Economic Outlook and Progress of Regional Cooperation and Integration in Asia and the Pacific
Cyn-Young Park Direction of Regional Cooperation and Integration
Economic Research and Regional Cooperation Department
Asian Development Bank
ADB-Asia Think Tank Development Forum 2018:
“Upgrading Human Capital and Skills Development for Future Asia”
22 August 2018 | Australia National University, Canberra
Key messages
• Developing Asia to continue solid growth at 6.0% in 2018 and 5.9% in 2019
• PRC growth moderates with greater focus on financial stability; India rebounds from temporary reform related setbacks
• Key risks stem from escalating trade tensions, rising US interest rates, and accumulating domestic private debt
• Heightened global financial interconnectedness poses risks to financial stability
2
Developing Asia’s growth to remain solid
6.4 6.3
6.0 5.9 6.1 6.0 5.9
7.0 6.8
6.6 6.4
6.6 6.5 6.4
4
6
8
2013 2014 2015 2016 2017 2018 2019
GDP growth (%)
Developing Asia
Developing Asia excluding NIEs
3
NIEs = newly industrialized economies of Hong Kong, China; Republic of Korea; Singapore; and Taipei,China
Source: Asian Development Outlook database.
forecast
… amid continued robust growth in major advanced economies
GDP growth (%) 2017
Actual
2018
projection
2019
projection
Major industrial economies a 2.3 2.3 2.0
United States 2.3 2.7 2.4
Euro area 2.6 2.2 1.9
Japan 1.7 1.1 1.0
4
a Average growth rates are weighed by gross national income, Atlas method.
Source: ADB, Asian Development Outlook Supplement July 2018.
Synchronized trade resurgence
5
Sources: CEIC Data Company (accessed August 2018).
Growth in nominal exports Growth in nominal imports
-60 -40 -20 0 20 40 60
AzerbaijanTajikistan
KazakhstanGeorgia
MongoliaArmenia
Viet NamAustraliaLao PDR
IndonesiaRep. of Korea
MalaysiaMyanmar
Kyrgyz RepublicTaipei,China
IndiaNew Zealand
SingaporeThailand
Sri LankaPhilippines
JapanPeople's Rep. of China
Brunei DarussalamHong Kong, China
PakistanNepal
CambodiaBangladesh
2017 2016 2015
-40 -20 0 20 40
MongoliaArmenia
CambodiaMyanmar
IndiaPakistanViet Nam
Rep. of KoreaKazakhstan
People's Rep. of ChinaBangladesh
MalaysiaIndonesiaThailand
NepalTaipei,China
SingaporeKyrgyz Republic
AustraliaNew Zealand
JapanPhilippines
Brunei DarussalamGeorgia
Sri LankaHong Kong, China
Lao PDRAzerbaijan
2017 2016 2015
-20
-10
0
10
20
30
Jan-14
Jan-15
Jan-16
Jan-17
Jun-18
ASEAN4 BCLMV NIEs + PRC Japan
6
Trade recovery expected to moderate
Note: Trade values for months with no data were estimated using average growth rate during the preceding three years. Source: CEIC Data Company (accessed August 2018).
Nominal Export Growth (%, y-o-y, 3-month moving average)
-5
0
5
10
PRC IND HKG KOR SIN TAP INO MAL PHI THA VIE
Percentage points
Total consumption Total investments Net exports GDP growth
Domestic demand still the main growth driver…
7
NIEs
Notes: ASEAN = Association of Southeast Asian Nations; NIEs = newly industrialized economies; GDP = gross
domestic product; HKG = Hong Kong, China; IND = India; INO = Indonesia; KOR = Republic of Korea; MAL =
Malaysia; PHI = the Philippines; PRC = People’s Republic of China; SIN = Singapore; TAP = Taipei,China; THA
= Thailand. IND data refers to H1 FY2017. Components do not add up to total due to a statistical discrepancy.
Sources: Haver Analytics and CEIC Data Company (accessed 2 March 2018);
Asian Development Outlook database.
ASEAN-5
Demand-side contributions to growth, selected economies, 2017
...and strong consumption set to continue
8
Consumer confidence index, % change
-16
-8
0
8
16
24
Jan2016
Jun Jan2017
Jun Jan2018
Jun
Year-on-year change, %
East Asia People's Republic of China
Hong Kong, China
Republic of Korea
Taipei,China
-16
-8
0
8
16
-20
-10
0
10
20
30
40
50
60
70
Jan2016
Jun Jan2017
Jun Jan2018
Jun
Percentage points
Year-on-year change, %
Southeast Asia IndonesiaMalaysiaThailandPhilippines (right scale)
Notes: Data for Hong Kong, China; Malaysia and Philippines are on a quarterly basis. For the Philippines, the index refers to
consumer expectations, computed as the percentage of households that answered in the affirmative less the percentage of
households that answered in the negative. A positive (negative) CEI indicates a favorable (unfavorable) view.
Source: Haver Analytics; CEIC Data Company (accessed 13 August 2018).
