ado2011 2apr presscon final - rev

8/6/2019 Ado2011 2apr Presscon Final - Rev

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Asian Development OutlookAsian Development Outlook

20112011SouthSouth--South Economic LinksSouth Economic Links

Changyong RheeChief Economist

Economics and Research Department

ADO 2011 Press conferenceHong Kong, China

6 April 2011


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Outline

1. Economic outlook Global outlook

Developing Asias outlook

2. Key Challenges Managing inflation

Finding new growth source:South-South economic links?

3


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4

Key Messages

Asias recovery is firm, with growthnearing 8% in the next 2 years

Asia is leading the global recovery Rising inflation is a concern

Expanding South-South links present asupplementary growth source

But structural weaknesses need to beaddressed to maximize their potential

4


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Part 1. Economic outlook


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Modest growth expected in

major industrial economies

2009 2010 2011 2012

Actual Actual

ADO 2011

projectionADO 2011

projection

GDP Growth

Major industrial economies (%) -3.8 2.6 2.1 2.1

United States(%) -2.6 2.9 2.8 2.6

Eurozone (%) -4.1 1.7 1.6 1.6

Japan (%) -6.3 3.9 1.5 1.8

World trade

Merchandise exports(%change) -12.2 13.5 7.5 8.5

Inflation

Inflation (G3average, %) -0.2 1.2 1.3 1.8

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7

But risks remain

Recent surge in oil and foodprices

Sovereign debt problems in theeurozone periphery

High unemployment and weak

housing market in the US Impacts of the Japan earthquake

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Developing Asias recovery is

firming

8

due to robust domestic demand

9.410.1

6.75.9

9.0

7.8 7.7

0

4

8

12

2006 2007 2008 2009 2010 2011 2012

GDP growth

5-year moving average


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Led by the PRC

9

12.7

14.2

9.69.2

10.39.6

9.2

6

8

10

12

14

16

2006 2007 2008 2009 2010 2011 2012

%GDP growth

5-year moving

average

But slowing investment and exports will see growth in

the PRC moderate in 2011 and 2012.


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and India

10

9.7

9.2

6.7

8.0

8.68.2

8.8

6

7

8

9

10

2006 2007 2008 2009 2010 2011 2012

%

GDP growth

5-year moving

average

Growth will moderate in 2011 on slower external demand and

tighter macro policies, then bounce back in 2012


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11

Other regional economies are

also doing well2009 2010 2011 2012

Central Asia 3.2 6.6 6.7 6.9

Azerbaijan 9.3 5.0 5.8 5.8

Kazakhstan 1.2 7.0 6.5 6.8

East Asia 6.8 9.6 8.4 8.1

China, People's Rep. of 9.2 10.3 9.6 9.2

Hong Kong, China -2.7 6.8 5.0 4.7

Korea, Rep. of 0.2 6.1 4.6 4.6

Taipei,China -1.9 10.8 4.8 5.0South Asia 7.1 7.9 7.5 8.1

Bangladesh 5.7 5.8 6.3 6.7

India 8.0 8.6 8.2 8.8

Pakistan 1.2 4.1 2.5 3.7

Sri Lanka 3.5 7.6 8.0 8.0

Southeast Asia 1.2 7.8 5.5 5.7

Indonesia 4.6 6.1 6.4 6.7

Malaysia -1

.7 7.2 5

.35

.3

Philippines 1.1 7.3 5.0 5.3

Singapore -0.8 14.5 5.5 4.8

Thailand -2.3 7.8 4.5 4.8

Viet Nam 5.3 6.8 6.1 6.7

The Pacific 4.2 5.2 6.3 5.4

Fiji Islands -3.0 0.1 0.5 0.8

Papua New Guinea 5.5 7.1 8.5 6.5

Vanuatu 4.0 3.0 4.2 4.0

Developing Asia 5.9 9.0 7.8 7.7


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12

-5

0

5

10

15

20

PRC INO KOR MAL PHI SIN THA

Percentage points

Contributions to GDP growthPrivate consumption Government consumption

Investment Net exports

Statistical discrepancy GDP growth

Robust domestic demand propelled

Asias recovery

PRC=Peoples Republic of China; INO=Indonesia; KOR=Republic of Korea;

MAL=Malaysia; PHI=Philippines; SIN=Singapore; THA=Thailand.


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Asia contributed to the

global recovery

13

-8 0 8 16 24 32

Brazil

Mexico

Saudi Arabia

South Africa

France

Germany

Japan

United States

%

Growth in exports to developing Asia and the rest ofthe world, Q3 2008 Q3 2010

Asia-10 Rest of the world


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Current account surpluses are

falling

14

due to rising oil prices and the regions strong

growth, not due to structural rebalancing!

