Emerging Markets in the Global Economic Crisis

Dr. Bernardo M. Villegas

No Great Depression

Black Thursday 1929

• Stock Market Crash• Passive Federal Reserve System• Ignorance of Keynesian Pump Priming• Panic in the Banking Sector• Unemployment Rate of 25%• Complete Dominance of the US Economy in the

World• World Financial Market Illiquid

No Great Depression

• Real Estate Bubble• Proactive Federal Reserve System• US Government Pump Priming• No Panic in the Banking Sector• No Crash in the Stock Market• Unemployment Rate Manageable• Countervailing Power of Emerging Markets • Liquidity of Sovereign Funds• Massive intervention of European governments

Black Monday 2008

Traditional Engines of Growth:Growth Rates of Major Economies

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Average1991-2000

2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F 2014

US Euro Area Japan

F – forecastsSource: World Economic Outlook Database, IMF, April 2009

Traditional Engines of Growth:GDP Growth Rates

US 3.6 2.9 2.8 2.0 1.1 -2.8 0.0 2.4Euro Area 2.2 1.7 2.9 2.7 0.9 -4.2 -0.4 2.3

Germany 1.2 0.8 3.0 2.5 1.3 -5.6 -1.0 2.2France 2.2 1.9 2.4 2.1 0.7 -3.0 0.4 2.3Italy 1.5 0.7 2.0 1.6 -1.0 -4.4 -0.4 1.9Spain 3.3 3.6 3.9 3.7 1.2 -3.0 -0.7 2.0

Japan 2.7 1.9 2.0 2.4 -0.6 -6.2 0.5 2.5United Kingdom 2.8 2.1 2.8 3.0 0.7 -4.1 -0.4 2.8Canada 3.1 2.9 3.1 2.7 0.5 -2.5 1.2 2.5Australia 3.8 2.8 2.8 4.0 2.1 -1.4 0.6 3.0

2004 2005 2008 20142006 2007 2009F 2010F

F – forecastsSource: World Economic Outlook Database, IMF, April 2009

Global Growth Slowdown:Threats to World Growth

• World GDP to fall from 3.2% in 2008 to -1.3% in 2009• Financial markets remain difficult.• Funding markets have only gradually narrowed despite of

government guarantees.• Asset values fall sharply across advanced and emerging

economies• Widespread disruptions in credit are constraining household

spending and curtailing production and trade.• Slump in global demand has led to a collapse in commodity

prices.• Major stock price indices are 50-60% below 2007 peaks; US

house prices 27% below peak• More price declines in housing are expected• Rise in protectionist sentiment and protectionist policies

implemented

Global Growth Slowdown:Global Outlook

• Recession accompanied by financial crisis• Output in the advanced economies is now expected to

contract by almost 4% in 2009.• Growth in emerging and developing economies is expected to

slow sharply from 6.1 % in 2008 to 1.6 % in 2009, under the drag of falling export demand and financing, lower commodity prices, and much tighter external financing constraints.

• Inflation pressures are subsiding.• Global monetary and fiscal policies are providing substantial

support.• G20 agreement to boost international money supply by $250

billion • IMF to receive $500 billion to help struggling emerging

economies

The New Global Business Environment• Global business environment will be characterized by greater caution,

less liquidity, lower cross-border capital flows, tighter regulation and less risk-taking.

• Poor ratings for the soundness of banking systems, financial sector distortions and impeded access to finance will have significant effect on the outlook for financial systems.

• Increasing risk of political unrest caused by severe economic downturn, which has led to rising unemployment and increased economic hardship.

Source: ViewsWire, Economist Intelligence Unit, May 19, 2009

The Most Powerful Economies in the World

CountryGDP (2008)

US$BGDP Growth (%)

year on year

Current Account (%

of GDP)

Inflation (%) year on year

Unemployed (%)

US 14,265 1.1 -4.7 3.8 5.8Eurozone 13,633 0.9 -0.7 3.3 7.6Japan 4,924 -0.6 3.2 1.4 4.0China 4,402 9.0 10.0 5.9 n/aGermany 3,668 1.3 6.4 2.8 7.3France 2,866 0.7 -1.6 3.2 7.8UK 2,674 0.7 -1.7 3.6 5.5Italy 2,314 -1.0 -3.2 3.5 6.8Russia 1,677 5.6 6.1 14.1 n/aBrazil 1,573 5.1 -1.8 5.7 n/aCanada 1,511 0.5 0.6 2.4 6.2India 1,210 7.3 -2.8 8.3 n/aMexico 1,088 1.3 -1.4 5.1 n/aSouth Korea 947 2.2 -0.7 4.7 3.2

*n/a – not available

Source: IMF, World Economic Outlook Database, April 2009

Growth Rates

SOUTHEAST ASIA 2004 2005 2006 2007 2008 2009F 2010F

Indonesia 5.0 5.7 5.5 6.3 6.1 3.6 5.0 Malaysia 6.8 5.3 5.8 6.3 4.6 -0.2 4.4 Philippines 6.4 5.0 5.4 7.2 4.6 2.5 3.5 Singapore 9.3 7.3 8.4 7.8 1.1 -5.0 3.5 Thailand 6.3 4.6 5.2 4.9 2.6 -2.0 3.0 Vietnam 7.8 8.4 8.2 8.5 6.2 4.5 6.5

NORTHEAST ASIA 2004 2005 2006 2007 2008 2009F 2010F

China 10.1 10.4 11.6 13.0 9.0 7.0 8.0 Hong Kong 8.5 7.1 7.0 6.4 2.5 -2.0 3.0 Korea, Republic of 4.7 4.2 5.1 5.0 2.5 -3.0 4.0 Taiwan 6.2 4.2 4.8 5.7 0.1 -4.0 2.4

