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Enhancing Potential
Sudhir Shetty Chief Economist
East Asia and PacificThe World Bank Group
RECENT TRENDS
GDP growth(year-on-year percent change)
Growth has exceeded expectations
Sources: Haver Analytics; World Development Indicators.
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q4-
2014
Q1-
2015
Q2-
2015
Q3-
2015
Q4-
2015
Q1-
2016
Q2-
2016
Q3-
2016
Q4-
2016
Q1-
2017
Q2-
2017
Q3-
2017
Q4-
2017
GD
P ye
ar-o
ver-
year
gro
wth
, per
cent
ASEAN-5 and China China ASEAN-5
0%
1%
2%
3%
4%
5%
6%
7%
8%
Q4-
2014
Q1-
2015
Q2-
2015
Q3-
2015
Q4-
2015
Q1-
2016
Q2-
2016
Q3-
2016
Q4-
2016
Q1-
2017
Q2-
2017
Q3-
2017
Q4-
2017
Indonesia Malaysia Philippines
Thailand Vietnam China
Stronger exports have helped …
Export values (index of 12-month moving sum, January 2013 = 100)
Sources: Haver Analytics; World Bank staff estimates.Note: Commodity exporters in EAP include Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, Papua New Guinea, Timor-Leste, andTonga.
70
90
110
130
150
170
190
2013
M01
2013
M04
2013
M07
2013
M10
2014
M01
2014
M04
2014
M07
2014
M10
2015
M01
2015
M04
2015
M07
2015
M10
2016
M01
2016
M04
2016
M07
2016
M10
2017
M01
2017
M04
2017
M07
2017
M10
2018
M01
China Thailand Malaysia
Indonesia Philippines Vietnam
Export volumes(percent, 12-month growth rate)
-10
0
10
20
2014
M07
2014
M09
2014
M11
2015
M01
2015
M03
2015
M05
2015
M07
2015
M09
2015
M11
2016
M01
2016
M03
2016
M05
2016
M07
2016
M09
2016
M11
2017
M01
2017
M03
2017
M05
2017
M07
2017
M09
2017
M11
2018
M01
Indonesia ThailandMalaysia PhilippinesVietnam
… including exports of electronics products
0
20
40
60
80
100
120
140
160
180
200
2010 2011 2012 2013 2014 2015 2016 2017
China Vietnam Thailand Malaysia Philippines
Exports of electronics (deflated index, 2010=100)
Sources: World Bank; IMF World Economic Outlook; Philippines Statistics Authority; China General Administrationof Customs; Department of Statistics, Malaysia; ASEAN – CEIC Generate; and World Bank staff estimates.Note: Definitions of exports for electronics differ across countries.
Domestic demand remains solid
Contribution to GDP growth(percentage points, year-on-year)
Sources: Haver Analytics; World Bank staff estimates.
-10-505
1015
Q1-
14
Q3-
14
Q1-
15
Q1-
16
Q3-
16
Q1-
17
Q3-
17Q
4-17
China
Statistical discrepancyNet ExportsGross Capital FormationConsumptionGDP growth
-10
-5
0
5
10
15
Q1-
14Q
3-14
Q1-
15Q
3-15
Q1-
16Q
3-16
Q1-
17Q
3-17
Q4-
17Q
1-14
Q3-
14Q
1-15
Q3-
15Q
1-16
Q3-
16Q
1-17
Q3-
17Q
4-17
Q1-
14Q
3-14
Q1-
15Q
3-15
Q1-
16Q
3-16
Q1-
17Q
3-17
Q4-
17Q
1-14
Q3-
14Q
1-15
Q3-
15Q
1-16
Q3-
16Q
1-17
Q3-
17Q
4-17
Indonesia Malaysia Philippines Thailand
Private consumption Gross Capital Formation Government consumption
Net Exports Statistical discrepancy GDP growth
-8-7-6-5-4-3-2-10
2013 2014 2015 2016 2017
China Indonesia MalaysiaPhilippines Thailand Vietnam
-18-16-14-12-10
-8-6-4-20
2013 2014 2015 2016 2017
Cambodia Fiji Lao PDRMongolia Myanmar
General government fiscal balance(percent of GDP)
Large Economies Smaller Economies
Fiscal deficits started to stabilize
Source: World Bank staff estimates.Note: Data refer to general government fiscal balance, except for Indonesia, where data refer to central government fiscal balance; fiscaldeficits do not reflect off-budget spending items.
