Draft ASEAN+3 Regional Economic Outlook 2019: Building Capacity and Connectivity for the New Economy 22 August 2019 Bangkok, Thailand 1
Outline Near Term Macroeconomic Prospects & Challenges Longer Term Structural Shifts: Building Capacity and Connectivity for the New Economy 2
Global Risk Map – Risks Faced by ASEAN+3 Region Escalation of global trade Low Medium High tensions from Perennial Risks imposition of additional tariffs by the U.S. Cyber-Attacks Climate Change Likelihood Large swings Sharp in asset prices Escalation of deceleration from global geopolitical in G3 growth monetary policy risks shifts Sharp slowdown in China’s growth Short Term (now up to 2 yrs) Medium Term (2 to 5 yrs) Long Term (> 5 yrs) Imminence Legend: Low Impact Medium Impact High Impact 3
Regional Growth Outlook The regional economy transited to a slower pace of expansion, with more uncertain growth trajectory ahead AMRO’s Revised Baseline Growth Estimates for 2019-20 (Jun ‘19) ’19 e/ ’20 p/ Average ‘19 – ‘20 Real GDP Growth ’18 Adverse Trade (% y/y) Jul ‘19 Scenario (Prelim) China 6.6 6.2 6.1 5.9 Japan (FY) 0.6 0.5 0.5 0.4 Korea 2.7 2.4 2.4 2.1 ASEAN-4 & VN 5.3 5.0 5.0 4.9 BCLM 6.8 6.5 6.7 6.9 HK & SG 3.1 1.3 1.7 1.3 ASEAN+3 5.3 4.9 4.9 4.7 Baseline Upward revision from AREO 2019 (May) Legend: Projection Downward revision from AREO 2019 (May) e/ Estimates p/ Projections 4 No change from AREO 2019 (May) Sources: National Authorities, and AMRO staff calculations.
Domestic Demand There has been a stepdown in domestic demand, but China’s recent policy easing will help support growth ASEAN-4 and Korea: China: Domestic Demand Indicators Aggregate Final Domestic Demand Sources: National Authorities, and AMRO staff calculations. 5 Note: Final domestic demand excludes changes in inventories.
Exports Regional exports continued to face external headwinds, with the more open economies being disproportionately affected Regional Exports (Volume and in USD Terms) Heatmap of Export Performance Selected Economies (% yoy in USD Terms) 22 Mar 18 Sep 2018 2019 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJan Feb Mar Apr May Jun Jul China - Hong Kong - Korea Japan - Malaysia - USD200 bn Chinese Imports USD50 bn Chinese Imports U.S. Tariff Announcement U.S. Tariff Announcement Singapore - Thailand - Philippines - - Indonesia - Vietnam Legend: Lowest Value Mid Point Highest Value 6 Sources: National authorities, and Haver Analytics.
Financial Conditions Borrowing costs have declined as major central banks adopt easing policy bias, but in recent weeks, FX rates have come under pressure with U.S-China re-escalation 10Y Sovereign Yields, Selected Economies FX Performance Against USD, Selected Economies Sources: National authorities, and AMRO staff calculations. 7 Notes: Data as of 2 Aug 2019 (yields) and 5 Aug 2019 (FX rates)
Thailand • In Q1 2019, GDP growth slows more than expected as exports contracted deeper and more widespread than anticipated amid US-China trade conflict, and private investment softens amid domestic political uncertainty. Recent Export Performance GDP Growth Contribution: Import-Adjusted Basis 8
Thailand • Recent net portfolio inflows have contributed to the strengthening of the Thai baht, which could pose a downside risk to exports and tourism. • Headline inflation remains low. Non-resident Net Flows in Stock and Bond Inflation and Policy Rate Markets 9
Summary of Suggested Policy Mix The policy mix is broadly appropriate with some room for recalibration to support growth Suggested Policy Mix • Some room to ease policy given benign inflation Monetary • For economies with external vulnerabilities, to hold current policy settings • Maintain supportive policy to sustain growth Fiscal • Reprioritizing spending, where fiscal rule is binding Macroprudential • Maintain current tight policy to guard against build up of financial imbalances • Building capacity and connectivity to foster future growth potential and resilience Structural 10 Source: AMRO
Outline Near Term Macroeconomic Prospects & Challenges Longer Term Structural Shifts: Building Capacity and Connectivity for the New Economy 11
Video: Building Capacity and Connectivity for the New Economy 12
New Growth Drivers: Technology Technology (e.g. 4IR) – A growth enabler for services/new economy 1 Services Value Chains in the New Economy: Stylized Representation 13 Source: AMRO staff.