5.9

6.8

5.5

4.74.1

3.33.0

0

2

4

6

8

2006 2007 2008 2009 2010 2011 2012

%

Current account (% of GDP)



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Inflation pressures are building

up

15

with some countries showing signs of

potential overheating.

3.3

4.4

6.9

1.2

4.4

5.34.6

0

2

4

6

8

2006 2007 2008 2009 2010 2011 2012

%

Inflation



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Real interest rates have turned

negative in some economies

16

-16

-12

-8

-4

0

4

8

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11

%

People's Rep. of China India Indonesia

Rep. of Korea Malaysia Philippines

Taipei,China Thailand Viet Nam


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Inflation matters more for Asia

Bangladesh 58.8

Philippines 46.6

India 46.2

Sri Lanka 45.5

Cambodia 44.8

Pakistan 40.3

Viet Nam 39.9

Indonesia 36.2Thailand 33.0

Malaysia 31.4

PRC 30.2

United States 14.8

Eurozone 14.0

Japan 25.9

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Food share in CPI (%)

o The poor are especiallyvulnerable

o Rising in part to Asiasfaster recovery

o Inflation expectationscan fuel wage-pricespiral


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But managing inflation is not easy

Higher policy rates attract more capitalinflows

18

7 1 9 2

45 2 739

-2 2 492 4

68-4 2

57

20 7

11 1

-2 2 5

-1 5 0

-7 5

0

75

1 50

2 25

H1 0 4 H 1 0 5 H1 0 6 H 1 0 7 H 1 0 8 H1 0 9 H 1 1 0

$ billion

Net flows in emerging Asian economies

FDI Portfolio Other Net flows


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A coherent policy mix is key tosuccess

For countries with persistent currentaccount imbalances and misalignedexchange rates: More flexible exchange

rates. For countries without the above

symptoms: Internationally coordinatedtemporary measures, such as capitalcontrols.

G20 could provide useful tools: practicalindicative guidelines and principles forcapital controls.

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Part 2. South-South Links


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Share of the South in global GDP is

rising

Share ofSouth in world GDP(%)

27

3233

37

45

0

10

20

30

40

50

1990 1995 2000 2005 2010

Developing Asias share in SouthGDP, 2010

PRC30%

OtherAsia

34%

OtherSouth36%

DevelopingAsia64%

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PRC = Peoples Republic of China


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The South has emerged as

important sources of outward FDI

22

0

1,000

2,000

3,000

Africa Latin America Middle East Developing Asia North

In Bn US$ (2008)

Inward stock from North Outward stock to North

Inward stock from South Outward stock to South

US$ 9.1Trn

US$ 9.5Trn

US$ 3.8Trn

10,000

9,000


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South-South trade is growing

Developing Asias share inSouth-South trade, 2009

OtherSouth26%

OtherAsia34%

PRC40%

DevelopingAsia74%

Note: Merchandise trade, non-fuel

7

10

1516

17

199091* 200001* 200607* 2008 2009

South-South trade as share ofworld merchandise trade (%)

PRC = Peoples Rep. of China


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But developing Asias trade is driven

by factory Asia

0

10

20

30

40

50

60

97 99 01 03 05 07 09

(%)

Developing Asia PRC

Africa Latin America

0

10

20

30

40

50

60

97 99 01 03 05 07 09

(%)

Developing Asia PRC

Africa Latin America

Exports Imports

Share of parts and components (%)

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Factory Asia: intermediate goods sourced from South for assemblyand subsequent export to North

Growing South-South links do not necessarily mean greater

economic independence!


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Structural weaknesses need to be

addressed

25

4.25.5 5.1

3.7

3.2

19.6 20.6

16.0

12.1

9.3

0

5

10

15

20

25

1985-89 1990-94 1995-99 2000-04 2005-08

%

Applied tariffs, simple mean

North South


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Other barriers remain too

Trade-related

infrastructure and

logistics performance

of the South lagconsiderably behind

the North

South-South FTAs

are generally less

consistent with WTOand other global rules

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2.0

2.5

3.0

3.5

North South

Average Logistic PerformanceIndex scores, North and South

2007 2010


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Potential gains from stronger

South-South links are large

Lowering tariffs could increaseSouth-South trade by 6% points

Industrial migration among theSouth could boost global growth

Recycling South savings for

investment could help globalrebalancing

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Key Messages

Asias recovery is firm, with growthnearing 8% in the next 2 years

Asia is leading the global recovery

Rising inflation is a concern

Expanding South-South links present asupplementary growth source

But structural weaknesses need to beaddressed to maximize their potential

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