impact of the global financial crisis and its implications ... · -5 0 5 10 15 20 jul-08 aug-08...

Impact of the Global Financial Crisis and Its Implications for the

East Asian Economyby Takatoshi

Kato

Korea International Financial Association First International Conference

October 16, 2009

The downturn in Asia was larger than expected on the basis of historic correlations

‐20

-15

-10

-5

0

G-2 Asia (excl. China and India)

Asia (excl. China and India)

Asia: 2008Q4 GDP Growth - Actual vs. Predicted1

(Quarter-on-quarter percent change, SAAR)

Sources: Haver Analytics; and IMF, WEO database; and staff estimates.

1 Based on a version of the IMF Global Integrated Monetary and Fiscal model (see N'Diaye, Zhang and Zhang, 2008).

The surprise in actual G-2growth overNov-08 WEO forecast

…would have implied this revision for Asia based on the model.

But the actual revision was much larger.

Figure 1

Bank flows to Asia turned negative as major banks reduced their leverage

-400

-300

-200

-100

0

100

200

Mar

-95

Sep-

95M

ar-9

6Se

p-96

Mar

-97

Sep-

97M

ar-9

8Se

p-98

Mar

-99

Sep-

99M

ar-0

0Se

p-00

Mar

-01

Sep-

01M

ar-0

2Se

p-02

Mar

-03

Sep-

03M

ar-0

4Se

p-04

Mar

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07M

ar-0

8Se

p-08

Mar

-09

International Claims of Reporting Banks vis-à-vis Asia(Change adjusted for exchange rate changes; in billions of U.S. dollars)

Source: Bank for International Settlements, Locational Banking Statistics , July 2009.

Figure 2

External bond issuance came to a virtual halt in the last quarter of 2008

0

2

4

6

8

10

12

14

16

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

Emerging Asia: External Bond Issuance(In billions of U.S. dollars)

Source: IMF, BEL database.

Figure 3

Equity markets and local currencies, with the exception of the yen, recorded large losses

70

80

90

100

110

120

130

140

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Japan AustraliaNew Zealand IndiaIndonesia

Sources: IMF, Information Notice System; and IMF staff calculations.

Selected Asia: Nominal Effective Exchange Rates(January 1, 2008=100)

Figure 4

The external shock fed through to domestic demand

-12

-9

-6

-3

0

3

6

Hon

g Ko

ng S

AR

Kore

a

Sing

apor

e

Taiw

an

Prov

ince

of C

hina

Indi

a

Indo

nesi

a

Mal

aysi

a

Phili

ppin

es

Thai

land

Private consumption Gross fixed investment Net exports

Sources: CEIC Data Company Ltd; and IMF staff calculations.

Selected Emerging Asia: Contributions to 2008Q4 GDP Growth(In percentage points; quarter-on-quarter seasonally adjusted)

Figure 5

IP has regained much lost ground and in some cases returned to pre-crisis levels

-40

-30

-20

-10

0

10

20

Japan Australia-NewZealand

China, India andIndonesia

Other emerging Asia

Peak-to-trough Trough to latest available data

Asia: Industrial Production during 2008-09(Percent change, seasonally adjusted)

Sources: CEIC Data Company Ltd; and IMF staff calculations.

Figure 6

The IP rebound reflects an equally sharp rebound in export volumes

-50

-40

-30

-20

-10

0

10

20

30

Japan NIEs China

Peak-to-trough Trough to latest available data

Selected Asia: Volume of Exports during 2008-09(Percent change, seasonally adjusted)

Sources: CEIC Data Company Ltd; and IMF staff calculations.

Figure 7

Domestic demand has also been playing a part in Asia’s rebound

-2

0

2

4

6

8

Japan Australia-New Zealand Emerging Asia 1/

Gross exportsDomestic demandGDP growth

Asia: Contribution to Recovery in Real GDP Growth(In percent, seasonally adjusted, non-annualized)

Source: IMF staff calculations.

