Upload
pushpa-nalawade
View
478
Download
2
Tags:
Embed Size (px)
Citation preview
1
Sustaining Asia’s Economic Recovery
Asia Economic Forum
Hang Chuon Naron31st July 2011
2
Table of Contents
1. Issues facing Asia’s economic recovery
2. Inflation
3. Policy response
3
I. Issues facing Asia’s Economic Recovery
4
Key issues facing Asia’s recovery
The multi-speed global recovery is set to continue. Asia is expected to continue leading the global
recovery, but at a more moderate pace. The tragic events in Japan, earthquake followed
by tsunami, add to uncertainty in Asia. The debt crisis in Greece, Ireland, Portugal and
Spain undermines growth in the Eurozone. US debt ceilings: political wrangling in
Washington. This will have negative effect on the global economy.
5
Key issues facing Asia’s recovery
Navigating opposing risks will be challenging:Weaker global recovery and stronger commodity prices.
The signs of overheating are broadening. The withdrawal of fiscal stimulus has been
slow. Quantitative Easing (QE) 2 resulted in capital
inflows into Asia in the first half of 2011.
6
Key issues facing Asia’s recovery
Now, foreign capital inflows have moderated, as has the growth in asset valuations.
However credit dynamics remain very strong. Over the medium-term, rebalancing growth
remains the key challenge.
The multispeed recovery is set to continue with Asia increasingly propelling global growth
Contributions to Global Growth(In percentage points)
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
06
20
09
20
12
-1
0
1
2
3
4
5
6
Advanced economies
Emerging Asia
Other EM and developing countries
Global growth (3-year moving average)
7
World GDP Growth Projection(Year-on-year, in percent; Jan. WEO update)
20102011 2012
World 5.0 4.4 4.5
Advanced economies 3.0 2.5 2.5
Emerging and Developing economies
7.1 6.5 6.5
Asia 8.2 6.8 6.8
Source: IMF
Asia is expected to continue leading the global recovery, but at a more moderate pace
2009 2010 2011 2012
Asia (including Australia and New Zealand) 3.5 8.2 6.8 6.8
Industrial Asia -4.9 4.0 1.9 2.0
Japan -6.3 4.3 1.6 1.8
Emerging Asia 5.9 9.4 8.1 8.0
China 9.2 10.3 9.6 9.5
India 5.7 9.7 8.4 8.0
NIEs -0.9 8.3 4.7 4.3
Korea 0.2 6.1 4.5 4.2
Singapore -1.3 15.0 4.7 4.4
Taiwan Province of China -1.9 10.2 4.9 4.6
ASEAN-5 1.7 6.7 5.5 5.7
Indonesia 4.5 6.0 6.2 6.5
Malaysia -1.7 6.7 5.3 5.2
Philippines 1.1 7.0 5.0 5.0
Thailand -2.2 7.5 4.0 4.5
Vietnam 5.3 6.8 6.8 7.0Other ASEAN
Brunei -1.8 1.0 1.5 1.9
Cambodia 0.1 6.0 6.0 6.5
Lao PDR 7.6 7.7 7.5 7.3
Myanmar 4.9 5.3 5.0 5.0
8
Asia: Real GDP Growth(y/y; percent); as of the January 2011 WEO update
Source: IMF
9
II. Downside Risks to Asia’s Recovery
1. Rising commodity and food prices2. Inflation3. Capital inflows led to exchange rate appreciation and asset bubbles.4. Balancing growth is a challenge.
Risk 1: Navigating opposing risks will be challenging:Weaker global recovery and stronger commodity prices…
1 3-12
-8
-4
0
4
8
12
16
20
-30
-20
-10
0
10
20
30
40
50EM Asia food price (RHS)
Global food price (LHS)
10
Food Price: Global versus EM Asia
(Year-on-year percent change)
Asia: GDP Growth(Central forecast and 50, 70, and 90 percent confidence intervals; in percent)
0
1
2
3
4
5
6
7
8
9
10
2007 2008 2009 2010 2011 2012
50 percent confidence interval
70 percent confidence interval
90 percent confidence interval
Central forecast
Source: IMF
Risk 1: Key staples pushing region’s food prices up
Region’s food price inflation Pushed by prices of rice and wheat
And other domestic food items
From June 2010 to Feb 2011 International rice price rose by around 20%; while wheat prices
doubled Partly due to Thailand and Viet Nam release of ample supplies from
their stocks to mitigate price pressure
Risk 1: Food dominates region’s CPIs
Food Weights in Consumer Price Index (%)
1Includes non-alcoholic beverages. 2Includes beverages. 3Includes beverages and tobacco.Source: Asian Development Bank. March 2011. "Global Food Price Inflation and Developing Asia" (Forthcoming).
