recent trends - tdri

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Sudhir Shetty Chief Economist East Asia and Pacific The World Bank

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Page 1: RECENT TRENDS - TDRI

Sudhir Shetty

Chief Economist

East Asia and Pacific

The World Bank

Page 2: RECENT TRENDS - TDRI

RECENT TRENDS

Page 3: RECENT TRENDS - TDRI

2

3

4

5

6

7

8

Q4-2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016

Indonesia Malaysia Philippines Thailand Vietnam China

(GDP growth, year-on-year percent change)

Growth Continues To Be Resilient …

Page 4: RECENT TRENDS - TDRI

... Supported by Fiscal Stimulus

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0Q

1-2

01

3

Q2

-20

13

Q3

-20

13

Q4

-20

13

Q1

-20

14

Q2

-20

14

Q3

-20

14

Q4

-20

14

Q1

-20

15

Q2

-20

15

Q3

-20

15

Q4

-20

15

Q1

-20

16

Q2

-20

16

China Malaysia Philippines Thailand Indonesia

(General government fiscal balance, four quarter moving average, percent of GDP)

Page 5: RECENT TRENDS - TDRI

And Monetary Accommodation …

Jan-14

Dec-14

Feb-14Sep-14

May-14

Feb-14

-2

-1

0

1

2

3

4

5

6

7

China Indonesia Malaysia Philippines Thailand Vietnam

Top of current cycle Real policy rate as of July 2016 10-year average

(Real policy rate, percentage points)

Page 6: RECENT TRENDS - TDRI

… And EAP Has Outpaced Other Developing Regions

-2

0

2

4

6

8

10

20

12

20

13

20

14

20

15

H1 2

01

6

20

12

20

13

20

14

20

15

H1 2

01

6

20

12

20

13

20

14

20

15

H1 2

01

6

20

12

20

13

20

14

20

15

H1 2

01

6

20

12

20

13

20

14

20

15

20

12

20

13

20

14

20

15

EAP SAR ECA LAC MENA SSA

Percent

(Regional GDP growth, percent)

Page 7: RECENT TRENDS - TDRI

Inflation Remains Subdued While Deflation Risks Are Receding

(Headline inflation, end of period year-on-year,

percent)

-10%

-5%

0%

5%

10%

15%

20%

Aug-1

0

Apr-

11

De

c-1

1

Aug-1

2

Apr-

13

De

c-1

3

Aug-1

4

Apr-

15

De

c-1

5

Aug-1

6

China Malaysia

Philippines Thailand

-2%

0%

2%

4%

6%

8%

10%

Aug-1

2

Nov-1

2

Feb

-13

Ma

y-1

3

Aug-1

3

Nov-1

3

Feb

-14

Ma

y-1

4

Aug-1

4

Nov-1

4

Feb

-15

Ma

y-1

5

Aug-1

5

Nov-1

5

Feb

-16

Ma

y-1

6

Aug-1

6

China IndonesiaMalaysia PhilippinesThailand Vietnam

(Producer price inflation, end of period year-

on-year, percent)

Page 8: RECENT TRENDS - TDRI

Commodity Prices Remain Low …

(Commodity price indices, 2010=100)

20

40

60

80

100

120

140

160

20

11

M07

20

12

M01

20

12

M07

20

13

M01

20

13

M07

20

14

M01

20

14

M07

20

15

M01

20

15

M07

20

16

M01

20

16

M07

Energy Agriculture Metals & Minerals

Page 9: RECENT TRENDS - TDRI

9

Trade Balances Have Weakened

(Export volumes, index of 12-month moving sum, Jan 2011 = 100)

85

90

95

100

105

110

115

120

125

130

Jan

-20

11

Ma

r-20

11

Ma

y-2

011

Jul-

20

11

Sep-2

011

No

v-2

011

Jan

-20

12

Ma

r-20

12

Ma

y-2

012

Jul-

20

12

Sep-2

012

No

v-2

012

Jan

-20

13

Ma

r-20

13

Ma

y-2

013

Jul-

20

13

Sep-2

013

No

v-2

013

Jan

-20

14

Ma

r-20

14

Ma

y-2

014

Jul-

20

14

Sep-2

014

No

v-2

014

Jan

-20

15

Ma

r-20

15

Ma

y-2

015

Jul-

20

15

Sep-2

015

No

v-2

015

Jan

-20

16

Ma

r-20

16

Ma

y-2

016

China Thailand Malaysia Indonesia Philippines

Page 10: RECENT TRENDS - TDRI

Public Investment Remains Low In Many Countries

(General government capital expenditure, percent of GDP)

