Economic and Social Prospects of Asia and the Pacific: Fostering an Inclusive and Sustainable Future

Dr. Nagesh KumarChief Economist

United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

23 May, 2013: Astana, Kazakhstan

Economic Outlook of Asia and the Pacific 2013

2

• Growth forecast for 2013 to increase slightly to 6% from 5.6% in 2012– China to grow at 8%, up from 7.8% in 2012– India to grow at 6.4%, up from 5% in 2012– Russian Federation to grow at 3.6%, up from

3.4% in 2012

• Inflation likely to remain at 5.1% in 2013– Risk of oil and food price increase

• Subdued growth could be “new normal”

• Yet Asia-Pacific region remains the fastest growing region in the world and anchors recovery

GDP growth

0

24

68

10

2009 2010 2011 2012 2013

Per

cent

age

Developing Asia-Pacific Asia-Pacific

0 2 4 6 8

Europe

Arab

Latin America and theCaribbean

Africa

Asia-Pacific

Percentage

20132012

Diverse sub-regional outlook

•North and Central Asia to grow at 4% in 2013 up from 3.9% in 2012•Kazakhstan to grow at 6%, up from 5% in 2012

• Inflation likely to be 6.4% in 2013 compared to 5.4% IN 2012

•North and Central Asia more exposed to commodity-related risks

•Development of infrastructure is key to accelerate growth especially for landlocked countries in North and Central Asia

3

GDP growth

0 2 4 6 8 10 12

Pacific

North / Central

South / South-West

South-East

East / North-East

Percentage

20132012

Inflation

0 2 4 6 8 10 12

East / North-East

South-East

Pacific

North / Central

South / South-West

Percentage

20132012

Policy challenges: Continued global economic uncertainty

4

• Fiscal crisis in the euro zone + Policy uncertainty in US

Impact on Asia-Pacific• Decreased economic activity through the

trade and finance channel• Estimated regional GDP loss of 3% since the

onset of the global crisis five years ago - $870 billion

• Loose monetary policies, quantitative easing (QE), of the developed world

Impact on Asia-Pacific• Short-term capital flows volatility• Rapid short-term currency appreciation

• Food and fuel price volatility Impact on Asia-Pacific

• Poverty and inflation

Export growth

-100

102030

4050

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

Perc

enta

ge (y

ear-o

n-ye

ar)

World Asia-Pacific

Vulnerability Yardstick

0 100 200 300

Republic of Korea

Malaysia

Indonesia

India

Philippines

Thailand

Kazakhstan

Russian Federation

ChinaLeast

vulnerable

Mostvulnerable

Growing Economic insecurity

5

• Decreased job growth, increased economic insecurity and vulnerabilities – High incidence of informal sector jobs– Nearly 1.1 billion of the region’s workforce

remain trapped in low quality, more pervasive among women and youth than men

• Youth employment information– Youth unemployment is forecast to edge

slightly upwards in 2013– 13.4% in South-East Asia and the Pacific,

10% in South Asia and 9.8% in East Asia

• Low social security– Less than 2% of GDP in many countries

Youth Unemployment (%)

355

77

910

1111

1213

1515

1718

19

0 5 10 15 20

ThailandViet Nam

SingaporeMacao, China

JapanRepublic of Korea

IndiaMarshall Islands

PakistanAustralia

Taiwan province of ChinaPhilippines

Hong Kong, ChinaNew Zealand

Sri LankaIndonesia

Percentage

3342

626870

7378

8486

0 20 40 60 80 100

ChinaThailand

Sri LankaViet Nam

PhilippinesIndonesiaPakistan

IndiaNepal

Percentage

Informal sector (%)

Growing inequality

6

• Income inequality (Gini index) increased from 33.5 in the 1990s to 37.5 in the latest available year

• Inequality-adjusted ‘real’ GDP per capita falls

Sri Lanka: GDP per capita $4,555 to ‘real’ GDP per capita $2,323 (in 2005 PPP) Republic of Korea: GDP per capita $27,415 to ‘real’ GDP per capita $19,492.