12
Economy Share
Cambodia1 44.8
China, People’s Rep. of2 30.2
Hong Kong, China 26.7
Indonesia3 36.2
Korea, Rep. of1 14.0
Malaysia1 31.4
Philippines 46.6
Singapore1 22.1
Thailand1 33.0
Viet Nam 39.9
Source: ADB
Risk 1: larger than anticipated rise in oil prices
13
Oil Price Prospects(In U.S. dollars per barrel)
Global Commodity Prices(January 2005 = 100)
Note: West Texas Intermediate (WTI) oil price futures information used.
50
100
150
200
250
300
350
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
FoodMetalEnergyAgricultural raw materials
0
50
100
150
200
250
2007
2008
2009
2010
2011
2012
2013
95% confidence interval
86% confidence interval
68% confidence interval
Futures
Source: IMF
Risk 1: Commodity price increase
14
168
87
139
194
169
137
75
149
120 112128
177
165
244
152
50
100
150
200
250
Jan-07
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Nov-08
Mar-09
Jul-09
Nov-09
Mar-10
Jun-10
Oct-10
Feb-11
All primary commodities
Metals2
Food and
beverage3
Agriculture materials4
Energy1
1 Crude oil, natural gas, coal. 2 Copper, aluminum, iron ore, tin, nickel, zinc, lead, uranium. 3 Cereal, vegetable oils, meat, seafood, sugar, bananas, oranges, coffee, tea, cocoa. 4 Timber, cotton, wool, rubber, hides. Source: OREI staff calculations based on data from IMF Primary Commodity Prices , International Monetary Fund.
Figure xx: Primary Commodity Price Indexes (Jan 2007 = 100)
Source: ADB
Risk 2: Inflation is on the rise
8.7
4.9
11.8
5.3
6.0
0.9
4.52.3
-2.2
0.0
-3
0
3
6
9
12
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
People's Republic of China
ASEAN-4 plus Viet Nam
NIE-3
Figure XX: Regional Headline Inflation (y-o-y, %)
Japan
Feb-11
Source: ADB
Risks 3: Capital inflows led to currency appreciation and importance of Europe and United States for
Asia’s exports
16
Selected Asia: Exports to U.S. and Europe
(In percent of total exports of goods)
EM Asia: Capital Inflow and Global Risk Aversion
-40
-20
0
20
40
60
80
100
2007:Q
4
2008:Q
1
2008:Q
2
2008:Q
3
2008:Q
4
2009:Q
1
2009:Q
2
2009:Q
3
2009:Q
4
2010:Q
1
2010:Q
2
2010:Q
3
2010:Q
4
Risk aversion (VIX)
Capital inflows to EM Asia (billions of U.S. dollars)
0
5
10
15
20
25
Sin
gapore
Indonesi
a
Thailand
Mala
ysi
a
Kore
a
Japan
Philip
pin
es
Chin
a
Europe
United States
Source: IMF
17
Asia: Pass-through from Domestic Food and Energy Prices to Core Inflation 1
(In percentage points)
Risk 4: a few signs of asset market pressures
1 Impact of change in food and energy prices by 1 percent. Wholesale prices used for India.
Selected Asia: Property Prices(Year-on-year change, in percent)
0.0
0.1
0.2
0.3
0.4
Japan
Aust
ralia
New
Zeala
nd
Hong K
ong S
AR
Kore
a
Sin
gapore
Indonesi
a
Mala
ysi
a
Philip
pin
es
Thailand
Vie
tnam
Chin
a
India
Food Energy
Taiw
an
Pro
vin
ceo
f Chin
a
-50
-40
-30
-20
-10
0
10
20
30
40
2007:Q
1
2007:Q
2
2007:Q
3
2007:Q
4
2008:Q
1
2008:Q
2
2008:Q
3
2008:Q
4
2009:Q
1
2009:Q
2
2009:Q
3
2009:Q
4
2010:Q
1
2010:Q
2
2010:Q
3
2010:Q
4
China
Hong Kong SAR
Singapore
Taiwan Province of China
Korea
Risk 4: Rebalancing of demand remains a challenge
18
Global Current Account Balances(In percent of world GDP)
Selected Asia: Current Account Balances
(In percent of GDP)
0
1
2
3
4
5
6
7
8
Japan NIEs ASEAN-5 China
2002-07 2010 2011 (Proj.) 2012 (Proj.)