Inflation remains subdued
Headline inflation (year-over-year, percent change)
Sources: Haver Analytics; Central Bank News; People’s Bank of China.
0
1
2
3
4
5
6
7
8
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
Sep-
15N
ov-1
5Ja
n-16
Mar
-16
May
-16
Jul-1
6Se
p-16
Nov
-16
Jan-
17M
ar-1
7M
ay-1
7Ju
l-17
Sep-
17N
ov-1
7Ja
n-18
Mar
-18
China Indonesia Malaysia
Philippines Thailand Vietnam
Policy rate(percentage points)
-3
0
3
6
9
Indo
nesia
Mal
aysia
Viet
nam
Phili
ppin
es
Chin
a
Thai
land
Commodity exporters Commodity importers
2015 2016 2017 Inflation target
Poverty rate (vertical axis, percent) and number of poor (size of bubble, million), for poverty lines:US$1.90 per day (2011 PPP), US$3.20 per day (2011 PPP), and US$5.50 per day (2011 PPP)
Poverty continues to decline
Sources: World Bank East Asia and Pacific Team for Statistical Development; PovCalNet.
138
70 58 50 44 38
455
338295
261233 209
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015 2016 2017
Pove
rty
rate
(%)
Developing EAP
1
941
757714
827
6
4
33
33
657608
309
303
51 44 39 35 33 29
183174
165148
141 135
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015 2016 2017
Pove
rty
rate
(%)
Developing EAP excluding China
1
7
6
4
319
342333
327306
300
International Poverty Line ($1.90/day 2011PPP) Lower Middle Income Class Poverty Line ($3.20/day 2011PPP)
Upper Middle Income Class Poverty Line ($5.50/day 2011PPP)
0
10
20
30
40
50
60
70
80
90
100
Not economically secure(less than PPP $5.5-a day)
Economically secure and middle-class (over $5.50/day 2011PPP)
Developing EAP Developing EAP excluding China
0
10
20
30
40
50
60
70
80
90
100
Not economically secure(less than PPP $5.5-a day)
Economically secure and middle-class(over $5.50/day 2011PPP)
Source: World Bank staff estimates.
The economically secure and middle class continue to grow
Percentage of total population
FAVORABLE EXTERNAL ENVIRONMENT
Global growth is picking up
Global GDP growth(Year-on-year growth)
Sources: Haver Analytics; World Bank.Notes: f = forecasts. Data for 2018 are working assumptions. The updated data and forecasts will be published in the June 2018 issue of the World Bank’s Global Economic Prospects.
-4
-2
0
2
4
6
8
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
e
World Advanced economies Emerging and developing economies
World trade is continuing to recover
Global trade growth (Percent)
Source: Netherlands Bureau for Economic Policy Analysis.
-20
-5
10
25
2006
M01
2006
M05
2006
M09
2007
M01
2007
M05
2007
M09
2008
M01
2008
M05
2008
M09
2009
M01
2009
M05
2009
M09
2010
M01
2010
M05
2010
M09
2011
M01
2011
M05
2011
M09
2012
M01
2012
M05
2012
M09
2013
M01
2013
M05
2013
M09
2014
M01
2014
M05
2014
M09
2015
M01
2015
M05
2015
M09
2016
M01
2016
M05
2016
M09
2017
M1
2017
M5
2017
M9
Volume Value
Commodity prices are rising … gradually
Sources: Netherlands Bureau for Economic Policy Analysis; World Bank.
