Andrew MasonActing Chief Economist

East Asia and Pacific RegionWorld Bank Group

Managing Headwinds

OVERVIEW

• While the overall economic outlook in the East Asia and the Pacific is positive, growth is expected to moderate in 2019 in the face of continuing global headwinds.

• To date, the region has experienced considerable resilience due to robust domestic demand and accompanied by strong policy fundamentals.

• Nonetheless, risks to the outlook remain firmly tilted to the downside and in some cases have intensified. These continuing headwinds will need to be managed actively.

Key Messages

• Moderating global growth and faltering trade momentum

• Faster-than-expected moderation in growth in China

• Unresolved trade tensions and the possibility of new ones arising

• Episodes of financial market stress could lead to disorderly financial market developments

What are the major headwinds?

RECENT TRENDS

Global growth has moderated

Source: Haver Analytics; World Bank.Note: Updated data will be published in the June 2019 issue of the World Bank’s Global Economic Prospects.

0

2

4

6

8

2010

2011

2012

2013

2014

2015

2016

2017

2018

e

2019

f

World

Advanced economies

Emerging and developing economies

World trade also slowedGlobal Purchasing Managers’ Index: Manufacturing

output and new export orders

Source: Haver Analytics, World BankNote: (SA, 50+=Expansion). Data are 3-month moving averages.

48

49

50

51

52

53

54

55

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Manufacturing PMI Export Orders

Index, 50+=expansion, 3-month moving average

GDP growth(year-on-year percent change)

Regional growth softened as headwinds increased

Source: Haver Analytics; World Development Indicators.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Q4-

2014

Q1-

2015

Q2-

2015

Q3-

2015

Q4-

2015

Q1-

2016

Q2-

2016

Q3-

2016

Q4-

2016

Q1-

2017

Q2-

2017

Q3-

2017

Q4-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Percent

Developing EAP and China China Developing EAP

0

1

2

3

4

5

6

7

8

9

Q4-

2014

Q1-

2015

Q2-

2015

Q3-

2015

Q4-

2015

Q1-

2016

Q2-

2016

Q3-

2016

Q4-

2016

Q1-

2017

Q2-

2017

Q3-

2017

Q4-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Q1-

2019

China Indonesia Malaysia

Philippines Thailand Vietnam

Percent

Domestic demand supported growth

Contribution to GDP growth(percentage points, year-on-year)

Source: Haver Analytics; Thailand Office of the National Economic and Social Development Board; World Bank staff calculations.Note: For China, consumption refers to both government and private consumption.

-10

-5

0

5

10

Q1-

2016

Q3-

2016

Q1-

2017

Q3-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Q1-

2016

Q3-

2016

Q1-

2017

Q3-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Q1-

2016

Q3-

2016

Q1-

2017

Q3-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Q1-

2016

Q3-

2016

Q1-

2017

Q3-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Q1-

2016

Q3-

2016

Q1-

2017

Q3-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

China Indonesia Malaysia Philippines Thailand

Private consumption Gross Capital Formation Government consumption Net Exports Statistical discrepancy GDP growth

Trade momentum eased significantly in 2018

Export values (index of 12-month moving sum, January 2013 = 100)

Source: Haver Analytics; World Bank staff estimates..

Import values(percent, 12-month growth rate)

-20

-15

-10

-5

0

5

10

15

20

25

30

Apr-2

015

Jun-

2015

Aug-

2015

Oct

-201

5D

ec-2

015

Feb-

2016

Apr-2

016

Jun-

2016

Aug-

2016

Oct

-201

6D

ec-2

016

Feb-

2017

Apr-2

017

Jun-

2017

Aug-

2017

Oct

-201

7D

ec-2

017

Feb-

2018

Apr-2

018

Jun-

2018

Aug-

2018

Oct

-201

8D

ec-2

018

Feb-

2019

China Thailand Malaysia Indonesia Philippines Vietnam

-20

-15

-10

-5

0

5

10

15

20

25

30

Q4-

2015

Q1-

2016

Q2-

2016

Q3-

2016

Q4-

2016

Q1-

2017

Q2-

2017

Q3-

2017

Q4-

2017

Q1-

2018

Q2-

2018

Q3-

2018

Q4-

2018

Percent China IndonesiaMalaysia PhilippinesThailand Vietnam

Trade tensions weighed on regional trade

Panel A. China’s exports to major ASEAN economies Panel B. China’s imports from major ASEAN economies

China’s imports from major ASEAN economies declined sharply in 2018Export/import value growth (year-over-year percent change)

Source: CEIC; World Bank staff estimates.

