Sudhir Shetty Chief Economist East Asia and Pacific The World Bank
RECENT TRENDS
Growth Continues To Be Resilient … (GDP growth, year-on-year percent change) Indonesia Malaysia Philippines Thailand Vietnam China 8 7 6 5 4 3 2 Q4-2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016
... Supported by Fiscal Stimulus (General government fiscal balance, four quarter moving average, percent of GDP) 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 -4.0 Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 China Malaysia Philippines Thailand Indonesia
And Monetary Accommodation … (Real policy rate, percentage points) Top of current cycle Real policy rate as of July 2016 10-year average 7 Feb-14 6 Jan-14 5 Dec-14 4 May-14 Feb-14 3 Sep-14 2 1 0 -1 -2 China Indonesia Malaysia Philippines Thailand Vietnam
… And EAP Has Outpaced Other Developing Regions (Regional GDP growth, percent) Percent 10 8 6 4 2 0 -2 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 2012 2013 2014 2015 EAP SAR ECA LAC MENA SSA
Inflation Remains Subdued While Deflation Risks Are Receding (Headline inflation, end of period year-on-year, (Producer price inflation, end of period year- percent) on-year, percent) 10% 20% 15% 8% 10% 6% 5% 4% 0% 2% -5% -10% 0% Aug-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 -2% China Malaysia China Indonesia Malaysia Philippines Philippines Thailand Thailand Vietnam
Commodity Prices Remain Low … (Commodity price indices, 2010=100) 160 140 120 100 80 60 40 20 2011M07 2012M01 2012M07 2013M01 2013M07 2014M01 2014M07 2015M01 2015M07 2016M01 2016M07 Energy Agriculture Metals & Minerals
100 105 110 115 120 125 130 85 90 95 Jan-2011 Mar-2011 Trade Balances Have Weakened May-2011 (Export volumes, index of 12-month moving sum, Jan 2011 = 100) Jul-2011 China Sep-2011 Nov-2011 Jan-2012 Mar-2012 May-2012 Thailand Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 Malaysia May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 Indonesia May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 Philippines May-2015 Jul-2015 Sep-2015 Nov-2015 Jan-2016 Mar-2016 May-2016 9
Public Investment Remains Low In Many Countries (General government capital expenditure, percent of GDP) 12 11 10 9 8 7 6 5 4 3 2 2011 2012 2013 2014 2015 2016 Cambodia Malaysia Myanmar Philippines Indonesia Vietnam Thailand
OUTLOOK AND RISKS
Growth in Developing EAP Will Likely Be Stable (Annual percentage change in GDP) 8 7 6 5 4 3 2 1 0 -1 -2 2015 2016 2017 2018
And Poverty Is Expected To Continue Falling (Percentage of population in poverty, U.S.$3.10-a-day PPP poverty line) DEVELOPING EAP 2015 2016 2017 2018 Poverty rate (percent) 12.1 10.6 9.3 8.3 Number of poor (millions) 251 223 197 175 DEVELOPING EAP EX-CHINA 2015 2016 2017 2018 Poverty rate (percent) 20.3 19.0 17.7 16.4 Number of poor (millions) 145 137 129 121
The Rising Middle Class in East Asia (Distribution of consumption – 2002-15) 100 Global middle class – greater than $15 PPP/day 90 80 Economically secure -- $5.50 -- $15 PPP/day Percent of developing EAP population 70 60 50 Vulnerable -- $3.10 – 5.50 PPP/day 40 30 Moderate poor – $1.90 -- $3.10 PPP/day 20 10 Extreme poor – less than $1.90 PPP/day 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
But Significant Risks Remain for Developing EAP … • Sharper than expected slowdown in advanced economies or China • Continued slow growth in global trade • Weak commodity prices • Financial market turbulence • Higher borrowing costs • Capital flows could slow or reverse • High domestic leverage • Growing risk of financial stress among corporates and households • Impacts exacerbated by external shocks 15
Growth in Advanced Economies Will Likely Be Slow (Annual percentage change in GDP) Percent World Advanced economies Emerging and developing economies 8 6 4 2 0 -2 -4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f
And Commodity Prices Will Remain Low (Index, 2010 = 100) Non-energy commodities Energy commodities 100 120 110 95 100 90 90 80 85 70 80 60 50 75 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Oct-16 Apr-16 Oct-15 Apr-15 Oct-16 Apr-16 Oct-15 Apr-15
