Overview of the Macro Context Jonathan D. Ostry Deputy Director Asia and Pacific Department, IMF IMF/PFTAC Steering Committee Meeting, Port Moresby, Papua New Guinea March 27 th , 2019 1
Recent Developments In Global Economy and Asia Today’s Outlooks, Risks, and Opportunities in the Briefing Pacific IMF’s work in the Pacific 2
Global Overview 3
Asia is exposed to swirling winds. Headwinds Global g growth dec ecel eleration Trade t e tensio ions & & talks Crosswinds Elections ns Pause i in m mon onetary p poli olicy nor ormali lization Tailwinds Drop op in c com ommodit ity p pric ices Stimul ulus us m measur ures 4
Growth in 2018 H2 decelerated, especially in Europe... GDP Growth (Percent; year-on-year) China India Rest of Asia Japan Euro area United States 9 4 8 3 7 6 2 5 1 4 3 0 2 -1 1 0 -2 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 Source: IMF, World Economic Outlook. Note: 2018Q4 is an estimate. Rest of Asia = Australia, New Zealand, Hong Kong, Korea, Singapore, Taiwan Province of China, Indonesia, 5
…and regional trade plunged in late 2018 amidst ongoing trade tensions... Merchandise Imports: Growth Rate (Jan 2017-Dec 2018) Merchandise Exports: Growth Rate (Jan 2017-Dec 2018) (seasonally adjusted, deflated, 3-month moving average of (seasonally adjusted, deflated, 3-month moving average of month-on-month, weighted by GDP PPP) month-on-month, weighted by GDP PPP) 4 4 2 2 0 0 -2 -2 -4 -4 Advanced Asia Advanced Asia -6 -6 Developing Asia Developing Asia -8 -8 -10 -10 Source: Haver. IMF Staff Calculations. Note: REO-14 Asian economies included; moving average based on 2 lags and current levels. 6
…led by an unexpectedly large dip in China’s January-February trade. Figure: China’s 2019 Jan-Feb Exports (Year-on-year, percent change) 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 Total United States India Japan ASEAN Korea Source: CEIC Data. IMF Staff Calculations. 7
High frequency, forward-looking indicators suggest that weaker activity will continue into Q1 2019. Manufacturing PMIs (50+ = expansion, seasonally adjusted) 0 Jan-2018 Feb-2018 Mar-2018 Apr-2018 May-2018 Jun-2018 Jul-2018 Aug-2018 Sep-2018 Oct-2018 Nov-2018 Dec-2018 Jan-2019 Feb-2019 Australia 55.4 55.6 54.3 55.5 53.2 55.0 52.4 53.2 54.0 54.5 54.6 54.0 53.9 52.9 China 51.5 51.6 51.0 51.1 51.1 51.0 50.8 50.6 50.0 50.1 50.2 49.7 48.3 49.9 India 52.4 52.1 51.0 51.6 51.2 53.1 52.3 51.7 52.2 53.1 54.0 53.2 53.9 54.3 Indonesia 49.9 51.4 50.7 51.6 51.7 50.3 50.5 51.9 50.7 50.5 50.4 51.2 49.9 50.1 Japan 54.8 54.1 53.1 53.8 52.8 53.0 52.3 52.5 52.5 52.9 52.2 52.6 50.3 48.9 Korea 50.7 50.3 49.1 48.4 48.9 49.8 48.3 49.9 51.3 51.0 48.6 49.8 48.3 47.2 Malaysia 50.5 49.9 49.5 48.6 47.6 49.5 49.7 51.2 51.5 49.2 48.2 46.8 47.9 47.6 New Zealand 55.8 53.4 53.0 59.1 54.3 52.7 51.3 52.2 52.0 53.6 53.5 54.8 53.1 #N/A Philippines 51.7 50.8 51.5 52.7 53.7 52.9 50.9 51.9 52.0 54.0 54.2 53.2 52.3 51.9 Taiwan Province of China 56.9 56.0 55.3 54.8 53.4 54.5 53.1 53.0 50.8 48.7 48.4 47.7 47.5 46.3 Thailand 50.6 50.9 49.1 49.5 51.1 50.2 50.1 49.9 50.0 48.9 49.8 50.3 50.2 49.9 Vietnam 53.4 53.5 51.6 52.7 53.9 55.7 54.9 53.7 51.5 53.9 56.5 53.8 51.9 51.2 8 Source: Haver Analytics
Prospects of a trade deal have improved but are still uncertain. +?
+? Political uncertainty looms ahead. Upcoming Elections in 2019 April March May November July Indonesia Micronesia India December Hong Kong Japan Maldives Thailand Philippines Kiribati Marshall Nauru Solomon Islands Tuvalu Australia Islands 10
In response to these developments, AE central banks and regional authorities have eased policies. Expected Fed Fund Rate vs. FOMC Dots Figure: 2019 Growth Impact from Fiscal Stimulus (% (end-of-period, percent) of GDP) FOMC median dots (as of Dec. 2018) 0.6 FOMC median dots (as of March 2019) 3.25 Federal funds rate futures (as of March, 2019) 0.5 3.00 0.4 2.75 0.3 2.50 0.2 0.1 2.25 0 2.00 China India Korea 29/12/2018 31/12/2019 31/12/2020 11 Source: Bloomberg Source: IMF staff estimates.
