Sudhir Shetty Chief Economist East Asia and Pacific The World - - PowerPoint PPT Presentation

Sudhir Shetty Chief Economist East Asia and Pacific The World Bank

RECENT TRENDS

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 …

... Supported by Fiscal Stimulus

• 4.0
• 3.5
• 3.0
• 2.5
• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 China Malaysia Philippines Thailand Indonesia

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

And Monetary Accommodation …

Jan-14 Dec-14 Feb-14 Sep-14 May-14 Feb-14

• 2
• 1

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)

… And EAP Has Outpaced Other Developing Regions

• 2

2 4 6 8 10 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 H1 2016 2012 2013 2014 2015 2012 2013 2014 2015 EAP SAR ECA LAC MENA SSA Percent

(Regional GDP growth, percent)

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-10 Apr-11 Dec-11 Aug-12 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 China Malaysia Philippines Thailand

• 2%

0% 2% 4% 6% 8% 10% Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 China Indonesia Malaysia Philippines Thailand Vietnam

(Producer price inflation, end of period year-

• n-year, percent)

Commodity Prices Remain Low …

(Commodity price indices, 2010=100)

20 40 60 80 100 120 140 160 2011M07 2012M01 2012M07 2013M01 2013M07 2014M01 2014M07 2015M01 2015M07 2016M01 2016M07 Energy Agriculture Metals & Minerals

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-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul-2015 Sep-2015 Nov-2015 Jan-2016 Mar-2016 May-2016 China Thailand Malaysia Indonesia Philippines

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

OUTLOOK AND RISKS

Growth in Developing EAP Will Likely Be Stable

(Annual percentage change in GDP)

• 2
• 1

1 2 3 4 5 6 7 8 2015 2016 2017 2018

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

The Rising Middle Class in East Asia

(Distribution of consumption – 2002-15)

10 20 30 40 50 60 70 80 90 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Percent of developing EAP population

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

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

Growth in Advanced Economies Will Likely Be Slow

• 4
• 2

2 4 6 8 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017f 2018f World Advanced economies Emerging and developing economies

Percent

(Annual percentage change in GDP)

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

Regional Exports Depend On Global Growth Outlook

(Gross exports, percent of GDP, 2015)

10 20 30 40 50 60 70 80 Cambodia Fiji Indonesia Lao PDR Malaysia Mongolia Myanmar Papua New Guinea Philippines Solomon Islands Thailand Vietnam China Emerging and dev. Asia excl. China Emerging and dev. excl. EAP European Union Japan United States

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

On Impact 1 Year 2 Years G6 Global Impact of 1-percentage-point decline in U.S. growth

(Percentage point)

• 3
• 2
• 1

On Impact 1 Year 2 Years BRICS Emerging markets

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

Global Financial Tightening Will Matter

10 20 30 40 50 60 70 80 90 100 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 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)

With High And Still Rising Private Sector Debt …

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 Emerging economies

Credit to Non-financial corporations Credit to Households Credit to General Government

0% 5% 10% 15% 20% 25% Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 China Indonesia Malaysia Philippines Thailand Vietnam

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

… A Key Source of Vulnerability In Many Countries

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 5 10 15 20 25 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 China Malaysia Thailand Indonesia

POLICY IMPLICATIONS

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

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

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

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