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2018/FDM1/004 Session 2.1
Asia and the Pacific: Economic Outlook and Drivers
Purpose: Information Submitted by: International Monetary Fund
Finance and Central Bank Deputies’ Meeting
Port Moresby, Papua New Guinea15-16 March 2018
Asia and the Pacific:
Economic Outlook and Drivers
1
Asia’s growth pickup remains on track
2
Growth Projections: World and Selected Asia(Percent change from a year earlier)
World U.S.
Euro
Area Japan
Emerging
and Developing
Asia China India* ASEAN-5* Russia
Latin
America
and the Caribbean APEC*
2016 3.2 1.5 1.8 0.9 6.4 6.7 7.1 4.9 -0.2 -0.7 3.0
2017 3.7 2.3 2.4 1.8 6.5 6.8 6.7 5.3 1.8 1.3 3.9
2018 3.9 2.7 2.2 1.2 6.5 6.6 7.4 5.3 1.7 1.9 4.2
Revision
from
Oct. 20170.2 0.4 0.3 0.5 0.0 0.1 0.0 0.1 0.1 0.0 N/A
2019 3.9 2.5 1.9 0.9 6.6 6.4 7.8 5.3 1.5 2.6 4.0
Revision
from
Oct. 20170.2 0.6 0.2 0.1 0.1 0.1 0.0 0.0 0.0 0.2 N/A
Source: World Economic Outlook Update, January 2018 except for APEC.
Note: Figures for India are on a fiscal year basis. ASEAN-5 includes Indonesia, Malaysia, Philippines, Thailand and Vietnam. APEC countries’ growth forecast consists
of January 2018 forecast and October 2017 forecast.
Asia’s growth pickup remains on track
as other regions are accounting for more
3
Contribution to Growth and Growth Rate
(percent, PPP-adjusted)IMF Projection
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017 2018 2019 2020
Asia Western hemisphere Europe
Middle East & Central Asia Africa Growth rate - Global (RHS)
Growth rate - Asia (RHS)
Source: IMF Staff estimates.
Certain population in Asia is not benefiting
from the economic growth
Source: World Bank
4
Some countries need more investment in
human capitals such as health and education
Under-Five Mortality Rate in ASEAN Member States
(per 1,000 births)
5
10
181
97
170
17
130
80
813
58
79
10
3526
86
8
52
31
39
22 26
3
60
32
57
6
43
27
3 4
1926
0
20
40
60
80
100
120
140
160
180
200
1990 2015 Target
Source: ASEAN Secretariat
Asia’s exports are still growing due to
other region’s upswing
6
Exports to Major Destinations(in percent; year-over-year growth)
-20
-15
-10
-5
0
5
10
15
20
25
30
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
Ja
n-1
4
Ju
l-1
4
Ja
n-1
5
Ju
l-1
5
Ja
n-1
6
Ju
l-1
6
Ja
n-1
7
Ju
l-1
7
to U.S. to Euro area
-20
-10
0
10
20
30
40
Ja
n-1
2
Ju
l-1
2
Ja
n-1
3
Ju
l-1
3
Ja
n-1
4
Ju
l-1
4
Ja
n-1
5
Ju
l-1
5
Ja
n-1
6
Ju
l-1
6
Ja
n-1
7
Ju
l-1
7
to Japan to China
Source: Haver Analytics
Asia’s domestic demand is strong,
boosting imports...
7
-2-10123456789
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
Asia Australia, Japan,New Zealand
China East Asia(excluding
China)
India ASEAN
Net exports Investment Consumption Growth
1
Contributions to Projected Growth(Year-over-year; percentage points)
Sources: IMF, World Economic Outlook database; and IMF staff calculations.1 ASEAN includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
…and contributing to the reduction in current
account balances
8
-4
-2
0
2
4
6
8
10
Australia, Japan,New Zealand
East Asia(excluding China)
ASEAN China India Indonesia
2015 2016 2017 (Estimate) 2018 (Projection)
1
Asia: Current Account Balances
(Percent of GDP)
Sources: IMF, World Economic Outlook database; and IMF staff calculations.1 ASEAN includes Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
Asia’s inflation has been revised down along
with other regions
9
0
1
2
3
4
5
6
7
8
9
Asia Euro area Latin America andthe Caribbean
Middle East andNorth Africa
United States
April 2017 WEO October 2017 WEO
2017 Inflation Forecast(Percent)
Source: IMF World Economic Outlook.