-30

-20

-10

0

10

20

30

40

Jan-

2018

Feb-

2018

Mar

-201

8Ap

r-201

8M

ay-2

018

Jun-

2018

Jul-2

018

Aug-

2018

Sep-

2018

Oct

-201

8N

ov-2

018

Dec

-201

8Ja

n-20

19Fe

b-20

19M

ar-2

019

Indonesia MalaysiaPhilippines ThailandVietnam

Percent

-15-10

-505

1015202530

Jan-

2018

Feb-

2018

Mar

-201

8Ap

r-201

8M

ay-2

018

Jun-

2018

Jul-2

018

Aug-

2018

Sep-

2018

Oct

-201

8N

ov-2

018

Dec

-201

8Ja

n-20

19Fe

b-20

19M

ar-2

019

Indonesia MalaysiaPhilippines ThailandVietnam

Percent

General government fiscal balance(percent of GDP)

Larger Economies Smaller Economies

Approach to fiscal policy was mixed

Source: World Bank staff estimates.Note: Data refer to general government fiscal balance, except for Indonesia, where data refer to central government fiscal balance; fiscal deficitsdo not reflect off-budget spending items.

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2013 2014 2015 2016 2017 2018

China Indonesia Malaysia

Philippines Thailand Vietnam

-20

-15

-10

-5

0

5

-8

-6

-4

-2

0

2

2013 2014 2015 2016 2017 2018

Cambodia FijiLao PDR MyanmarPapua New Guinea Mongolia (RHS)

Inflation was well contained

Headline inflation (end of period year-over-year, percent)

Source: Haver Analytics; Timor-Leste Ministry of Finance, Directorate General of Statistics; World Bank staff estimates.

-2

-1

0

1

2

3

4

5

6

7

8

Jan-

2016

Mar

-201

6M

ay-2

016

Jul-2

016

Sep-

2016

Nov

-201

6Ja

n-20

17M

ar-2

017

May

-201

7Ju

l-201

7Se

p-20

17N

ov-2

017

Jan-

2018

Mar

-201

8M

ay-2

018

Jul-2

018

Sep-

2018

Nov

-201

8Ja

n-20

19M

ar-2

019

China Indonesia Malaysia

Philippines Thailand Vietnam

-4

-2

0

2

4

6

8

10

12

Feb-

2016

Apr-2

016

Jun-

2016

Aug-

2016

Oct

-201

6D

ec-2

016

Feb-

2017

Apr-2

017

Jun-

2017

Aug-

2017

Oct

-201

7D

ec-2

017

Feb-

2018

Apr-2

018

Jun-

2018

Aug-

2018

Oct

-201

8D

ec-2

018

Feb-

2019

Cambodia Lao PDRMyanmar MongoliaTimor-Leste

Financial assets have begun to regain lost ground

Bond spreads (EMBI index, basis points)

Source: Thomson Reuters; Datastream; IFC Global Macro & Market Research.

Stock markets(US$, index, end-2015 = 100)

70

90

110

130

150

170

190

210

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

Jun-

17

Sep-

17

Dec

-17

Mar

-18

Jun-

18

Sep-

18

Dec

-18

Mar

-19

China Indonesia MalaysiaPhilippines Thailand Vietnam

0

50

100

150

200

250

300

350

400

450

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Nov

-18

Jan-

19

Mar

-19

China IndonesiaMalaysia PhilippinesVietnam EM Global Diversified

Major currencies also regained lost ground at the end of 2018

85

90

95

100

105

110

115

120

Mar

-201

6

May

-201

6

Jul-2

016

Sep-

2016

Nov

-201

6

Jan-

2017

Mar

-201

7

May

-201

7

Jul-2

017

Sep-

2017

Nov

-201

7

Jan-

2018

Mar

-201

8

May

-201

8

Jul-2

018

Sep-

2018

Nov

-201

8

Jan-

2019

Mar

-201

9

China Indonesia MalaysiaPhilippines Thailand Vietnam

Source: Haver Analytics.

