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May 30, 2013
Issue No: 13/18
Asia Economics Analyst
Economics Research
ASEAN’s half a trillion dollar infrastructure opportunity
Andrew Tilton
We estimate ASEAN’s infrastructure needs through 2020 to be US$550 bn,
higher than current government estimates. This is driven by a low base, as
well as rising per capita incomes and ongoing urbanization.
The infrastructure build-out could have large macro implications in terms
of driving overall investment growth. For instance, in the Philippines,
infrastructure could account for nearly 20% of total investments.
Infrastructure investments can potentially reduce current account
surpluses, and decrease appreciation pressures on currencies. They can
also contribute to global rebalancing.
+852-2978-1802 [email protected]
Goldman Sachs (Asia) L.L.C.
Goohoon Kwon, CFA
+82(2)3788-1775 [email protected]
Goldman Sachs (Asia) L.L.C., Seoul Branch
Tushar Poddar
+91(22)6616-9042 [email protected]
Goldman Sachs India SPL
Li Cui
+852-2978-0784 [email protected]
Goldman Sachs (Asia) L.L.C.
Yu Song
While fiscal deficits are likely to increase, our projections suggest that
financing the infrastructure needs may not be very difficult.
+86(10)6627-3111 [email protected]
Beijing Gao Hua Securities Company Limited
Mark Tan
Implementation will be key, and will depend in part on individual
governments’ prioritization of infrastructure. We think that political stability
will be vital for successful implementation of infrastructure plans.
Overall, we see a greater scope for a ramp-up in investments in the
Philippines and Thailand, partly due to a low base, but mostly due to our
perception of a renewed focus on infrastructure plans by their
governments.
+65-6889-2472 [email protected]
Goldman Sachs (Singapore) Pte
MK Tang
+852-2978-6634 [email protected]
Goldman Sachs (Asia) L.L.C.
Prakriti Shukla
+91(22)6616-9376 [email protected]
Goldman Sachs India SPL
Sungsoo Chung
+82(2)3788-1726 [email protected]
Goldman Sachs (Asia) L.L.C., Seoul Branch
Contents of this issue
ASEAN's half a trillion dollar infrastructure opportunity
Vishal Vaibhaw
page 2
Regional recap: Action in ASEAN
page 11
Asia ex‐Japan economic calendar
page 14
Forecast tables
page 15
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Goldman Sachs India SPL
Hui Ying Chan
+65-6654-5459 [email protected]
Goldman Sachs (Singapore) Pte
Fiona Lake
+852-2978-6088 [email protected]
Goldman Sachs (Asia) L.L.C.
Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification
and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html.
The Goldman Sachs Group, Inc.
Goldman Sachs Global Economics, Commodities and Strategy Research
May 30, 2013
Asia Economics Analyst
ASEAN’s half a trillion dollar infrastructure opportunity
I. Why is infrastructure important?
ASEAN’s need for infrastructure investment is apparent to a first-time visitor or long-time
resident. As per capita incomes rise and urbanization ensues, the demand for infrastructure
will likely continue to increase. Investments in infrastructure—roads, power, port, airports,
railways, water and sanitation—can have several desirable effects not only for the ASEAN
economies, but also more broadly. An infrastructure build-out can:

Directly contribute to investment demand and therefore to GDP growth.

Catalyze other investments in the economy. To the extent that power, road, airport
capacities are increased, it helps increase manufacturing investment.

Improve productivity growth by reducing travel times, freight costs, power costs, and
communication costs, among others. It therefore acts to boost growth and reduce
inflation by increasing the potential growth rate of an economy.

Reduce current account surpluses in the ASEAN economies by using excess savings,
and ease appreciation pressures on their currencies.

