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Donghyun Park Principal Economist Economics and Research Department Asian Development Bank National Asset-Liability Management Conference Singapore 29 September 2010

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Outline 1. Economic prospects Fragile global recovery Vibrant regional outlook 2. Special chapter: The future of growth in Asia 3

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Key messages Developing Asia is rebounding solidly with growth expected to reach 8.2% in 2010 Growth momentum is slowing in major industrial economies and significant downside risks remain Developing Asia must again focus on long-term growth Structural policies are needed to promote productive capacity via 4 core elements trade, human capital, infrastructure, and financial development 4

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Global conditions improved, but still fragile 6 saar: seasonally adjusted annualized rate

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Risks to the global outlook Threat of another contraction Continued weakness of the US housing market Risk of insolvency and default in eurozone Spikes in commodity prices 7

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Developing Asia recovered with speed and vigor Forecast 8

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due to a favorable mix of factors Strong export recovery Robust private demand Sustained effects of stimulus policies 9 SIN=Singapore; MAL=Malaysia; THA=Thailand; INO=Indonesia; PHI=Philippines; KOR=Republic of Korea; HKG=Hong Kong, China; IND=India; TAP=Taipei,China

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But variations remain across subregions f: forecast 10

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as well as across economies Subregion/Economy200920102011 ADO 2010UpdateADO 2010Update Central Asia2.74.75.15.95.7 East Asia6.18.38.67.7 China, Peoples Rep. of9.19.6 9.1 Hong Kong, China-2.85.25.84.3 Korea, Rep. of0.25.26.04.6 Taipei,China-1.94.97.74.0 South Asia6.77.47.88.07.8 India7.48.28.58.7 Pakistan1.2-4.1-2.5 Southeast Asia1.35.17.45.35.4 Indonesia4.55.56.16.06.3 Malaysia-1.75.36.85.0 Philippines1.13.86.24.6 Singapore-1.36.314.05.0 Thailand-2.24.07.04.5 Viet Nam5.36.56.76.87.0 The Pacific3.7 4.35.05.1 Developing Asia5.47.58.27.3 11

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Inflation remained stable Forecast 12

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Yet uneven across subregions f: forecast 13

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Current account surplus declining f: forecast 14

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Strong rebound in capital flows 15 Refers to aggregate data for the Peoples Republic of China; Hong Kong, China; Indonesia; Republic of Korea; Philippines; Singapore; Taipei,China; and Thailand.

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Exchange rates under appreciation pressure 16 % change from Sep2008-Sep2010 % Depreciation% Appreciation Note: Based on monthly average of $ value of local currency as of 15 September 2010. 1 PRC=People's Republic of China. 1

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Foreign exchange holdings rising 17 ASEAN4=Indonesia, Malaysia, Philippines, and Thailand.

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Sustaining growth in the medium- to long-term matters Living standards in the region remain below those of the industrialized countries No guarantee that developing Asias stellar growth record will carry over into the post-crisis period The regions long-term growth potential is not pre-defined 19

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Its time to improve Asias long- term productive capacity Four core elements of Asias future growth Trade Human capital Infrastructure Financial development 20

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Trade Promotes exploitation of economies of scale and better resource allocation through specialization 21 Central Asia=Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Southeast Asia=Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam. South Asia=Afghanistan, Bangladesh, India, Maldives, Pakistan, and Sri Lanka. Northeast Asia=Hong Kong, China; Peoples Republic of China; Japan; Republic of Korea; Mongolia; and Taipei,China. The Pacific=Fiji Islands, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu. East Asia=Northeast and Southeast Asia.

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Trade policy should: Take full advantage of potentially large domestic consumption and intraregional trade Expand the base of domestic production and diversify exports for Asias weaker economies 22

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Human capital Improves labor productivity and facilitates technology adoption and innovation 23 Educational Attainment (average years of schooling) PrimarySecondaryTertiary

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Education reform agenda should: Increase investment to improve enrollment (especially secondary and tertiary) and ensure quality education Take account of how educational systems can produce outcomes that meet the standards and skill sets required by the labor market 24

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Infrastructure Provides key intermediate inputs for production and final consumption services to households 25 SIN=Singapore; HKG=Hong Kong, China; TAP=Taipei,China; KOR=Republic of Korea; MAL=Malaysia; THA=Thailand; AZE=Azerbaijan; SRI=Sri Lanka; PRC=Peoples Republic of China; KAZ=Kazakhstan; CAM=Cambodia; TAJ=Tajikistan; PAK=Pakistan; IND=India; INO=Indonesia; PHI=Philippines; VIE=Viet Nam; BAN=Bangladesh; NEP=Nepal; MON=Mongolia; JPN=Japan; USA=United States

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Infrastructure investment should: Address congestion, environmental degradation, and other costs associated with urban agglomeration Close the wide urban-rural infrastructure divide 26

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Financial development Fosters efficient allocation of resources, speeds up accumulation of physical capital, and promotes dynamic efficiency 27 PRC=Peoples Republic of China; BAN=Bangladesh; IND=India; INO=Indonesia; PAK=Pakistan; PHI=Philippines; THA=Thailand; OECD=high-income economies of the Organisation for Economic Co-operation and Development

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Financial reforms should: Deepen and broaden financial systems Safeguard financial stability through strong prudential regulation and bond market development Increase accessibility of financial services 28

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29 1980-20072011-2030 Baseline 2011-2030 Reform CHINA9.35.56.6 INDIA5.54.56.0 KOREA6.33.94.2 INDONESIA4.84.46.0 THAILAND5.43.84.5 MALAYSIA6.25.25.9 SINGAPORE6.84.3 Asias Actual Growth and Future Growth Projections SOURCE: LEE AND HONG (2010)

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Key messages Developing Asia is rebounding solidly with growth expected to reach 8.2% in 2010 Growth momentum is slowing in major industrial economies and significant downside risks remain Developing Asia must again focus on long-term growth Structural policies are needed to promote productive capacity via 4 core elements trade, human capital, infrastructure, and financial development 30