U.S. dollar to local currency (December 2015 = 100)

Poverty rate (vertical axis, percent) and number of poor (size of bubble, million), for poverty lines:US$1.90 per day (2011 PPP), US$3.20 per day (2011 PPP), and US$5.50 per day (2011 PPP)

Resilient domestic demand supported poverty reduction

Source: World Bank East Asia and Pacific Team for Statistical Development; PovCalNet.

International Poverty Line ($1.90/day 2011PPP) Lower Middle Income Class Poverty Line ($3.20/day 2011PPP)

Upper Middle Income Class Poverty Line ($5.50/day 2011PPP)

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015 2016 2017 2018

Pove

rty r

ate (

%)

Developing EAP

1

942

757

690

828

4

322

33330

645

589

309303

455

339

538

168

294243

221192

139

70 58 44 39 34 30 0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015 2016 2017 2018

Pove

rty

rate

(%)

Developing EAP excluding China

1

7

6

4

316

343335

328

304291

278

183174

165

147140

128

44 39 34 31 28

119

51

25

OUTLOOK AND RISKS

Global growth is expected to moderate

GDP growth(Year-on-year, percent)

Source: World Bank.Note: f = forecast.

-4-202468

2007

-08

2009

2010

2011

-17

2018

e

2019

-20f

2021

f

WorldAdvanced economiesEmerging and developing economies

Regional growth is expected to be resilient

GDP growth(percent)

Source: World Bank.Note: Lines denote long-run (1990–2017) average growth rates. f = forecast;

0

3

6

920

12-1

720

18e

2019

f20

20f

2021

f20

12-1

720

18e

2019

f20

20f

2012

-17

2018

e20

19f

2020

f20

21f

2012

-17

2018

e20

19f

2020

f20

21f

2012

-17

2018

e20

19f

2020

f20

21f

2012

-17

2018

e20

19f

2020

f20

21f

Poverty will continue to decline

Source: World Bank East Asia and Pacific Team for Statistical Development.

2018 2020PPP$3.20 Per-capita per-day 8.2 6.3PPP$5.50 Per-capita per-day 26.2 21.3

2018 2020PPP$3.20 Per-capita per-day 17.9 15.1PPP$5.50 Per-capita per-day 41.9 37.4

Poverty incidence (percent of population)

Developing EAP

Developing EAP EX-China

Fiscal deficits expected to remain broadly similar

Fiscal deficits (percent of GDP)

Source: World Bank staff estimates.Note: Data refer to general government fiscal deficit, except for Indonesia, where they refer to central government fiscal deficit, and Cambodia, where they refer to general government fiscal deficit before grants. Deficits are expected to increase in countries above the 45 degree line.

KHM

CHNFJI

IDN

LAO

MYS

MNG

MMR

PHL

THA

VNM

0.0

2.5

5.0

7.5

10.0

0.0 2.5 5.0 7.5 10.0

Aver

age

2018

–20

Average 2015–17

Government debt is expected to remain contained

0

20

40

60

80

100

120

Chi

na

Indo

nesi

a

Mal

aysi

a

Philip

pine

s

Thai

land

Viet

nam

Cam

bodi

a

Lao

PDR

Mon

golia

2015 2016 2017 2018 2019 2020

General government debt (percent of GDP)

Source: World Bank staff estimates.Note: Data refer to general debt, except for Indonesia, where data refer to central government debt. Data for China exclude significant off-budget debts for public investment accumulated since 2015.

• There is uncertainty around the outlook for the global economy, especially with indications that global demand is softening

• Slower-than-expected growth in China would lead to spillovers to other regional economies.

• While the United States and China appear to be getting closer to resolving trade disputes, uncertainty around trade remains high

• Renewed episodes of significant financial market stress could have pronounced and widespread effects.

Risks remain firmly tilted to the downside

POLICY CONSIDERATIONS

Multi-pronged policy approached required

• In the short-term, countries will need to focus on managing global headwinds, including by strengthening buffers

• In the medium-term, a renewed focus on structural reforms, including efforts to raise investment and boost human capital, will be needed

• Improving private sector opportunities will play a key role in ensuring a more sustainable growth pattern

• To increase resilience to shocks and promote greater economic security, it will be important to continue strengthening social insurance and social assistance