Help global rebalancing, to the extent that the infrastructure build-out requires imports
and FDI, it will help developed economies to export.
In this piece, we estimate the infrastructure demand for each of the ASEAN-4 (Malaysia,
Indonesia, Thailand, and the Philippines) through 2020. We estimate the sectoral
breakdown of investments required, and the aggregate amount for each country. We then
project investment rates for the economy due to the infra build-out. We then assess the
implications for their fiscal and current accounts due to the need for infrastructure. Lastly,
we compare and contrast where the prospects of infrastructure are particularly
encouraging.
II. Mapping ASEAN’s infrastructure needs
According to the World Economic Forum, while individual economies in ASEAN, such as
Malaysia and Thailand, have improved the quality of their infrastructure, others still have a
large need for investments. Indonesia and the Philippines rank near the bottom of the scale
for infra quality.
Exhibit 1: The quality of infrastructure in ASEAN-4 is uneven
Infrastructure quality score (2012-2013)*
DM avg*
6.0
South
Korea
5.9
Malaysia
5.1
Thailand
4.6
Russia
4.5
China
4.5
Turkey
4.4
Mexico
4.0
Brazil
4.0
Indonesia
3.8
India
3.6
Philippines
3.2
1
2
3
4
5
6
*Note: Ranges from 1-7, a score of 7 indicates the best score, DM avg. incl. Australia, Canada, France, Germany, Italy, Japan,
Singapore, UK and US.
7
Source: World Economic Forum.
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Asia Economics Analyst
Exhibit 2: Per capita income may nearly double over this
decade
US$, thousand
US$, thousand
16
Exhibit 3: Potentially 40 mn new urban residents by 2020
Million
Number of People Urbanizing from 2012 to 2020
16
Thailand
3
Income per capita (2010 US$) :
2010
12
12
2020
Malaysia
8
4
8
Philippines
4
9
4
Indonesia
0
0
Philippines
Indonesia
Thailand
Malaysia
Source: Goldman Sachs Global ECS Research estimates.
24
0
5
10
15
20
25
Source: World Development Indicator, Goldman Sachs Global ECS Research
estimates.
In the decade ahead, income growth and urbanization will drive infrastructure demand. We
expect the ASEAN-4’s per capita GDP to nearly double between 2010 and 2020. This will
increase demand for power, roads, airports, and water, among others. Rapid urbanization
and population growth will add to the infrastructure needs of the economy. Despite some
variation in the starting levels of urbanization (Malaysia has a rate of 75%, while Thailand
has 40%), the process will likely continue over this decade.
To estimate ASEAN’s infrastructure needs, we used a model (see Box 1) which can project
demand for each sector and country. The key macro determinants of infrastructure that we
use are per capita GDP, urbanization, population, and trade volumes.
We looked at six key infrastructure sectors which are typically included in the definition:
power, paved roads and highways, railways, ports, airports, and water and sanitation. We
derived demand for each sector based on the macro variables mentioned above. Thus,
power and road demand are highly sensitive to the level of urbanization, air travel is
sensitive to per capita income, while demand for ports is influenced by the volume of trade.
Exhibit 5: …and its US$550 bn price tag
Exhibit 4: ASEAN’s infrastructure gap…
Percent
Percent
ASEAN-4: Infrastructure Need - Between Now and 2020
100
100
12
80
Airports, 16
22
Projected
gap
52
59
60
60
Installed
capacity
88
78
53
48
41
20
Ports,
33
80
47
40
Projected Need for Infrastructure Spending: ASEAN-4
2013-2020, US$ billion
40
20
Railways, 119
Power, 228
Water &
Sanitation, 26
Roads, 128
0
0
Electricity
KWh mn
Air passengers
traffic
Roads KMs
Ports traffic
Water & sanitation
Source: Goldman Sachs Global ECS Research estimates.
Goldman Sachs Global Economics, Commodities and Strategy Research
Source: Goldman Sachs Global ECS Research estimates.
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May 30, 2013
Asia Economics Analyst
Box 1: Modeling infrastructure demand
To estimate infrastructure demand we used an econometric model based on projected per capita income growth,
urbanization and population, developed in previous global papers (see Global Economics Paper: 166 - Building the
World: Mapping Infrastructure Demand, April 24, 2008, and further applied in Global Economics Paper: 187 - India CAN
Afford Its Massive Infrastructure Needs, September 16, 2009).
Our baseline model is based on pooled least squares, with each of five infrastructure sectors—roads, ports, air travel,
electricity installed capacity, water and sanitation as dependent variables. The independent variables are—real GDP per
capita for all sectors; urbanization as an independent variable for paved roads and electricity; population for air
passengers and access to water & sanitation; and trade volumes for port traffic. For railways, we relied on government
estimates.
We use an unbalanced panel, with country fixed effects, to control for country-specific factors and differences. Real per
capita income comes from our estimates, urbanization and trade volumes comes from the World Bank’s World
Development Indicators, population numbers come from the UN’s population database.
We have modeled water and sanitation and ports separately in this piece, using a sample of the main emerging market
countries, as these sectors are more relevant to emerging markets.
To assign dollar values to power, roads, and water and sanitation infrastructure spending, we rely on cost estimates
from the World Bank, indexed for our world CPI inflation estimates and projections from 2003-2020.
For railways, ports, and airports, we project dollar values of demand based on government estimates adjusted by our
real GDP growth assumptions for each country for the period 2013-2020.
As shown in the table below, we find that:

A 1% increase in urbanization leads to a 1.8% increase in electricity installed capacity. The model also predicts that
a 1% increase in income per capita would lead to a 0.5% increase in installed capacity.

