Yasuyuki Sawada Chief Economist, Asian Development Bank Key - PowerPoint PPT Presentation

Yasuyuki Sawada Chief Economist, Asian Development Bank

Key Messages • Developing Asia’s growth will slow to 2.2% in 2020 due to the COVID- 19 outbreak, but will rebound to 6.2% in 2021 • The growth decline is broad-based, affecting the PRC and India and the rest of developing Asia’s economies • Inflation will tick up to 3.2% in 2020 due to higher food prices before easing to 2.3% in 2021 • Risks are extremely large due to uncertain evolution and effects of the COVID-19 pandemic • Innovation can unlock faster growth in the region—but it requires sound education systems, innovative entrepreneurship, conducive institutions, deeper capital markets, and dynamic cities 2

Growth th will s slow sharp rply this year, due to the global p pandemic Growth in developing Asia will take a beating from … as major advanced economies are set to contract the COVID-19 global pandemic… after already slowing in 2019. GDP growth outlook in developing Asia Baseline assumptions on the international economy % 2019 2020 8.0 Developing Asia excluding NIEs ADO 2019 Update ADO ADO 6.7 6.6 6.6 6.7 2019 ADO 2019 ADO 6.4 ADO 2020 2021 Update 2020 Update 2020 6.5 6.0 GDP growth (%) 6.2 6.0 6.2 6.1 6.1 5.7 5.5 -0.3  5.9 Major advanced economies 1.7 1.7 1.4 1.8 5.4 5.0 0.4  United States 2.3 2.3 1.9 2.1 5.2 Developing Asia 1.2  -1.0  Euro area 1.0 1.0 1.6 0.7  -1.5  ADO 2020 Japan 1.2 0.5 0.9 3.5 2.4 64.03  63.00 35.00  ADO 2019 Update Brent crude spot prices (average, 65.00 55.00 $ per barrel) 2.2 2.0 2015 2016 2017 2018 2019 2020 2021 Forecast  = upgraded forecast,  = downgraded forecast, no sign = unchanged. Source: Asian Development Outlook database. 3 Sources: Bloomberg, Haver Analytics, ADB estimates.

An inci cipient r t recovery from a disappointi ting 2019 w was halted, when the outbreak began i in the PR PRC Global activity had shown signs of revival at the end of … as a coronavirus outbreak began in the PRC in January 2019, but this recovery was snuffed… and put a brake on activity there. Global activity indicators Manufacturing PMI and industrial production, Developing Asia Markit manufacturing PMI: PRC (left axis) Points difference from 50 Markit manufacturing PMI: developing Asia ex PRC (left axis) % change year on year % change year on year Industrial production: PRC (right axis) 2 12 Industrial production: developing Asia ex PRC (right axis) Dec 2020, 0.5 Index % change year on year Global Manufacturing PMI 55 10 0 0 50 51.0 Jan 0 World trade 2.3 2020, -0.3 volume -2 -12 45 Worldwide -10 semiconductor 40 Feb 2020, -2.8 Jan-Feb 2020 billings 40.3 -4 -24 -13.5 Jan Apr Jul Oct Jan 35 -20 Jan Mar May Jul Sep Nov Jan Feb 2019 2020 2019 2020 Sources: CEIC Data Company; CPB Netherlands Bureau for Economic Policy Analysis. https://www.cpb.nl/en/worldtrademonitor; World Semiconductor Trade 4 Statistics. http:// wsts.tsia.org.tw/, ADB estimates. Sources: CEIC Data Company, ADB estimates.

Growth th will s slow this year r in the PR PRC and India… The region’s two largest economies will continue Production fell in the PRC from COVID-19. Efforts to revive to slow before recovering in 2021 credit in India will be offset by a weak global economy. PRC retail sales and industrial production Growth in India and PRC % change year on year % Retail sales 6.9 PRC 8.0 7.0 7.3 6.7 Industrial production 6.9 6.1 6.1 -13.5 (Jan-Feb 2020) 6.2 -20.5 (Jan-Feb 2020) India 5.0 2017 2018 2019 2020 India nonfood credit growth Nov 2018, 4.0 % change year on year 15.3 2.3 Jan 2020, 8.3 Jan Jul Jan Jul Jan Jul Jan 2017 2018 2019 2020 2021 2017 2018 2019 2020 Sources: CEIC Data Company, National Bureau of Statistics Source: Asian Development Outlook database. (for PRC retail sales and IP). 5

… and i in the rest o of developing As Asia, before recovering in n 2021. 2021. 2019 2020 2021 2019 2020 2021 Actual Projections Actual Projections East Asia 5.4 2.0 6.5  South Asia 5.1 4.1 6.0    Hong Kong, China -1.2 -3.3 3.5 Bangladesh 8.2 7.8 8.0     PRC 6.1 2.3 7.3 India 5.0 4.0 6.2     Republic of Korea 2.0 1.3 2.3 Pakistan 3.3 2.6 3.2     Taipei,China 2.7 1.8 2.5   Central Asia 4.9 2.8 4.2   Southeast Asia 4.4 1.0 4.7  Azerbaijan 2.2 0.5 1.5    Indonesia 5.0 2.5 5.0 Kazakhstan 4.5 1.8 3.6     Malaysia 4.3 0.5 5.5    The Pacific 3.8 -0.3 2.7 Philippines 5.9 2.0 6.5    Singapore 0.7 0.2 2.0 Fiji 0.7 -4.9 3.0     Thailand 2.4 -4.8 2.5 Papua New Guinea 4.8 0.8 2.8     Viet Nam 7.0 4.8 6.8   Developing Asia 5.2 2.2 6.2  excluding the NIEs 5.7 2.4 6.7     = upgraded forecast,  = downgraded forecast, no sign = unchanged. 6 Source: Asian Development Outlook database.

