ECONOMIC OUTLOOK & CHALLENGES FOR ASEAN

MOHAMED ARIFF

GDP growth (%) 2011 2012ADO 2011 Update ADO 2011 Update

Major industrial economies

2.1 1.3 2.1 2.0

United States 2.8 1.6 2.6 2.2

Japan 1.5 -0.5 1.8 2.8

Eurozone 1.6 1.7 1.6 1.3

Sluggish growth in major industrial economies

Steady growth expected in developing Asia

2008 2009 20100

2

4

6

8

10

6.7 6.0

9.0 %

2011f 2012f

7.8 7.7 7.5 7.5

ADO 2011 (April)Update

Southeast Asia pales somewhat

Developing Asia

Central Asia

East Asia South Asia Southeast Asia

The Pacific0

2

4

6

8

10 9.0

6.6

9.6

7.9 7.9

5.7

7.5

6.1

8.1 7.2

5.4 6.4

7.5 6.6

8.0 7.7

5.6 5.5

GDP growth, by subregion

2010 2011f 2012f

%

Domestic demand plays an important role

HKG IND INO KOR MAL PHI SIN TAP THA-6

-3

0

3

6

9

Contributions to GDP growth (demand), 2011 H1

Private consumption Government consumption Investment Net exportsStatistical discrepancy GDP growth

Percentage points

FY Q1

Intraregional trade is on the rise

Exports to developing Asia

2007 2008 2009 2010 H1201130

35

40

45

50

42 4243

44

47

% share of total exports

Mounting inflationary pressures

0

5

10

15

20

25

Series1

%, year on year Inflation rates, latest month

2010 average: 4.4%

2009 average: 1.2%

Rising commodity prices

Jan

2007

Jul

Jan

08

Jul

Jan

09

Jul

Jan

10

Jul

Jan

11

Oct

0

100

200

300

400

500

Energy Agriculture

2000=100

Inflation higher than previously forecast, but deceleration in 2012?

2008 2009 20100

2

4

6

8

6.8

1.4

4.4

%

2011f 2012f

5.3 4.6

5.8

4.6 ADO 2011 (April)

Update

Some cases of negative real interest rates

Jan 2007

Jan 08

Jan 09

Jan 10

Jan 11

Oct

-12

-8

-4

0

4

8

12

PRC HKG IND KOR TAP

%

Jan 2007

Jan 08

Jan 09

Jan 10

Jan 11

Oct

-12

-8

-4

0

4

8

12

INO MAL PHI SIN THA VIE

%

Capital inflows are recovering

Q109 Q2 Q3 Q4 Q110 Q2 Q3 Q4 Q111 Q2-20

0

20

40

60

FDI Portfolio Other investments Net

$ billion

Relatively low levels of sovereign debt, but caution is in order

Gross government debt, 2010

ARMCAM FIJ HKG

INO

KORLA

OMLD NEP PHI

SOL

TAJ

TKM VIE

USA JPN0

50

100

150

200

250

% of GDP

High reserves, a good insurance?

VIE MAL PAK BAN HKG SIN IND KOR INO THA PHI TAP PRC0

5

10

15

20

25

Months of imports Import cover, 2010

Asian Development Bank

14

15

16

17

18

Two competing forces: Lure of ASEAN’s strong fundamentals Reduction in investors’ risk appetite due to uncertainty in

the global environment

Policy makers need to prepare for more volatile capital flows

Greater volatility is expected

Sovereign debt burdenSedated US economyThe Eurozone at the brink of a recessionEconomic stagnation in JapanDeceleration of growth in China and IndiaNo immunity for East AsiaThe world economy to cave in?Can China save the world economy?

Risks to the global economy

The global economy settling in at a new equilibrium after rebalancingThe US to regain its clout as economic powerhouse, albeit on a subdued level, as it will save more and spend lessIntra-regional trade to gain greater prominence for ASEAN in the face of slower extra-regional export growthDomestic and regional demand to be the main driver of economic growth for ASEAN

Post-2015 Scenario

Rebalance growthMake growth more inclusiveSeek resilience through market integrationStrengthen monetary cooperationGo for greater fiscal coordinationPursue open regionalismStay competitive in the global arena

Risks to economic growth warrant regional solutions

GCI 2010/11 GCI 2011/12

Rank Score Rank Score

Singapore 3 5.48 2 5.63Malaysia 26 4.88 21 5.08Brunei 28 4.75 28 4.78Thailand 38 4.51 39 4.52Indonesia 44 4.43 46 4.38Vietnam 59 4.27 65 4.24Philippines 85 3.96 75 4.08Cambodia 109 3.63 97 3.85 Source: The Global Competitiveness Report

Global Competitiveness: ASEAN

2009 2010 2011

Cambodia -0.90 4.66 4.40

Indonesia 2.26 2.83 5.37

Malaysia -3.78 4.96 3.31

Myanmar 6.36 8.54 3.83

Philippines -1.66 4.73 2.29

Singapore -2.40 9.16 2.76

Thailand -4.12 6.87 2.69

Vietnam 2.49 3.94 3.98

Source: Malaysia Productivity Corporation (MPC)

ASEAN: Labor Productivity Growth (%)

2006 2007 2008 2009Cambodia 11.55 4.26 1.03 -3.99Indonesia 1.29 0.52 0.90 -0.36Malaysia 2.33 2.58 1.64 -4.93Philippines 2.46 3.33 0.99 -2.45Singapore 0.37 3.01 -6.50 -3.66Thailand 1.55 1.40 -1.16 -5.47Vietnam 0.38 0.21 -1.86 -2.28

Source: Malaysia Productivity Corporation (MPC)

ASEAN Total Factor Productivity Growth (%)

Key Messages

The global economy to experience slower growth, as the US and EU economies rebalance.

Inflation to decelerate

To adjust to the sluggish global economy, ASEAN must accelerate structural reforms

To be globally competitive, ASEAN must close rank and act as a single entity

ASEAN must take advantage of its youthful population while preparing for demographic transitions over the medium term

THANK YOUFf