1 Excludes China, India, Indonesia and Vietnam due to absence of a cycle and/or non-availability of data.

Figure 8

Global financial conditions have eased, as evidenced by narrowing credit spreads,…

0

200

400

600

800

1000

1200

1400

1600

2-Ja

n-08

1-Fe

b-08

4-M

ar-0

8

3-A

pr-0

8

5-M

ay-0

8

4-Ju

n-08

4-Ju

l-08

5-A

ug-0

8

4-Se

p-08

6-O

ct-0

8

5-N

ov-0

8

5-D

ec-0

8

6-Ja

n-09

5-Fe

b-09

9-M

ar-0

9

8-A

pr-0

9

8-M

ay-0

9

9-Ju

n-09

9-Ju

l-09

10-A

ug-0

9

9-Se

p-09

Investment gradeHigh yield

Asia: Credit Risk - Itraxx Index(In basis points)

Source: Bloomberg LP.

Figure 9

…renewed equity inflows,…

-25

-20

-15

-10

-5

0

5

10

15

20

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

India ASEAN-5 (excl. Malaysia)Taiwan Province of China KoreaJapan

Selected Asia: Net Equity Inflows(In billions of U.S. dollars)

Source: Bloomberg LP.

Figure 10

…and recovering equity markets

20

40

60

80

100

120

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep-

09

Emerging Economies: Stock Markets(MSCI Index, 1 Jan 2008=100)

Emerging Asia

Emerging Europe

Emerging Latin America

Figure 11

The current rebound is to a large extent driven by a restocking of global inventories

20

30

40

50

60

70

80

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

New OrdersInventories

United States: Manufacturing Orders and Inventory(Index, SA, 50+ = Econ Expand)

Source: Haver Analytics.

Figure 12

Asia’s fiscal response has been larger than in the average G20 economy

0

1

2

3

4

Industrial Asia NIEs ASEAN-5 China and India G-20

Asia average

Discretionary Fiscal Measures, 20091

(In percent of GDP, PPP GDP weighted)

Source: IMF staff estimates.

1 Defined as fiscal impulse (i.e. change in structural fiscal balances related to measures taken in response to the crisis).

Figure 13

Strong exports reflect partly a gain in market share, as opposed to an increase in demand

2.2

2.4

2.6

2.8

3.0

3.2

3.4

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

40

80

120

160

200

240

Market share of Korea Exports (percent, LHS)

REER (Jan. 1999=100, inversed, RHS)

Korea's Share in Global Export Markets

Sources: IMF, Direction of Trade, and Information Notice System.

Figure 14

Asia’s dependence on demand from outside the region has not changed markedly

0

10

20

30

40

50

60

70

80

SGP

MYS

TWN

THA

PHL

IDN

KOR

CHN

JPN

USA

Asian external demand

Non-Asian external demand

Sources: AIO 2000, and IMF staff estimates.

Selected Asia: Contribution of Intra-Asian and Non-Asian External Demand to Value Added(In percent of GDP)

Average over 1995-2000

Average over 2001-2008

Figure 15

World output is projected to contract by 1.1 percent in 2009 and grow by 3.1 in 2010

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2005 2006 2007 2008 2009 2010

World

Advanced

Emerging

Real Gross Domestic Product(Percent;quarter over quarter annualized)

Source: IMF, Global Data Source database.

Figure 16

Over the past years, global and Asian growth has been powered by U.S. consumers

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

United States Euro AreaJapan Emerging AsiaOil exporters

Current Account Balances(Percent of world GDP)

Source: IMF, World Economic Outlook database.

Figure 17

High asset prices had fueled an consumption boom that was unprecedented after WWII

0

50

100

150

200

250

300

1881

1891

1901

1911

1921

1931

1941

1951

1961

1971

1981

1991

2001

48

54

60

66

72

78

84Real home price index (LHS)Price-earning ratio (LHS)Consumption (RHS)

U.S. Consumption: Cyclical or Structural Correction?

Sources: CEIC Data Company Ltd; and Schiller, Robert J, "Irrational Exuberance," http://www.irrationalexuberance.com.

(1929=100) (Percent of GDP)

Figure 18

Thank you