Regional Exports Depend On Global Growth Outlook (Gross exports, percent of GDP, 2015) China Emerging and dev. Asia excl. China Emerging and dev. excl. EAP European Union Japan United States 80 70 60 50 40 30 20 10 0 Cambodia Fiji Indonesia Lao PDR Malaysia Mongolia Myanmar Papua New Guinea Philippines Solomon Islands Thailand Vietnam
When the U.S. Economy Slows… Other Economies Slow Too Impact of 1-percentage-point decline in Impact of 1-percentage-point decline in U.S. growth U.S. growth (Percentage point) (Percentage point) 0 0 -1 -1 -2 -2 BRICS Emerging markets G6 Global -3 -3 On Impact 1 Year 2 Years On Impact 1 Year 2 Years Source: World Bank. Note: Cumulative impulse responses for different horizons due to a 1-percentage-point decline in US growth on impact. Bars represent medians, and error bars 16-84 percent confidence 19 bands. Left Panel. Emerging markets (EM) impact is the GDP-weighted average of BRICS and EM (excluding BRICS) responses. Right Panel. Global impact is the GDP-weighted average of G6, US, BRICS, and EM (excluding BRICS) responses.
Retreat from Globalization? Weaker Trade Growth; Growing Barriers Trade flows Products subject to temporary trade barriers (Index, 2008 = 100) (Percent of total products) 150 3 130 Pre-crisis trend 110 2 90 70 50 1 2000 2004 2008 2012 2016 2000 2005 2010 2015 Sources: CPB Netherlands Bureau for Economic Policy Analysis, World Bank, IMF, Haver Analytics. 20 Left Panel. Pre-crisis trend is extrapolated from 2000-06 onwards. Trade flows refer to the average of exports and imports. Last observation is June 2016. Right Panel. Temporary trade barriers include antidumping, safeguards and countervailing duties. Based on the World Bank Temporary Trade Barriers database.
Global Financial Tightening Will Matter (US$ denominated debt, percent of total (Short-term debt, percent of gross external debt) public external debt) 100 50% 90 45% 80 40% 70 35% 60 30% 50 25% 40 20% 30 20 15% 10 10% 0 5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% China Mongolia Malaysia Thailand Vietnam Indonesia Lao PDR Cambodia Philippines
With High And Still Rising Private Sector Debt … (Credit by sector, percent of GDP) (Year-on-year real growth in private sector credit) 250 25% 200 20% 150 15% 100 10% 50 5% 0% 0 2010 2015 2010 2015 2010 2015 2010 2015 2010 2015 2010 2015 2010 2015 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 China Malaysia Vietnam Thailand Philippines Indonesia Emerging economies Credit to Non-financial corporations China Indonesia Credit to Households Malaysia Philippines Credit to General Government Thailand Vietnam
… A Key Source of Vulnerability In Many Countries (Debt service as a percent of income) (Return on assets, listed firms, percent) 25 5.0 8 4.5 7 20 4.0 6 3.5 5 15 3.0 4 10 2.5 3 2.0 2 5 1.5 1 0 1.0 0 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 2010 2011 2012 2013 2014 2015 China Indonesia Malaysia Philippines Thailand Vietnam China Malaysia Thailand Indonesia
POLICY IMPLICATIONS
Vulnerabilities Need To Be Reduced Across the Region • Region’s continued resilience hinges on preserving macrofinancial stability By reducing financial risks And maintaining or rebuilding fiscal buffers • Global financial conditions are likely to tighten soon Decisive action is needed now to maintain macro-financial stability
Policy Priorities For the Region • In China: Bring credit growth under control Reform the corporate sector Strengthen the inter-governmental fiscal system • Elsewhere in Developing EAP: Enhance financial regulation by strengthening regulatory oversight and implementing micro- and macro-prudential measures Maintain fiscal space, including by increasing revenues Some commodity exporters need to close fiscal deficits, e.g., Mongolia, Timor-Leste Countercyclical stabilization not a priority, given stable growth prospects Where there is fiscal space, focus new spending on addressing public infrastructure deficits Improve the efficiency of public investment
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