We find that air travel is most sensitive to income. In particular, a 1% increase in per capita income correlates with
a 1.4% increase in the number of air passenger travelers.

Roads are considerably less sensitive to income compared to their sensitivity to urbanization.

Ports have high sensitivity to trade volumes as we expected and their sensitivity to income is comparable to that of
roads.

Water and sanitation demand is highly sensitive to a rise in population. Its sensitivity to income is relatively less.
Exhibit B1: Modeling infrastructure demand
Exhibit B2: Breaking down infrastructure need by
country and sector
Total electricity Roads, total Water/sanitation installed capacity network of paved (Number of people Ports traffic ( 20 Model results*
(KW mn)
roads (KM)
with access)
Foot eq. units)
Country fixed Country fixed Country fixed Country fixed Estimation method
effects
effects
effects
effects
GDP per capita
0.5
0.3
0.1
0.3
Urbanization 1.8
0.8
‐
‐
Population
‐
‐
1.3
‐
Trade volume
Number of countries
‐
‐
‐
0.6
120
168
19
21
99%
98%
R‐squared
98%
99%
*Dependent and independent variables in natural logarithms.
US$, billion
US$, billion
250
250
Projected need for infrastructure spending 2013-2020:
18
Ports
Airports
Railways
Water & Sanitation
Roads
Power
Total
5
200
50
150
13
200
150
52
8
2
23
100
50
2
5
25
6
4
22
5
6
3
24
28
46
42
40
Philippines
Thailand
Malaysia
99
24
Indonesia
Goldman Sachs Global Economics, Commodities and Strategy Research
50
0
0
Source: Goldman Sachs Global ECS Research estimates.
100
Source: Goldman Sachs Global ECS Research estimates.
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Asia Economics Analyst
We used unit cost estimates for the construction of these sectors to derive values for the
total financing need of each sector. By aggregating each sector, we look at the overall
country demand for infrastructure.
Indonesia has the largest absolute demand for infrastructure, at US$235 bn between 2013
and 2020, in our view. It is the largest country in the region—both in terms of population
and land—and therefore its infrastructure needs are unsurprising. Its power and road
capacity per capita is one of the lowest in ASEAN and, therefore, nearly 65% of infra
demand can be from these two sectors.
The Philippines could see the largest increase in demand for infrastructure as a percent
of GDP. It has the lowest per capita income in the region, and ranks the weakest in
infrastructure quality. The low base, and increases in per capita income and urbanization
could drive demand across the board for a projected US$110 bn.
Thailand would also need to increase infrastructure spending as a percent of GDP, also
due to its more open economy and need to boost manufacturing. It would need US$105 bn,
according to our projections.
Malaysia has the highest quality infrastructure in the region, and therefore the base is
high. Its infrastructure needs would therefore be lower than the rest of the countries, at
US$100 bn, based on our projections.
We compared our projections with those of their respective governments. While available
government estimates are for different time periods, and include the telecom sector, our
estimates are generally higher (Exhibit 6).
Exhibit 6: Our estimates for infra needs are higher than government estimates
Infrastructure spe nding
(US$ billion)
GS Estimate s
(2013-20)
Gov e rnme nt
Estimate s
Indone sia
235
240
M a la ysia
100
45
P hilippine s
110
70
Tha ila nd
105
72
ASEAN-4
550
427
Note: Timeline for government estimates
Indonesia: Economic master Plan (2011‐2025)
M alaysia: Public spending on infra in the 10th Plan (2011‐2015)
The Philippines: 2011‐2016
Thailand: 2012‐2020
Source: Local governments, Goldman Sachs Global ECS Research estimates.
III. How will infrastructure impact investment rates?
Infrastructure investments can rise sharply as a percentage of GDP, and can be a key driver
of overall investment rates. Using our demand estimates from Section II above, we
projected infra spending as a percentage of GDP through 2020, if the required spending
were to materialize. We find that increases in infra investment rates could potentially be
most rapid for the Philippines where the ratio could rise from just over 2% to 5% of GDP,
while for Thailand and Indonesia, the increases are more moderate. For Malaysia, infra
investment rates remain fairly stable through our forecast horizon.
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Exhibit 7: Infrastructure spending could see a jump in the Philippines…
Percent of GDP
Percent of GDP
5
5
Infrastructure spending:
2012
4
4
2020
3
3
2
2
1
1
0
0
Philippines
Indonesia
Thailand
Malaysia
Source: Goldman Sachs Global ECS Research estimates.
Despite large increases, the ASEAN economies would still be spending a lower proportion
of their GDP on infrastructure in 2020 compared with what China and India are spending
currently.
Exhibit 8: …though still lower than the current spending in China and India
Percent of GDP
Percent of GDP
10
10
Infrastructure Spending*
8
8
6
6
4
4
2
2
0
0
China
India
Philippines
Malaysia
Thailand
Indonesia
*For China and India, data represent 2009 and FY12 (Apr 2011- Mar 2012) respectively whereas for the ASEAN-4, they
are projections for 2020.
Source: Goldman Sachs Global ECS Research estimates.