• Inequality reduces social development gains by over 20%

Pakistan: Gains reduced by over 30% Russian Federation: Gains reduced by over 10%

Inequality-adjusted GDP per capita

0 20000 40000 60000

Philippines

Mongolia

China

Bhutan

Fiji

Georgia

Sri Lanka

Armenia

Maldives

Thailand

Azerbaijan

Iran Is Rep

Kazakhstan

Turkey

Malaysia

RussianFed

Korea Rep

Singapore

GDP per capitaGini-adj

Inequality-adjusted social development index

0.0 0.5 1.0

Viet Nam

Indonesia

Turkey

Maldives

Thailand

China

Philippines

Tajikistan

Azerbaijan

Kyrgyzstan

Uzbekistan

Mongolia

Sri Lanka

RussianFed

Kazakhstan

Armenia

Georgia

Korea Rep

SDIGini-adj

Infrastructure deficits

7

• Impediment to growth, especially in South Asia and the Pacific islands– LDCs of the region, such as Afghanistan, Cambodia

and Myanmar have the largest infrastructure deficits– Power is the most critical bottleneck and then

transportation

• Economic cost of traffic congestion: Indonesia: 1.2% of GDPThailand: 2.1% of GDPRepublic of Korea: 2.6% of GDP

• Financing requirement in the region – $600 billion to $800 billion per year

Population without electricity access

0 20 40 60 80 100

Korea, RepMaldives

Brunei DarussalamChina

MalaysiaThailand

Iran, Islamic RepViet Nam

SamoaPhilippines

FijiSri Lanka

IndiaBhutan

MongoliaIndonesia

PakistanLao PDR

NepalBangladesh

Korea, Dem RepCambodia

Timor-LesteVanuatu

AfghanistanSolomon Island

MyanmarPapua New Guinea

Unsustainable resource use

8

• Asia-Pacific economy is consuming more resources to produce one dollar of GDP

• Future growth of resource use in several countries holds significant implications for overall resource demand

• Vulnerability to natural disasters – 42% of the global economic losses due to

natural disasters– Disaster losses since 1980 have increased by

16 times in Asia while GDP per capita has grown by only 13 times

Domestic material consumption intensity

0 2 4 6 8 10

World

Pacific

East / North-East

Asia-Pacific

South-East

North / Central

South / South-West

Tonnes per US dollar

2008

1992

Water intensity

0.0 0.2 0.4 0.6 0.8 1.0 1.2

World

Pacific

East / North East

Asia-Pacific

South-East

North / Central

South / South West

Cubic metres per US dollar

Need for rebalancing

•The medium-term need for the region continues to be to redirect its growth drivers from extra-regional demand to intra-regional and domestic demand•Policies should be designed to:

•Increase the inclusiveness of growth•Broadening social protection and providing quality public service delivery•Foster the development of the agricultural sector•Sustainable, knowledge-intensive “green revolution”•Support the “green economy” •Public-private finance and low-cost access to technology•Exploit the potential of regional economic integration

9

An inclusive and sustainable development agenda for Asia and the Pacific

10

• A job guarantee programme– 100 days per year for participants

• A universal pension for elderly– For all aged 65 or older

• Benefits to all persons with disabilities– Ages of 15 and 65

• Increasing the share of public health expenditures– 5% of GDP by 2030

• Universal enrolment in primary and secondary education– Primary by 2020 and Secondary by 2030

• Energy access to all – Modern energy services by 2030

Investing in inclusive and sustainable development

11

• Overall public expenditure and investment requirements to implement such a policy package vary across countries

• Total investment needs of above package of policies 5% to 8% of GDP by 2030

• Public investment needed to deliver policies to sustain growth and promote inclusive and sustainable development– In the case of China, the cost of the package is

projected to reach 3.3% of GDP in 2020 and 5.2% of GDP by 2030

– The cost of the package is projected to exceed 10% of GDP by 2030 only in Fiji (13%) and Bangladesh (22%)

Such an agenda is generally affordable

12

• Most countries can self-finance without jeopardizing macro stability, by– broadening tax bases– By making tax regimes more progressive– tax administration more efficient – Creating new sources of revenue including taxes on capital

flights– fighting corruption – reducing non-development expenditures

• LDCs would need global support

Region is gradually moving towards such policies

13

• Thailand has evolved universal health package and has now raised minimum wages

• National rural jobs scheme in India– 48 million households provided employment in over 600 districts in 2012-13

• Inclusive finance in Bangladesh– 10 million new bank accounts for smallholder farmers

• China’s economic rebalancing to make growth more inclusive; good for region and beyond

New development paradigm in Asia-Pacific

14

• Investing in social and environment pillars fortifies economic pillar…– Leads to sustained, inclusive and

equitable economic growth

• Grow now, distribute + clean up later is not an option

• Critical for sustaining region’s dynamism

Thank youEconomic and Social Survey of Asia and the Pacific 2013 is downloadable on:

www.unescap.org/Survey2013/