Capital inflows to emerging countries
remained positive
10
-40
-30
-20
-10
0
10
20
30
40
50
60
Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17 Jan 18
Africa & Middle East Emerging Europe Latin America Emerging Asia
Sources: National Sources; Bloomberg Finance L.P.; and Institute of International Finance.
Total Portfolio Flows(Billions of U.S. dollars)
High credit growth widespread in Asia
has raised downside risks
11
0
50
100
150
200
250
300
350
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Fast Credit Growth and Wide Credit Gap (Percent of GDP)
Notes: Total credit to the private nonfinancial sector.Sources: Bank for International Settlements; and IMF staff estimates.
China
Hong Kong SAR
Indonesia
Korea
Thailand
Malaysia
Vietnam
Mongolia
Cambodia
Singapore
Market participants expect US accommodative
monetary policy to sustain cyclical growth
12
US: Contribution to Growth
(percent, q/q seasonally adjusted, annualized)
-4
-3
-2
-1
0
1
2
3
4
5
6
Private ConsumptionPrivate InvestmentResidential InvestmentGovernment ExpendituresInventories
US FOMC participants expect a faster
tightening than market participants
(percent, FF rate projections)
Source: CME
Note: Blue dots indicate the median projection. Red dots indicate
the effective rate implied by the year-end Fed Fund future price.
Source: Haver Analytics
2018 2019 2020
0.0
1.0
2.0
3.0
4.0
5.0
China’s growth is rebalancing, however,
the country still faces a large credit gap
13
Source: IMF Staff estimates.
Japan’s recent growth momentum is positive.
1414
IMF Projection
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Japan's Primary Balance(percent of GDP)
Primary Balance (% of GDP)
Primary Balance (% of GDP, Cyclically Adjusted)
IMF Projection
50
100
150
200
250
Japan's Debt-to-GDP Ratio(percent of GDP) IMF Projection
15
Growth remain broadly stable in ASEAN,
but countries face infrastructure gap
IMF Projection
Real Growth Projection(in percent)
Source: World Economic Outlook Update, January 2018.
Note: ASEAN-5 includes Indonesia, Malaysia, Philippines, Thailand and Vietnam.
Developing Asian countries require more infrastructure
investment: Selected ADB countries*, 2016-2020
(annual averages, USD billion in 2015 prices)
Source: Asian Development Bank
Note: Developing member countries include 24 countries (China is not included),
future public investments are based on the 50 percent fiscal space assumption.
Numbers in brackets indicate percentage of GDP.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2014 2015 2016 2017 2018 2019
ASEAN-5 Emerging and Developing Asia Global
The favorable position provides an
opportunity to implement ambitious
structural reforms.
16
Key structural policy recommendationsMain Challenge
ChinaGrowth targets should be de-emphasized and the focus
should be more on the quality and sustainability of growth. Credit growth
JapanA comprehensive policy package of structural reforms
combined with income and demand policies should help to
reflate the economy and lift potential growth.
Reflation and fiscal
sustainability
IndiaAddressing corporate and banking sector balance sheet
weaknesses is key to safeguard financial stability and
support credit growth and private investment.
Corporate and banking sector
strains
AUS and
NZL
Promote housing affordability and supply through planning-
zoning reforms and infrastructure push. Recalibrate tax
incentives.
Housing affordability and re-
calibrating investment incentives
ASEANTackle structural constraints to growth such as the low
quality of infrastructure. Infrastructure gaps and quality
KoreaEnhance the role of women in the economy, and emphasize
innovation, especially in SMEs.
Declining productivity growth
and demographic headwinds
Small
StatesRestore fiscal discipline to build buffers.Natural disasters/climate change
Key messages and roadmap
17
• Asia is in a favorable position: growth is revised up.
• However, the sustainability of the pickup is still not clear.
• While Asia is more resilient, medium-term vulnerabilities
have increased.
• The “window for reforms” is now.
LONG-TERM CHALLENGES
– IMPACT OF AGING
18
Asia is aging much faster compared to the
experience of other advanced economies
19
Many parts of Asia are at risk of growing
old before becoming rich
20
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