48% 50% 52% 54% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Average for AP

Labour income share in Asia and the Pacific from 1991 to 2011 (in per cent of output) Annual percentage growth rate of total factor productivity and labour productivity, 1991-2013

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Five takeaways

1. A “new normal” of economic growth continues amidst weak global trade and China’s slow growth; AP economies will need to look more towards domestic and regional demand. 2. Fiscal policy can tackle cyclical and long-term challenges, and relieve pressure on monetary policy, provided tax revenues are strengthened 3. Rapid increases in private debt call for vigilance, especially as financing costs are likely to increase in the region. 4. Productivity growth should be accelerated and its benefits adequately shared with the labour force. 5. With the adoption of 2030 Agenda for Sustainable Development, it is not just about economic growth anymore ---- we live in the era of sustainable development!

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Economic and Social Survey of Asia and the Pacific 2015: Year-end - - PowerPoint PPT Presentation