International commodity prices (Index, nominal term, 2010=100)
20
60
100
140
180
2007
M06
2008
M03
2008
M12
2009
M09
2010
M06
2011
M03
2011
M12
2012
M09
2013
M06
2014
M03
2014
M12
2015
M09
2016
M06
2017
M03
2017
M12
Energy Metals Agriculture
0
50
100
150
200
250
300
350
400
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
China Indonesia
Malaysia Philippines
Vietnam
Financial markets were stable in 2017, although volatility surged in early 2018
Bond spreads (EMBI index, basis points)
Sources: J.P. Morgan; IFC Global Macro & Market Research.
60
80
100
120
140
160
180
200
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
China IndonesiaMalaysia PhilippinesThailand Vietnam
Sources: Thomson Reuters; Datastream; IFC Global Macro &Market Research.
Stock markets(US$, index, end-2015 = 100)
OUTLOOK AND RISKS
Growth in EAP likely to remain robust
GDP growth(percent)
Source: World Bank.Note: Lines denote long-run (1990–2017) average growth. Working assumptions for 2018; forecasts for 2019–20 will be finalized and published in the June 2018 issue of the World Bank report, Global Economic Prospects. f = forecast.
-2
0
2
4
6
8
10
2015
2016
2017
2018
f20
19f
2020
f
2015
2016
2017
2018
f20
19f
2020
f
2015
2016
2017
2018
f20
19f
2020
f
2015
2016
2017
2018
f20
19f
2020
f
2015
2016
2017
2018
f20
19f
2020
f
2015
2016
2017
2018
f20
19f
2020
f
EAP SAS ECA LAC MENA SSA
Poverty will continue to fall
Source: World Bank East Asia and Pacific Team for Statistical Development.
2018 2020PPP$3.20 Per-capita per-day 9.2 7.5PPP$5.50 Per-capita per-day 27.7 23.9
2018 2020PPP$3.20 Per-capita per-day 19.6 17.5PPP$5.50 Per-capita per-day 44.6 42.2
(percent of population)Poverty incidence
Developing EAP
Developing EAP EX-China
Fiscal deficits generally expected to remain stable
Fiscal deficits (percent of GDP)
Source: World Bank staff estimates.Note: Data refer to general government fiscal deficit, except for Indonesia, where they refer to central government fiscal deficit, and Cambodia, where they refer to general government fiscal deficit before grants. Deficits are expected to increase in countries above the 45 degree line.
KHM
CHNFJI
IDN
LAO
MYSMNG
MMR
PHL
THA
VNM
0
5
10
0 5 10
Aver
age
2018
–20
Average 2015–17
• A more rapid pace of U.S. monetary policy tightening than is currently anticipated could
• increase volatility and exacerbate financial sector vulnerabilities
• Heightened trade policy uncertainty from the U.S. and retaliatory measures from its trade partners could
• dim the prospects for sustained trade growth• slow growth in major trading partners
Significant risks to this outlook
Feb-15Dec-15
Dec-15
Feb-15Feb-15
Feb-15
-2
-1
0
1
2
3
4
5
6
China Indonesia Malaysia Philippines Thailand Vietnam
Top of current cycle
Real policy rate, latest available in 2018
10-year average
Sources: Haver Analytics; World Bank staff estimates.
Real interest rates remain below the long-term average
Real policy rate(percentage points)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Jan-
14
May
-14
Sep-
14
Jan-
15
May
-15
Sep-
15
Jan-
16
May
-16
Sep-
16
Jan-
17
May
-17
Sep-
17
Jan-
18
May
-18
China Indonesia Malaysia
Philippines Thailand Vietnam
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Jan-
14
Apr-1
4
Jul-1
4
Oct
-14
Jan-
15
Apr-1
5
Jul-1
5
Oct
-15
Jan-
16
Apr-1
6
Jul-1
6
Oct
-16
Jan-
17
Apr-1
7
Jul-1
7
Oct
-17
Jan-
18
Cambodia Lao PDR
Credit growth was contained in most countries
Large Economies Smaller Economies
Sources: Haver Analytics; World Bank staff estimates.Note: Nominal growth in domestic credit is deflated by the CPI. For Vietnam, we refer to total credit. For Cambodia, we refer to net credit to the private sector (loans).