The drop in commodity prices in late 2018 helped soften inflation in most economies and may bolster growth. Commodity Prices Selected Asia: Headline CPI Inflation (Index; average) (percent change, year-on-year) Cambodia China Hong Kong SAR India Indonesia Korea WTI & Brent Average Malaysia Philippines Singapore 7 Taiwan POC Thailand Vietnam Commodity Metals Price Index (RHS) UN FAO World Food Price Index (RHS) 6 85 230 80 220 5 75 210 4 70 200 65 3 190 60 180 2 55 170 50 1 160 45 0 40 150 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 -1 12 Source: Bloomberg. IMF Staff Calculations. Source: Haver Analytics; and CEIC Ltd.
Asian EM financial conditions improved. Emerging Asia Excluding China Non Resident Portfolio Inflows Exchange Market Pressure Index (EMPI) (In billion US dollars) (Percent change in U.S. dollar/local currency exchange rate plus percent change in reserves; since Sep 2018) 140 Contribution from change in reserves 120 2016 2017 2018 2019 Contribution from change in exchange rate 100 40 EMPI (since Sep 2018) EMPI (from Mar 2018 to Sep 2018) 20 80 0 60 -20 40 -40 -60 20 -80 0 Australia Lao PDR Vietnam India Taiwan Province of China Korea Malaysia Hong Kong SAR China Singapore New Zealand Japan Thailand Indonesia Philippines Mongolia Brazil Turkey Argentina -20 -40 -60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: IMF staff calculations. Source: IIF. Note: As of Feb 2019.
Trade T Tensi ensions s & Ta Talks 14
US-China Deal: Every silver lining has a touch of grey, especially if the multilateral approach to trade was put at risk. Downsides Benefits Uncertainties
Closing the US-China bilateral deficit via managed trade will be a challenge. US-China Trade of Goods Structure (Billions of USD) Aircraft Oil Seeds Total Deficit: ~400B US Exports to China Other ~130B Machinery Vehicles Furniture US Imports from China Electronics Machinery Other ~530B Toys 0 100 200 300 400 500 600 Source: Comtrade. IMF Staff Calculations. Based on 2017 data.
How might the trade deal impact other economies? China's Import Structure for Top Products Imported from the United States (2017; Share of China's total imports of each product) Top-10 Exporters Excluding U.S. U.S. Electronics KOR JPN MYS 8 5 24 11 Machinery 11 JPN DEU KOR 11 23 14 DEU JPN GBR Vehicles 27 21 9 19 Oil seeds 47 7 6 33 BRA CAN ARG FRA DEU BRA Aircraft 55 22 16 2 JPN KOR DEU Optical 13 18 17 11 RUS SAU AGO Mineral fuels/oils 3 11 9 8 KOR JPN SAU Plastics 10 16 14 6 Wood pulp 8 16 14 10 CAN IDN CHL 60 40 20 -60 -40 -20 0 20 40 60 80 100
Despite the possible deal, trade policy uncertainty will likely remain above historical averages. Figure: US Trade Protectionism & Agreement Policy Uncertainty (0-100) 120 100 Protectionism Agreement 80 60 40 20 0 2015m1 2015m3 2015m5 2015m7 2015m9 2015m11 2016m1 2016m3 2016m5 2016m7 2016m9 2016m11 2017m1 2017m3 2017m5 2017m7 2017m9 2017m11 2018m1 2018m3 2018m5 2018m7 2018m9 2018m11 2019m1 Source: Hlatshwayo (2018) and IMF Staff Calculations. 18
In sum, US-China deal should be positive, with many issues remaining. Trade deal • Lower tariffs, reduced uncertainty, and structural reform in China would be helpful for global growth • But trade diversion would likely affect some countries • China’s market opening should be accessible to all, not undermining multilateralism
Paci cifi fic Island Countr tries 20
What d does this m mean for r the Pacific Islands: t there are global headwinds but also i idiosyncratic factors. Tailwinds Global growth Tourism deceleration [Fishing] Low commodity Low commodity prices prices (for (for commodity Headwinds commodity importers) exporters) Spillovers from trade tensions Crosswinds Crosswinds 21
Tourism is an important driver of growth in the region. Share of Visitor Arrivals, by Source Markets Visitor Arrivals in Selected Pacific Island Countries (In percent of Total Arrivals) (In thousands of persons) 1,600 14 100% Arrivals Y-o-y percent change (rhs) 12 1,400 80% 10 1,200 60% 8 1,000 40% 6 800 20% 4 600 0% 2 Samoa Tonga Fiji Vanuatu PNG Solomon Timor-Leste Marshall Palau Islands 400 Islands 0 200 -2 Australia New Zealand 0 -4 China Japan 2012 2013 2014 2015 2016 2017 Pacific Island Markets Other Markets Note: Includes Fiji, Samoa, Palau, PNG, Solomon Islands, Tonga and Vanuatu. Sources: South Pacific Tourism Organisation (SPTO). Source: South Pacific Tourism Organisation (SPTO). 22
And fishing revenues have been buoyant. Outlook on Fishing Revenue in the Pacific (Fishing revenue in percent of GDP) 100 Kiribati Tuvalu Nauru Micronesia Marshall Islands 90 80 70 60 50 40 30 20 10 0 2011 2012 2013 2014 2015 2016 2017 2018 proj. Sources: Countries authorities, and IMF staff projections. 23
Debt has been rising amid weakening fiscal balances, although… 24
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