2

3

4

5

6

7

8

9

10

11

12

2011 2012 2013 2014 2015 2016

Cambodia Malaysia Myanmar Philippines

Indonesia Vietnam Thailand

Page 11: RECENT TRENDS - TDRI

OUTLOOK

AND RISKS

Page 12: RECENT TRENDS - TDRI

Growth in Developing EAP Will Likely Be Stable

(Annual percentage change in GDP)

-2

-1

0

1

2

3

4

5

6

7

8

2015 2016 2017 2018

Page 13: RECENT TRENDS - TDRI

And Poverty Is Expected To Continue Falling

(Percentage of population in poverty, U.S.$3.10-a-day PPP poverty line)

DEVELOPING EAP

2015 2016 2017 2018

Poverty rate (percent) 12.1 10.6 9.3 8.3

Number of poor (millions) 251 223 197 175

DEVELOPING EAP EX-CHINA

2015 2016 2017 2018

Poverty rate (percent) 20.3 19.0 17.7 16.4

Number of poor (millions) 145 137 129 121

Page 14: RECENT TRENDS - TDRI

The Rising Middle Class in East Asia(Distribution of consumption – 2002-15)

0

10

20

30

40

50

60

70

80

90

100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Per

cen

t o

f d

evel

op

ing E

AP

popula

tion

Extreme poor – less than $1.90 PPP/day

Economically secure -- $5.50 -- $15 PPP/day

Moderate poor – $1.90 -- $3.10 PPP/day

Vulnerable -- $3.10 – 5.50 PPP/day

Global middle class – greater than $15 PPP/day

Page 15: RECENT TRENDS - TDRI

15

But Significant Risks Remain for Developing EAP …

• Sharper than expected slowdown in advanced economies or

China

• Continued slow growth in global trade

• Weak commodity prices

• Financial market turbulence

• Higher borrowing costs

• Capital flows could slow or reverse

• High domestic leverage

• Growing risk of financial stress among corporates and households

• Impacts exacerbated by external shocks

Page 16: RECENT TRENDS - TDRI

Growth in Advanced Economies Will Likely Be Slow

-4

-2

0

2

4

6

8

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

e

20

17

f

20

18

f

World Advanced economies Emerging and developing economies

Percent

(Annual percentage change in GDP)

Page 17: RECENT TRENDS - TDRI

And Commodity Prices Will Remain Low

(Index, 2010 = 100)

50

60

70

80

90

100

110

120

2014 2015 2016 2017 2018

Energy commodities

Oct-16 Apr-16 Oct-15 Apr-15

75

80

85

90

95

100

2014 2015 2016 2017 2018

Non-energy commodities

Oct-16 Apr-16 Oct-15 Apr-15

Page 18: RECENT TRENDS - TDRI

Regional Exports Depend On Global Growth Outlook

(Gross exports, percent of GDP, 2015)

0

10

20

30

40

50

60

70

80

Cam

bo

dia

Fiji

Ind

on

esia

La

o P

DR

Ma

laysia

Mo

ngo

lia

Myan

mar

Papu

a N

ew

Guin

ea

Phili

ppin

es

Solo

mon

Isla

nds

Tha

iland

Vie

tna

m

ChinaEmerging and dev. Asia excl. ChinaEmerging and dev. excl. EAPEuropean UnionJapanUnited States

Page 19: RECENT TRENDS - TDRI

When the U.S. Economy Slows…Other Economies Slow Too

Impact of 1-percentage-point decline in

U.S. growth(Percentage point)

Source: World Bank.

Note: Cumulative impulse responses for different horizons due to a 1-percentage-point decline in US growth on impact. Bars represent medians, and error bars 16-84 percent confidence

bands. Left Panel. Emerging markets (EM) impact is the GDP-weighted average of BRICS and EM (excluding BRICS) responses. Right Panel. Global impact is the GDP-weighted

average of G6, US, BRICS, and EM (excluding BRICS) responses.

19

-3

-2

-1

0

On Impact 1 Year 2 Years

G6 Global

Impact of 1-percentage-point decline in

U.S. growth(Percentage point)

-3

-2

-1

0

On Impact 1 Year 2 Years

BRICS Emerging markets

Page 20: RECENT TRENDS - TDRI

Sources: CPB Netherlands Bureau for Economic Policy Analysis, World Bank, IMF, Haver Analytics.