Real growth in net domestic credit (year-over-year, percent)
Debt stocks remain high in some economies
Credit by sector (percent of GDP)
Sources: Bank for International Settlements; Central Bank of the Philippines; International Financial Statistics.Note: For 2017, data refer to end-Q3, except for the Philippines, where they refer to end-2017. For the Philippines and Vietnam,disaggregated data on credit to households and nonfinancial corporations are not available. The group “emerging economies” comprises the following countries, for which data are available: Argentina, Brazil, Chile, India, Mexico, the Russian Federation, South Africa, and Turkey.
0
50
100
150
200
250
300
2010
2015
2016
2017
-Q3
2010
2015
2016
2017
-Q3
2010
2015
2016
2017
-Q3
2010
2015
2016
2017
-Q3
2010
2015
2016
2017
2010
2015
2016
2017
-Q3
2010
2015
2016
2017
-Q3
China Malaysia Vietnam Thailand Philippines Indonesia Emergingeconomies
Credit to General Government Credit to Households Credit to Non-financial corporations
POLICY IMPLICATIONS
Action needed on multiple fronts
• Address risks to macroeconomic stability
• Enhance medium-term growth potential
• Ensure economic security
Address the risks to stability in the short term
• Address macro-financial vulnerabilities– Stand ready to tighten monetary policy– Maintain exchange rate flexibility– Reduce dependence on short-term, foreign-currency-
denominated debt– Strengthen financial sector oversight
• Build fiscal buffers– Improve public debt management– Avoid tax competition
Enhance medium-term growth potential
• Improve efficiency of public spending and infrastructure provision
• Deepen regional integration and connectedness through new and existing initiatives (AEC, CPTPP, BRI, RCEP)
• Improve the business environment to boost competitiveness and productivity
• Upgrade capabilities and ensure that workers and managers have the necessary skills to respond to technological change
• Build human capital by enhancing the effectiveness of schools and education systems
Enhancing growth potential
Sources: World Bank staff estimates; World Development Indicators; International Monetary Fund, World Economic Outlook; Penn World Tables; United Nations World Population Prospects: 2017 Revision (medium-fertility scenario). Baseline assumptions and illustrative policy scenarios are described in the main text of the box.
Potential output growth(illustrative reform scenarios)
4
6
8
2013–17 2018–27 Reformimpact
2013–17 2018–27 Reformimpact
2013–17 2018–27 Reformimpact
EMDEs China EAP excl. China
Percent Baseline Fill investment needs (via capital)
Fill investment needs (via productivity) Education and health improvements
Labor market reforms
Projected changes in income from CPTPP
-3
0
3
6
9
Brun
ei
Mal
aysi
a
Japa
n
Viet
nam
Chi
na
Cam
bodi
a
Indo
nesi
a
Kore
a, R
ep.
Lao
PDR
Philip
pine
s
Thai
land
CPTPP Nonmembers
TPP CPTPP
Source: Adapted from Maliszewska, Olekseyuk, and Osorio-Rodarte (2018).
Perc
ent o
f GD
P in
bas
elin
e sc
enar
io
Competitiveness, Capabilities, and ConnectednessDeveloping East Asia and Comparators – circa 2012-14
Sources: Calculations based on Kee, Nicita, and Olarreaga (2009); Borchert, Gootiiz, and Mattoo (2014); International TelecommunicationsUnion’s ICT Indicators Database; and the following World Bank databases: World Development Indicators, Worldwide GovernanceIndicators, Global Findex, and Logistics Performance Index.
DEU
USA
HKG
JPNKOR
SGPAUS
MYS
CHNTHA
VNMIDNPHL
KHMPNG
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Cap
abilit
ies
Connectedness
High Competitiveness Medium Competitiveness Low Competitiveness
Sixty percent of the region’s school students are in education systems with poor or unknown learning outcomes
Ensure economic security
• Broaden the focus of inclusive growth by:
– Strengthening social assistance and insurance programs to help households insure against risks
– Instituting country-level risk management mechanisms to increase resilience to systemic shocks.
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