Overall fixed capital formation rates can be driven by infrastructure. Assuming that noninfra investments grow at a constant rate, our projections suggest that infra can contribute
as much as 20% of the total investment rate in the Philippines till 2020, and10% in Thailand.
Thus, infra can be a critical driver of investment rates and can catalyze overall investment
by reducing costs of production.
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IV. How will infrastructure impact the current account?
ASEAN’s rising infra spending can act to reduce current account surpluses. Given that the
current account is the difference between domestic savings and domestic investments, a
current account surplus suggests an excess of savings. To the extent that greater
investments in infra will increase overall investment rates, it can help absorb excess
savings and therefore reduce current account surpluses.
Two of the four ASEAN-4 economies are running somewhat large current account
surpluses. Malaysia has the largest surplus, followed by the Philippines. These two
economies have the scope for increasing their investment ratios, which could help reduce
their current account surpluses and appreciation pressure on their currencies. Thailand,
which runs a small surplus currently, could likely go into deficit due to the need to ramp up
spending on infrastructure. Therefore, as infra spending ramps up, there could be less
appreciation pressures on the baht.
Indonesia, which is running a current account deficit, may need to continue to attract
foreign capital to meet its infrastructure needs. However, since the increase in infra
spending is not large as a percentage of GDP, we do not see a significant strain on the
external balance of payments due to infrastructure investments. Therefore, in general, we
think that infrastructure investments can be useful in helping rebalance the external sectors
in ASEAN.
Exhibit 9: Infrastructure spending can help reduce current account surpluses
Percent of GDP
Percent of GDP
35
35
ASEAN-4 in 2012:
Gross National Savings
30
30
Current Account
Investment Rate
25
25
20
20
15
15
10
10
5
5
0
0
Indonesia
Malaysia
-5
Thailand
Philippines
-5
Source: IMF, CEIC.
V. Can ASEAN finance its infrastructure needs?
Our assessment of funding needs and fiscal balances suggests that financing of
infrastructure may not be a critical constraint. The government is the key source of funding
for infrastructure, as elsewhere in the emerging market world. Our projections show the
additional fiscal burden to be largely manageable. Government spending on infrastructure
over the last few years ranges from around 1%-2% of GDP for ASEAN-4. We use our
projections of infrastructure needs in Section I and the share of government financing of
projects over the past few years to obtain estimates of infrastructure spending by
individual governments going forward.
Goldman Sachs Global Economics, Commodities and Strategy Research
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Asia Economics Analyst
We project government spending on infra to be largely stable at around 1.5% of GDP for
Malaysia from 2013 to 2020. It has already embarked on a large-scale national
infrastructure program and we expect the pace of spending here to be maintained.
Thailand and the Philippines have just begun, or are about to ramp-up on their mega
infrastructure spending programs. Government spending is projected to rise to 4%-5% of
GDP towards the end of the forecast horizon from about 2% currently for the Philippines
and 2%-3% for Thailand and Indonesia from about 1% of GDP currently. We expect this
level of fiscal spending to be manageable, especially since their public debt ratios remain
relatively low in the region compared to elsewhere (Exhibit 10), partly a function of
extensive deleveraging of government balance sheets that occurred post the 1997 Asian
financial crisis.
Exhibit 11: The government will likely be the main source
of infra spending
Exhibit 10: Public debt ratios are relatively low in the
region
Percent of GDP
Percent of GDP
Public Sector Debt (2012)
120
120
Percent of GDP
Percent of GDP
4
4
Infrastructure spending (average of 2013-2020):*
100
Government
100
Private
3
80
80
60
60
40
40
20
20
3
2
2
1
1
0
0
Philippines
0
0
USA
Euro area
Malaysia Philippines
India
Thailand
Taiwan
Korea
Indonesia
Source: CEIC, Goldman Sachs Global ECS Research estimates.
Thailand
Indonesia
Malaysia
* Our assumptio n of government's share in infrastructure spending for the Philippines, Thailand, Indonesia and
Malaysia are 90%, 80%, 65% and 50% respectively. This includes state-owned enterprises share and based on
projected share in national plan reports.
Source: Goldman Sachs Global ECS Research estimates.
We believe there is also room for improvement in fiscal efficiency across ASEAN, both in
terms of reducing expenditure on subsidies as well as broadening the revenue base.
Governments in the region maintain extensive subsidies on energy and certain staples,
especially in the case of Malaysia (4.7% of GDP) and Indonesia (3.0% of GDP). The need for
infrastructure can add urgency for further subsidy reforms. There is also further scope for
broadening the tax revenue base, such as the long delayed introduction of the Goods and
Services Tax in Malaysia. The small tax base and inefficient collection in places like the