New Growth Drivers: Demographics Maturing population & rising middle class – Driving new demand 2 Infrastructure Needs for Demographic Shifts Global Middle Class Population Alongside Economic Development People in Billion 6 Sub-Saharan 5 Africa Survival Basic Advanced Quality of North America Life 4 • Healthcare • Mass transit systems • Water supplies • Green space Middle East and • Education • Commercial property 3 • Basic buildings • Eco-living North Africa • Transportation • Technology • Market stalls • Elderly care • Reliable electronic • Global connectivity Europe • Electronic power • Entertainment 2 power • Advanced universities • Leisure and culture • Waste and research • Advanced digital Central and South 1 management • Disaster risk America technologies management Asia Pacific 0 2000 2015 2030 14 Sources: PwC; and AMRO staff. Source: Kharas 2017.
New Growth Drivers: Intra-Regional Demand Growth rebalancing & regional integration – Driving regional demand 3 ASEAN’s Value-Added Exports ASEAN-4 and Vietnam (% Share, by Major Destinations) (Share of Real GDP by Expenditure, Import-Adjusted Method) 2005 2010 2016 15 Sources: OECD; and AMRO staff calculations/estimates Note: Numbers may not add up due to rounding.
Challenges: Funding Gap Funding Gap in CLMV countries – Low savings rate, but high investment needs Current Account Balance: Inward FDI Flows into CLMV Economies CLMV Economies by Source Countries % of GDP '80 - '90 '91 - '00 '01 - '10 '11 - '18 '19 - '23 5 0 -5 -10 -15 -20 LA KH MM VN 16 Sources: IMF; and AMRO staff calculations. Sources: ASEAN Stats Data Portal; and AMRO staff calculations. Note: Cambodia’s current account balance starts from 1992.
Challenges: Foreign Exchange Gap FX Gap in ASEAN-4 & Korea – Needed to save more, holding down investment ASEAN-4 and Korea: ASEAN-4 and Korea: Current Account Balance Investment and Overall Real GDP Growth % of GDP '80 - '90 14 '91 - '00 12 '01 - '10 10 '11 - '18 '19 - '23 8 6 4 2 0 -2 -4 -6 ID PH MY KR TH 17 Sources: IMF; and AMRO staff calculations. Sources: World Bank; and AMRO staff calculations.
Challenges: Factors Gap Hard infrastructure is indispensable for development, but soft infrastructure – including cross-country connectivity – is also key for unleashing the region’s growth potential and facilitating its transition to the “new economy”… Hard and Soft Infrastructure and Regional Connectivity Human Capital and Services Sector Development, 2017 Hard Infrastructure Road, airports, Energy, telecommunication… Social (education, Regional health) & fin/IT Connectivity infrastructure, public services Legal/regulatory framework Soft Infrastructure 18 Source: AMRO staff. Source: World Economic Forum.
Bridging the Gaps …while leveraging on regional initiatives ASEAN: Master Plan for ASEAN Connectivity ASEAN+3: Regional Economic and Financial Cooperation Sustainable Infrastructure • ASEAN Banking Integration Market Framework Access • Asian Bond Market Initiative Regional Initiatives Financing People Digital • Belt and Road Initiative Advancing Mobility Innovation Economic & • Partnership for Quality Financial Infrastructure/ Infrastructure Cooperation • Masterplan for ASEAN Connectivity Connectivity 2025 • AMRO Surveillance & • CMIM Financial Safety Net Regulatory Seamless Excellence Logistics 19 Sources: ASEAN Framework Agreement on Services (AFAS); and Master Plan for ASEAN Connectivity (MPAC) 2025.
Thailand: The Eastern Economic Corridor (EEC) EEC implementation is based on 3 pillars – an infrastructure upgrade, new industry development, and attracting investment. Infrastructure investment will support transportation, logistics and public utilities. Infrastructure Upgrading in the EEC 20 Source: Thailand BOI
Thailand 4.0 Initiatives Thailand will target 10 industries such as next-gen automotives, smart electronics, medical tourism, biotechnology, food for the future, robotics, aviation and logistics, biofuels and biochemical, digital, and medical hubs. 5 Current Industries and 5 Future Industries 21 Source: Thailand BOI
Thailand: Connectivity and Linkages in the Region Thailand is strategically well-placed to be a recipient of high-technology FDI, infrastructure investments, and human capital from the region. 22
Thailand: Connectivity and Linkages in the Region At the same time, Thailand is well-placed to be a subregional TCLMV center and source of investment and knowhow to other countries in the region. 23
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