Inflation will t tick up this year o r on i increased food pr price ces but w s but will eas ase i in 2021. n 2021. Regional inflation will increase mainly on food price …as elevated pork prices in the PRC and onion increases, but will ease in 2021… prices in India are expected to stabilize. Subregional contributions to inflation in developing Asia Monthly food inflation in developing Asia Percentage points % change year on year Developing Asia (DA) EA, 18.9 3.2 Inflation (%), developing Asia East Asia (EA) 2.9 Southeast Asia (SEA) DA, 15.9 South Asia (SA) 2.5 Central Asia (CA) 2.3 Central Asia South Asia SA, 9.8 Southeast CA, 8.9 Asia SEA, 3.5 East Asia 0 2018 2019 2020 2021 Jan Jul Jan Jul Jan Forecast 2018 2018 2019 2019 2020 7 Source: Asian Development Outlook database. Source: CEIC Data Company, ADB estimates.

The region’s c current account s surp rplus will widen in n 2020 be 2020 before nar narrowing in n 2021 2021 Trade growth will weaken further this year as demand and supply are disrupted by the COVID-19 outbreak. The regional current account surplus will expand to 1.6% in 2020, before falling back to 1.4% in 2021. Current account forecast in developing Asia % of GDP 4 20 16.0 13.9 2.5 2.2 10.1 2.0 1.9 1.9 1.9 1.6 2 10 1.5 1.4 0.7 0 0 -0.7 -1.3 -2 -10 -1.5 -2.2 -2.4 -4 -20 -3.8 -6 -30 Developing Asia East Asia Southeast Asia South Asia Central Asia The Pacific f = forecast. 2018 2019 2020f 2021f 8 Source: Asian Development Outlook database.

The global pandemic p presents an extreme risk to regional a and g globa bal outlook • The forecast assumes containment this year, The global pandemic has resulted in falling stock prices, depreciating currencies, and rising spreads and a return to normal activity next year. But: Equity index, selected economies  The outbreak can spread to more countries India  It may take longer to contain People's Republic of China NIEs  Economic effects may be larger ASEAN-5 US  Financial turmoil and crises are possible 1 Jan 2019 = 100 COVID-19 140 outbreak  It could result in fundamental, long-run changes to the global economy 120 • Quick and decisive policy actions are needed 100 80 • Forecasts quickly become outdated in this fast- changing environment; we will update as 60 J a n Apr Jul Oct J a n Mar needed 2 0 19 2 0 20 Sources: CEIC Data Company, Bloomberg. 9

ADO Part I Special Topic: The impact of COVID-19 on developing Asia—an update 10

Since the AD ADB’s initial estimate o of the impact of the COVID ID-19 19 o outb utbreak k on n Mar arch ch 6: 6: …the use of containment policies It has become a global pandemic… has increased dramatically… Global COVID-19 cases 600,000 Travel bans now affect 550 million PRC 500,000 Europe USA international trips—40% of global total Rest of the world 400,000 300,000 …and PRC data has come out worse than expected. 200,000 Data for March 6 ADB Brief People’s Republic of Jan-Feb y/y China (PRC) data: % change 100,000 Industrial production -13.5% 0 Services production -13.0% 20 Jan 31 Jan 15 Feb 29 Feb 15 Mar 28 Mar Retail sales -20.5% Note: The discrete jump in the series in mid-February is due to the change in the Investment -24.5% diagnostic criterion applied to identify infections. 11 Sources: CEIC and the World Health Organization (accessed 25 March 2020).

As a result, t, th the esti timated g global and r regional economic impacts are now s substanti tially l larger Estimated Global and Regional Impact of the COVID-19 Outbreak • Containment and travel bans last either 3 months (shorter) or 6 months (longer); demand shocks are either -2pp on C and I growth (smaller), or -5pp on C growth and -6.25pp on I growth (larger) • The estimated impact on individual developing Asian economies—and on sectors within these economies—is also available: https://www.adb.org/covid19 12

ADO Theme Chapter: What Drives Innovation in Asia? 13

Some Asi So sian ec econ onomie ies a s are e rapid idly ly clos osin ing t the e innovation g gap … but many others lag behind R&D Expenditure (% GDP) 4.0 3.0 2.0 1.0 0.0 1996 1999 2002 2005 2008 2011 2014 2017 NIEs OECD PRC Rest of Developing Asia 14