OTHERS

India 7.5 9.5 9.7 9.0 7.1 5.0 6.5 Source: Asian Development Outlook, April 2009 (IMF)

Asia: The Most Dynamic Region

Emerging Engines of Growth

BRICA

2008 2008 2008 2009F 2010F 2009F 2010FBrazil 191.9 1,573.0 192.9 -1.3 2.2 4.8 4.0 Russia 142.0 1,677.0 421.3 -6.0 0.5 12.9 9.9 India 1,190.5 1,210.0 271.7 5.0 6.5 3.5 4.0 China 1,327.7 4,402.0 2,135 7.0 8.0 0.8 1.0 ASEAN 575.5* 1,265.6 469.4* 0.7 4.2 3.3 4.1 *2007 dataSources: IMF World Economic Outlook (April 2009); World Bank Key Development Data & Statistics

ADB Asian Development Outlook (April 2009); www.aseansec.org

Real GDP Growth InflationBRICAPopulation (in Millions)

GDP Value (in current

prices,US$B)

Foreign Exchange Reserves (US$B)

Emerging Engines of Growth

The Next Eleven

Population 2008 GDP 2008

(in millions) (current US$ B)

Bangladesh 161.9 81.9 Egypt 75.0 162.2 Indonesia 227.8 511.8 Iran 72.9 344.8 Mexico 106.3 1,088.1 Nigeria 147.8 214.4 Pakistan 160.5 167.6 Philippines 90.3 168.6 South Korea 48.6 947.0 Turkey 69.7 729.4 Vietnam 86.3 89.8 Source: IMF, World Economic Outlook Database, April 2009

Country

US 2.8 2.0 1.1 -2.8 0Euro Area 2.9 2.7 0.9 -4.2 -0.4Japan 2.0 2.4 -0.6 -6.2 0.5BRICA

Brazil 4.0 5.7 5.1 -1.3 2.2Russia 7.7 8.1 5.6 -6.0 0.5India 9.7 9.0 7.1 5.0 6.5China 11.6 13.0 9.0 7.0 8.0ASEAN 6.0 6.4 4.3 0.7 4.2

2010F2008 2009F2006 2007

Bangladesh 6.5 6.3 5.6 5.0 5.4Egypt 6.8 7.1 7.2 3.6 3.0Indonesia 5.5 6.3 6.1 2.5 3.5Iran 5.8 7.8 4.5 3.2 3.0Mexico 5.1 3.3 1.3 -3.7 1.0Nigeria 6.2 6.4 5.3 2.9 2.6Pakistan 6.2 6.0 6.0 2.5 3.5Philippines 5.4 7.2 4.6 0.0 1.0South Korea 5.2 5.1 2.2 -4.0 1.5Turkey 6.9 4.7 1.1 -5.1 1.5Vietnam 8.2 8.5 6.2 3.3 4.0

2009F 2010F2006 2007 2008

The Next Eleven

US, EU, Japan and BRICA

Emerging Engines of Growth

Consumer Trends in Asia

• Non-income consumption factors• Expanding middle class• Diversity of consumer tastes and

lifestyles• “Mallification” of Asian cities • Demographic gift stage in South and

Southeast Asia• Rapid aging in Northeast Asia and

Singapore• Widespread use of English• The telecom revolution• Spread of university education

Asia: The Most Dynamic Region

Selected Sunrise Industries in Asia

• Agribusiness• Mining• Triple Ts: Transport, Telecom, and

Tourism• Infrastructures• Automobiles• Consumer durables• IT-enabled and IT services• Logistics and retailing• Health care and medical tourism• Education• Construction and real estate• Four Fs: Food, Fashion, Furniture, Fun

Asia: The Most Dynamic Region

Threats

• Net factor income will be slightly lower as the recession in OFWs’ host countries will affect remittances and deployment growth

• Slowdown in consumer spending• Industry sector on a slowdown in 2009 and 2010• Slowdown in exports• High though slowing inflation rate• Higher government deficit• Higher trade deficit• Depreciating Peso

The Philippine Economy

Opportunities

• Continuous influx of East Asian tourists

• Expansion in mining and energy investments

• Pump priming in infrastructure spending

• Above-average growth in agricultural production due to improved infrastructure support

• Expansion in low- and medium-costs housing and office buildings

• Increase in demand for BPO services

• Medical tourism and retirement villages

The Philippine Economy

BUSINESS ECONOMICS INDICATORS

Source: UA&P/BEC Estimates, March 25, 2009

Item 2008 2009 2010

3.19% 3.00% 3.00%

4.97% 3.59% 4.68%

A. Mining and Quarrying 0.6% -15.0% 4.0%

B. Manufacturing 4.3% 3.0% 3.5%

C. Construction 8.2% 12.5% 10.0%

D. Electricity, Gas and Water 7.7% 4.7% 5.0%

4.90% 4.76% 5.77%

A. Transportation, Communication and Storage 3.7% 4.3% 6.0%

B. Trade 4.7% 4.8% 5.6%

C. Finance 4.9% 3.8% 3.7%

D. Owners Dwelling and Real Estate 7.0% 3.7% 5.0%

E. Private services 5.6% 5.1% 6.8%

F. Government services 4.7% 7.6% 7.6%

4.62% 4.06% 4.92%

I. Agriculture, Fishery and Forestry

II. Industrial Sector

III. Service Sector

Gross Domestic Product

F F

The Philippine Economy

Emerging Markets in the Global Economic Crisis

Thank you.