Philippines and Indonesia also leave room for improvement.
Private savings rates are generally high in ASEAN. In the countries which are running
current account surpluses (Malaysia and the Philippines), potentially there are excess
savings available for investment. For Indonesia, the government share is projected to
reduce, but the overall spending by the private sector remains under 1% of GDP, similar to
our estimate of current spending on infrastructure. Therefore, we do not expect an increase
in funding requirements as a percentage of GDP. Thailand is probably the economy which
faces some potential funding constraints due to the need to increase private sector
spending. There may be a potential need for external flows to fund the increase in
infrastructure. Multi-lateral sources, such as the ASEAN Infrastructure Fund, can also help
in this regard.
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VI. Can there be an improvement in implementation?
While the need for better infrastructure has existed in the region for several years, there
have been disappointments in the past due to weak implementation. We think that political
stability is vital for the successful implementation of infrastructure investment plans.
Thailand provides a case in point where the political volatility from 2006 to 2011 coincided
with a period of declining public and private fixed investment ratios. This also resulted in a
deterioration of the quality of infrastructure across the country (Exhibit 12). In contrast, the
relative stability enjoyed by Indonesia over the last several years (relative to its turbulent
past few decades) has allowed renewed focus on infrastructure development, which has
accompanied a significant rise in fixed investment ratios.
Exhibit 12: Thailand’s infrastructure quality has been deteriorating
Thailand
Infrastructure
Quality Ranking
Roads
2007
2008
2009
2010
2011
2012
2013
Change
in rank
28
26
32
35
36
37
39
-11
48
52
57
63
65
-17
Railroad
Port
39
42
48
47
43
47
56
-17
Air Transport
31
28
28
26
28
32
33
-2
Overall
32
28
35
41
46
47
49
-17
Source: Global Competitiveness Survey, World Bank.
Over the last two years though, Thailand has seen relative stability in government: the
current administration has been in place since the summer of 2011, in contrast to the many
changes in government, coups and large-scale protests in the preceding several years.
With this renewed stability, the current administration has focused its attention to rolling
out its mega-infrastructure plans from now till 2020.
In the Philippines, the current president has made tackling corruption and reducing red
tape a key focus of his administration. The president currently enjoys approval ratings of
over 70% and the strong showing in the recent mid-term elections (where his coalition won
2/3 of senate seats) bolsters his mandate to further implement national plans, including the
National Development Program, where infrastructure roll-out is a key focus. The
administration plans to increase infrastructure spending to around 5% of GDP going
forward from the current level of just over 2%.
Indonesia has seen consistent spending on infrastructure over the last several years. The
president, in his tenure of a decade, has presided over key initiatives such as the passage
of the land acquisition bill and introduction of the MP3ei (national development plans till
2025). This has been reflected in the recovery in its investment ratios as mentioned above.
In the next year or so, the country will see presidential polls and a transition of leadership.
Similarly for Malaysia, consistent infrastructure investment in the previous national plans
have resulted in higher quality of infrastructure overall as seen in the World Economic
Forum Infrastructure surveys. Malaysia has just concluded a very tightly contested general
election with key ruling party internal elections still to come.
Overall, we expect the pace of infrastructure spending to be maintained over the medium
term for Malaysia and Indonesia while we expect an increase in spending and greater
scope for improvement in implementation for Thailand and the Philippines. This is
especially so given the lack of implementation in these countries previously and our
perception of renewed focus on these plans now.
Goldman Sachs Global Economics, Commodities and Strategy Research
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May 30, 2013
Asia Economics Analyst
VII. A good time for infrastructure
The last few years have been exciting years for the ASEAN economies. They have
witnessed relatively high GDP growth with manageable inflation that has largely fallen
within targets. Infrastructure investments can continue to underpin that growth and boost
productive capacity, in our view. Clearly, the amount of investments actually achieved may
differ from the infrastructure need. Capacity constraints, problems in land acquisition and
environmental clearances, and regulatory constraints may delay the pace of infrastructure
construction. Therefore, we see our estimates for the overall need for infrastructure as an
upper bound for actual spending. That said, we think that the current environment is
particularly conducive for infrastructure investments in the region for several reasons:

Abundant liquidity due to the actions of global central banks and easier financing
conditions precipitated by the low interest rate environment.

Cost of funding has declined, driven by a combination of a compression of the risk
premia (exemplified by the upgrades from the ratings agencies) and generally
declining inflation levels.

Global commodity prices have been more benign, reducing externally driven price
pressures.

A deleveraging of government balance sheets since the 1997 Asian financial crisis
resulting in generally lower debt ratios since, creating greater fiscal room. Malaysia
may be the exception where public debt ratios have risen over the last few years,
partly driven by large fiscal stimulus enacted during the global financial crisis.

Private sector participation both in construction and financing is growing. To the extent
that public-private partnerships can be improved, they can provide a further catalyst
for investments.

There appears to be more of a political consensus that infrastructure is a major
constraint on growth and bottlenecks need to be removed.
The increase in infrastructure investment will open up opportunities for infrastructure
suppliers. The private financing needs can be a catalyst for the further development of
bond markets in the region. Infrastructure investments will also have an impact in reducing
income inequality, raising the quality of human capital in the economies, and further
integrate them into the global economy through transportation and communication
networks.
Tushar Poddar, Mark Tan, Vishal Vaibhaw, Hui Ying Chan
Goldman Sachs Global Economics, Commodities and Strategy Research
10
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Asia Economics Analyst
Regional recap: Action in ASEAN
Markets throughout the Asia region have reacted in recent weeks to signs of better US
growth and speculation of Fed “tapering” in coming months. Over this period, ten-year US
Treasury yields rose 50bp, from a low of 1.66% on May 2 to 2.16% as of May 29, at which
point our Fixed Income Strategy team closed a short recommendation. Key Asian rates
markets have followed suit (Exhibit 1), selling off in May after the rally in the first four
months of the year. Most currencies have also weakened against the dollar, with the
notable exception of the Chinese renminbi (Exhibit 2). The consistency of the decline
across currencies with very different characteristics, for example the INR (Indian rupee) and
KRW (Korean won) makes plain that this is a move driven by the dollar rather than regional
news.
Exhibit 1: A turnabout in regional yields…
Basis points
Basis points
50
50
Change in 5-year swap rates:
January 1 to May 2
40
40
May 2 to Date
30
30
20
20
10
10
0
0
-10
-10
-20
-20
-30
-30
-40
-40
-50
-50
US
China
India
Korea
Malaysia
Thailand
Taiwan
Source: Goldman Sachs Global ECS Research estimates.
Exhibit 2: …and in most currencies
Index
1.08
Index
1.08
Foreign exchange rates (January 1 = 1.00):
MYR
SGD
PHP
CNY
KRW
THB
TWD
INR
IDR
1.04
1.04
1.00
1.00
0.96
0.96
Appreciation
0.92
0.92
Jan
Feb
Mar
Apr
May
Jun
Source: Goldman Sachs Global ECS Research estimates.
Goldman Sachs Global Economics, Commodities and Strategy Research
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Asia Economics Analyst
In terms of new information from within the region, most of the action has been in ASEAN.
In general, both growth and inflation in ASEAN economies had surprised to the downside
in recent weeks. We discussed the reasons for first-quarter GDP growth disappointments in
the region in a comment earlier this week (see Emerging Markets Macro Daily: ASEAN ‘soft
patch’—stronger than meets the eye, May 29, 2013). Briefly, these involve possible
seasonal distortions in Thailand (and possibly elsewhere) related to the 2011 floods, a
surge in imports in Malaysia, and some moderation in domestic demand in Indonesia. The
latter was arguably welcome, given a burgeoning current account deficit and signs of
inflation pressure.
Just when it seemed a pattern was developing, however, the first-quarter GDP figures from
the Philippines came in far higher than expectations (+7.8% versus consensus of +6.0%;
Exhibit 3). The main drivers appear to have been a turn in the inventory cycle and strong
government spending; private consumption and external demand were relatively soft.
Exhibit 3: Diverging growth surprises in ASEAN
Year-over-year percent change
2.0
Year-over-year percent change
2.0
1.8
1.5
1.5
Surprise* in Q1 2013 Real GDP Growth:
1.0
1.0
0.5
0.5
0.0
0.0
-0.1
-0.5
-0.5
-0.7
-1.0
-1.5
-1.0
-1.4
-2.0
-1.5
-2.0
Philippines
Indonesia
Thailand
Malaysia
* Calculated as actual year-over-year real GDP growth less the Bloomberg consensus forecast.
Source: CEIC, Bloomberg.
The other major news item from ASEAN was the Bank of Thailand’s (BOT) 25bp rate cut.
Markets had moved to price this in recent weeks, given the disappointing Q1 GDP report
and calls for a cut as large as 50bp from government officials, and the bank’s Monetary
Policy Committee voted unanimously for the cut. We view underlying momentum as
significantly stronger than the GDP figures suggest, and expect inflationary pressures to
build over the course of the year. Therefore, we do not expect further cuts, and in fact we
believe the BOT will choose to swing into tightening mode in the fourth quarter, with other
ASEAN central banks following in early 2014.
In the largest economies of emerging Asia, it has been a quiet week for macroeconomic
data:

In China, we await the release of several purchasing managers’ indices (PMIs) over the
coming week—the official manufacturing PMI (Saturday), the official nonmanufacturing PMI (Monday), the final May Markit manufacturing PMI (Monday), and
the Markit services PMI (Wednesday). Given last week’s poor Markit flash
manufacturing PMI, market expectations are subdued for the manufacturing releases
(see data calendar in next section for details).
Goldman Sachs Global Economics, Commodities and Strategy Research
12
May 30, 2013
Asia Economics Analyst

In India, GDP for the first quarter of 2013 will be released Friday. We and the
Bloomberg consensus expect moderate growth of 4.7% yoy and 4.8% yoy respectively,
up slightly from 4.5% yoy in Q4 2012 (these forecasts imply somewhat better
sequential growth in the neighborhood of 6% annualized).

In Korea, industrial production (IP) was slightly stronger than expected in April, up
0.8% on the month. Overall, however, the trend of IP has been flattish, up only 1.7%
over the past year (Exhibit 4). Over the coming week we will have news on trade,
consumer prices and the manufacturing purchasing managers’ index.
Exhibit 4: Subdued trend in Korean IP
Percent change, annualized
Percent change, annualized
80
80
Korea industrial production:
60
60
3-month change
12-month change
40
40
20
20
0
0
-20
-20
-40
-40
-60
-60
-80
Jan-07
-80
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Korea National Statistics Office.
Andrew Tilton
Goldman Sachs Global Economics, Commodities and Strategy Research
13
May 30, 2013
Asia Economics Analyst
Asia ex-Japan Economic Calendar
India GDP (May 31): GDP growth momentum may have improved a tad this quarter compared with the previous
quarter, as seen by our Current Activity Indicator (Q4 2012: 5.5% qoq s.a. ann., Q1 2013: 6.4% qoq s.a. ann.). On a yearon-year basis, a small pick-up in agriculture is likely to help the GDP reading. For the industry sector, while the monthly
Index of Industrial Production (IIP) readings in Q1 2013 have shown a slight pick-up sequentially, on average, Q1 2013 is
likely to show slower growth due to the presence of a spike in the October IIP in Q4 2012.
China manufacturing PMI (Jun 1): We expect the official manufacturing PMI to moderate from April’s level. The
HSBC/Markit manufacturing PMI’s flash reading suggests weak underlying growth though discrepancy between the two
indexes is common. Historically, the official PMI has a clear tendency to fall in May.
Korea exports (Jun 1): We expect Korean exports to rebound strongly in May, rising 5% yoy, compared with