-3
-2
-1
0
1
2
3
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Rest of the world Emerging AsiaJapan and Germany Oil exportersChina United States
Global discrepancy
Projections
Source: IMF
19
III. Policy Response
Policy response 1: Increasing policy rates
Policy Rates1—Selected Economies (% per annum)
1BI rate (Indonesia); unsecured overnight call rate (Japan); Korea base rate (Republic of Korea); overnight policy rate (Malaysia); reverse repurchase rate (Philippines); and 1-day repo rate (Thailand).Source: Bloomberg and Datastream. 20
3.00
2.75
7.5
4.25
5.00
2.500.5
9.5
6.75
0
2
4
6
8
10
1-Jan-07
2-Jun-07
1-Nov-07
1-Apr-08
31-Aug-08
30-Jan-09
1-Jul-09 30-Nov-09
1-May-10
30-Sep-10
1-Mar-11
Indonesia
Philippines
Thailand Malaysia
Republic of Korea
Japan
Figure XX: Policy Rates1—Selected Economies(% per annum)
4-Apr-11
1-Jul-09
Source: ADB
Policy response 1: Rate increase is smaller than the cut during the crisis
Policy Rate Movements1 (percentage points)
1One year lending rate (People's Republic of China); BI Rate (Indonesia); prime rate (Viet Nam); unsecured overnight call rate (Japan); Korea base rate (Republic of Korea); overnight policy rate (Malaysia); reverse repurchase (repo) rate (Philippines); and one-day repo rate (Thailand).2Policy rate hikes started in December 2009.Source: Bloomberg and Datastream.
21
0
1
2
3
4
5
6
7
8
Viet Nam Korea, Rep. of Indonesia Thailand China,People's Rep.
of
Philippines Malaysia Japan
Cuts in 2008—2009
Hikes in 2010—2011
1One year lending rate (People's Republic of China); BI Rate (Indonesia); prime rate (Viet Nam); unsecured overnight call rate (Japan); Korea base rate (Republic of Korea); overnight policy rate (Malaysia); reverse repurchase (repo) rate (Philippines); and one-day repo rate (Thailand).2Policy rate hikes started in December 2009.Source: Bloomberg and Datastream.
2
Source: ADB
Policy response 2: Currency appreciation, except Vietnamese dong
Change in Exchange Rate against US dollar1 (%)
1Year-to-date (YTD) figures based on 21 Mar 2011 closing. Negative values indicate depreciation.2PRC = People's Republic of China.Source: OREI staff calculations based on Reuters data. 22
-8 -4 0 4 8 12 16
Vietnamese dong
Thai baht
Hong Kong dollar
Korean won
PRC renminbi
Philippine peso
Japanese yen
Malaysian ringgit
Singapore dollar
Indonesian rupiah 2010
2011 YTD
2
1Year-to-date (YTD) figures based on 21 Mar 2011 closing. Negative values indicate depreciation.2PRC = People's Republic of China.Source: OREI staff calculations based on Reuters data. Source: ADB
Policy Response 3: Accumulating International Reserves
International reserves increased from 0.5 billion in 2000 to USD1 billion in 2006, then reached USD2.9 billion in May 2011.
0.5 0.5
0.7 0.70.8
0.9
1.1
1.6
2.1
2.4
2.7
2.9
International Reserves (billion USD)
Policy Response 4: Macro-prudential measures
24
Measures Implemented inRein in short-term foreign currency borrowing by commercial banks
Korea
Lengthen maturity structure of central bank’s external liabilities and make one-month certificate less liquid
Indonesia
Limits placed on foreign investors’ access to time deposits Taiwan Province of China
Liberalization of capital outflows Thailand, Philippines, Malaysia
Removal of tax exemptions for foreign investment in government bonds
Thailand, Korea
Rules to reduce risks of bank funding strains New Zealand, Korea
Reserve requirements on foreign currency and nonresident accounts
Indonesia, Taiwan Province of China
Policy Response 5: Structural policies to be long-term solutions
25
• Enhance productivity and competitiveness to reduce supply bottlenecks
• Reform labor and goods markets to increase flexibility when responding to aggregate supply shocks
• Remove policy distortions―such as general subsidies & tariffs—to better reflect supply and demand
• Improve market integration
Policy Response 5: Longer-term policy responses
26
Increase Food and Energy
Supply•Increase agricultural productivity (investment in technology, land development, and irrigation•Investments in energy efficiency and a concerted switch to renewable sources of power
Cushioning the social
implications
•Strengthening social safety nets
27
Conclusion 1: Asia: Overheating or Smooth Landing?
Inflation: Accelerating headline inflation and spilling over to core inflation.
Credit Growth and Capital Flows: Credit growth accelerating; capital inflows moderating; domestic overheating pressures.
Monetary Policy: Low real rates, closed or positive output gaps; need to tighten policy.
Fiscal and Exchange Rate Policies: Pace of fiscal withdrawal can be quickened; exchange rate appreciation.
28
Conclusions 2
Asia’s growth outlook remains strong but overheating pressures have surfaced in a number of regional economies.
Dealing with these pressures requires tightening fiscal stances and stronger currencies. Higher policy interest rates should also be part of the policy mix.
In addition to dealing with overheating risks, policymakers need to make sure that growth will be balanced and inclusive.
29
Conclusion 3
The multi-speed global recovery is set to continue, and Asian economies will remain in the lead
As old risks recede, new ones are on the horizon Nevertheless, overheating pressures imply further
tightening of macroeconomic policies Capital inflows need to be managed carefully, but
pressures have moderated in recent months Over the medium-term, rebalancing growth remains the
key challenge
30
Thank You