Left Panel. Pre-crisis trend is extrapolated from 2000-06 onwards. Trade flows refer to the average of exports and imports. Last observation is June 2016. Right Panel. Temporary trade

barriers include antidumping, safeguards and countervailing duties. Based on the World Bank Temporary Trade Barriers database.

20

Retreat from Globalization?

Weaker Trade Growth; Growing Barriers

Trade flows(Index, 2008 = 100)

50

70

90

110

130

150

2000 2004 2008 2012 2016

Pre-crisis trend

Products subject to temporary trade barriers(Percent of total products)

1

2

3

2000 2005 2010 2015

Page 21: RECENT TRENDS - TDRI

Global Financial Tightening Will Matter

0

10

20

30

40

50

60

70

80

90

100

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

China Mongolia Malaysia

Thailand Vietnam Indonesia

Lao PDR Cambodia Philippines

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

(US$ denominated debt, percent of total

public external debt)(Short-term debt, percent of gross external debt)

Page 22: RECENT TRENDS - TDRI

With High And Still Rising Private Sector Debt …

0

50

100

150

200

250

2010

2015

2010

2015

2010

2015

2010

2015

2010

2015

2010

2015

2010

2015

China Malaysia Vietnam Thailand Philippines Indonesia Emergingeconomies

Credit to Non-financial corporations

Credit to Households

Credit to General Government

0%

5%

10%

15%

20%

25%

Jan

-13

Ma

r-13

Ma

y-1

3Jul-

13

Sep-1

3N

ov-1

3Jan

-14

Ma

r-14

Ma

y-1

4Jul-

14

Sep-1

4N

ov-1

4Jan

-15

Ma

r-15

Ma

y-1

5Jul-

15

Sep-1

5N

ov-1

5Jan

-16

Ma

r-16

Ma

y-1

6Jul-

16

China IndonesiaMalaysia PhilippinesThailand Vietnam

(Credit by sector, percent of GDP) (Year-on-year real growth in private sector

credit)

Page 23: RECENT TRENDS - TDRI

… A Key Source of Vulnerability In Many Countries

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015

China Indonesia Malaysia

Philippines Thailand Vietnam

(Debt service as a percent of income) (Return on assets, listed firms, percent)

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

5

10

15

20

25

Jun

-08

Dec-0

8

Jun

-09

Dec-0

9

Jun

-10

Dec-1

0

Jun

-11

Dec-1

1

Jun

-12

Dec-1

2

Jun

-13

Dec-1

3

Jun

-14

Dec-1

4

Jun

-15

Dec-1

5

China Malaysia Thailand Indonesia

Page 24: RECENT TRENDS - TDRI

POLICY IMPLICATIONS

Page 25: RECENT TRENDS - TDRI

Vulnerabilities Need To Be Reduced Across the Region

• Region’s continued resilience hinges on preserving

macrofinancial stability

By reducing financial risks

And maintaining or rebuilding fiscal buffers

• Global financial conditions are likely to tighten

soon

Decisive action is needed now to maintain

macro-financial stability

Page 26: RECENT TRENDS - TDRI

Policy Priorities For the Region

• In China:

Bring credit growth under control

Reform the corporate sector

Strengthen the inter-governmental fiscal system

• Elsewhere in Developing EAP:

Enhance financial regulation by strengthening regulatory oversight and

implementing micro- and macro-prudential measures

Maintain fiscal space, including by increasing revenues

Some commodity exporters need to close fiscal deficits, e.g., Mongolia,

Timor-Leste

Countercyclical stabilization not a priority, given stable growth prospects

Where there is fiscal space, focus new spending on addressing public

infrastructure deficits

Improve the efficiency of public investment

Page 27: RECENT TRENDS - TDRI

Implications for Thailand

• Growth prospects for 2016-18 slightly more favorable than in the recent past

• Private consumption is the main driver of growth

• Stronger financial regulation, including of non-bank financial institutions

• Need to raise public investment, including to crowd in private investment

• Emphasize improved efficiency of public investment

• Streamline regulations to facilitate foreign direct investment flows

Page 28: RECENT TRENDS - TDRI

Prioritize Productivity-boosting Fiscal Spending

• Focus new spending on addressing priority

infrastructure deficits, in partnership with

private sector

• Increase the efficiency of public investment

Improve public investment management

Reduce bottlenecks to implementation

Page 29: RECENT TRENDS - TDRI