9
2017 2018 2019 2017 2018 2019
Actual Forecast Actual Forecast
East Asia 6.3 6.0 5.8 South Asia 6.5 7.0 7.2
China, People’s Rep. of 6.9 6.6 6.4 India 6.7 7.3 7.6
Hong Kong, China 3.8 4.0 3.0
Korea, Rep. of 3.1 3.0 2.9 Central Asia 4.3 4.2 4.3
Taipei,China 2.9 3.0 2.8 Kazakhstan 4.0 3.7 3.9
Southeast Asia 5.2 5.2 5.2 The Pacific 2.2 2.2 3.0
Indonesia 5.1 5.2 5.3
Malaysia 5.9 5.3 5.0
Philippines 6.7 6.8 6.9
Singapore 3.6 3.1 2.9 Developing Asia 6.1 6.0 5.9
Thailand 3.9 4.2 4.1
Viet Nam 6.8 7.1 6.8 Excluding NIEs 6.6 6.5 6.4
2018 and 2019 should consolidate gains
10
Sources: Bloomberg; Haver Analytics; and CEIC Data Company (accessed 19 February 2018).
PRC growth will sustain moderation in
favor of reforms
forecast
-2
0
2
4
6
8
10
2013 2014 2015 2016 2017 2018 2019
percentage points
Net exports
Investment
Consumption
Gross domestic product• Growth will dampen over
2018–2019 as planned
• Government priorities to
improve quality of growth:
1 Heading off financial risks
2 Controlling environmental
pollution
3 Targeted intervention to
eliminate poverty
Demand-side contributions to growth
Downside risks to the outlook
Escalation of trade tensions
Interest-rate induced capital flow shifts
Impact of private debt and leverage on growth
11
Improved fiscal and financial positions bolster
developing Asia’s resilience to shocks
Potential domestic financial risks Elevated private debt and leverage driven by an extended
period of easy monetary policy and global liquidity
Deteriorating bank assets―with potential spillover to real economy
12 Source: Bank for International Settlements.
NPL Ratios of Selected Asian Economies (%)
Credit to Private Sector–Selected EMEAP
Economies (% of GDP)
0123456789
2011 2012 2013 2014 2015 2016
India Indonesia Mongolia PRC
Source: ADB calculations using data from Bank of Mongolia; and World Bank. World Development Indicators.
0
50
100
150
200
250
300
350
1996Q
22
00
6Q
22
01
6Q
41
99
6Q
22006Q
22
01
6Q
41
99
6Q
22
00
6Q
22
01
6Q
41
99
6Q
22
00
6Q
22
01
6Q
41
99
6Q
22
00
6Q
22
01
6Q
41
99
6Q
22
00
6Q
22
01
6Q
41
99
6Q
22
00
6Q
22
01
6Q
41
99
6Q
22
00
6Q
22
01
6Q
4
PRC HKG INO JPN KOR MAL SIN THA
Households Non-financial corporations
FDI = foreign direct investment (flows data); Equity = equity asset holdings (stock data); Debt = debt asset holdings
(stock data).
Note: Asia and the Pacific includes ADB’s 45 regional developing members plus Australia, Japan, and New Zealand,
where data is available. Source: ADB, Asian Economic Integration Report database.
Asia’s regional integration deepens
13
Intraregional Shares—Asia and the Pacific (% of total)
2017
2001 53%
Trade FDI
47%
58% 53% (2016)
12%
Equity
19%
8%
16%
Debt
14
Global financial market interconnectedness intensifies
Pre- AFC (1 Mar 1995–1 Jul 1997)
Post-GFC (1 Apr 2010–30 Dec 2016)
Banking network can transmit shocks across borders
15
Impact of direct and indirect banking exposures to the crisis-affected countries on capital outflows during the GFC
*** = significant at 1%, ** = significant at 5%. Robust standard errors in parenthesis. Coefficients for the control variables are not shown for brevity. Source: Park and Shin (2017).
Variables
Without Control
Variables
With Control
Variables
(1)
Outflows
(2)
Outflows
(3)
Outflows
(4)
Outflows
Direct exposure of
banking sector
0.257***
(0.075)
0.282***
(0.078)
0.228**
(0.085)
0.253***
(0.086)
Indirect exposure of
banking sector
0.722**
(0.285)
0.359
(0.269)
Investors too complacent toward risk?
16
-2
-1
0
1
2
3
4
5
6
Jan-95 Dec-97 Nov-00 Oct-03 Sep-06 Aug-09 Jul-12 Jun-15
ADB Financial Stress Index—Asia
Episodes FSI
GFC
1st Greek
bailout
Euro
crisis
Taper
Tantrum
PRC currency
devaluation; stock
market crash
Brexit
Fed rate hike
Korean
peninsula
tensions
Mar-18
AFC
Fed rate
hike
twice
Trade
conflicts
AFC = Asian financial crisis, GFC = global financial crisis, PRC = People's Republic of China, US = United States. Note: Based on (i) banking sector price index, (ii) sovereign yield spreads, (iii) stock market volatility, (iv) stock price index and (v) exchange market pressure index and using the principal components analysis Source: ADB calculations using data from Bloomberg, CEIC, and Haver Analytics (accessed 19 June 2018).
Policy considerations
17
Further develop LCY bond markets for long-term finance and greater financial resilience
Urgently strengthen macroprudential regulation and supervision
Enhance regional financial cooperation to address growing financial interconnectedness
Time to review and strengthen existing financial safety nets