Bloomberg consensus expectations of a 0.9% yoy decline. Sequential momentum should be positive, both on a per-day
and on a full-month basis.
Date
Country
Indicator/Event
Period
Time (HKT)
Forecast
Previous
GS
Bloomberg
Consensus
+4.7% yoy
+4.8% yoy
Fri May 31
13:30
India
GDP
1Q
15:30
Thailand
Exports
Apr
+4.2% yoy
15:30
Thailand
Imports
Apr
-12.5% yoy
8:00
Korea
Exports
May
-0.9% yoy
+0.4% yoy
8:00
Korea
Imports
May
-1.4% yoy
-0.3% yoy
9:00
China
Manufacturing PMI
May
50.0
50.6
7:00
Korea
May
+1.2% yoy
+1.2% yoy
9:45
China
CPI
HSBC/Markit Manufacturing
PMI
49.6
50.4
+4.5% yoy
Sat Jun 1
+5.0% yoy
Mon Jun 3
+1.3% yoy
May
12:00
Indonesia
CPI
May
12:00
Indonesia
Exports
Apr
12:00
Indonesia
Imports
Apr
12:00
Thailand
CPI
May
13:00
India
Manufacturing PMI
May
51.0
Indonesia
Consumer Confidence Index
May
113.7
8:30
Taiwan
CPI
May
9:00
Philippines
CPI
May
9:45
China
HSBC/Markit Services PMI
May
12:00
Malaysia
Exports
Apr
-3.0% yoy
-2.9% yoy
12:00
Malaysia
Imports
Apr
+3.5% yoy
+7.0% yoy
16:00
Taiwan
Exports
May
-1.0% yoy
-1.9% yoy
16:00
Taiwan
Imports
May
-2.2% yoy
-8.2% yoy
*
+5.7% yoy
+5.6% yoy
-13.0% yoy
-10.0% yoy
+2.2% yoy
+2.4% yoy
Wed Jun 5
+2.8% yoy
+0.7% yoy
+1.0% yoy
+2.8% yoy
+2.6% yoy
51.1
Fri Jun 7
* Release dates uncertain, date shown is the first possible date:
Indonesia Consumer Confidence Index (Jun 3-10)
Source: Bloomberg, GS Global ECS Research estimates.
Goldman Sachs Global Economics, Commodities and Strategy Research
14
May 30, 2013
Asia Economics Analyst
Forecast Tables
Real GDP Growth (year-over-year)
2012
Asia ex-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
USA
Euro area
Japan
6.2
7.8
6.2**
2.0
1.4
1.3
5.7
1.3
5.6
6.5
6.2
6.8
2.2
-0.5
2.0
2013
Consensus
GS
6.5
6.3
7.8
7.9
5.0**
5.0**
2.9
2.8
3.7
3.3
3.5
3.3
5.5
5.3
3.0
2.2
5.3
5.2
4.8
5.0
6.4
6.2
6.2
6.1
2.0
1.9
-0.7
-0.5
1.9
1.4
GS
7.3
8.4
6.4**
3.6
4.5
4.2
5.6
4.0
5.5
5.0
6.5
5.5
2.9
0.8
1.5
2014
Consensus
6.7
7.9
6.1**
3.6
4.0
4.0
5.5
3.7
5.3
4.9
6.3
5.9
2.7
0.9
1.5
Potential
Growth*
2014
Consensus
4.0
3.5
6.0*
2.8
3.9
1.9
3.9
3.3
2.8
3.2
5.0
3.9
2.0
1.6
1.9
Inflation
Target/Range
8.0
7.0**
3.8
4.0
3.5
4.0
5.0
4.5
6.0
5.0
2.5
1.3
0.8
*GS es tim ates for annualized growth rate of potential output from 2013-16
**Fis cal year bas is
Source: Cons ens us Econom ics , GS Global ECS Res earch Es tim ates
Consumer Prices (year-over-year)
2012
Asia ex-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
USA
Euro area
Japan
3.7
2.6
9.0*
2.2
4.1
1.9
3.5
4.6
1.7
3.0
4.3
3.1
2.1
2.5
0.0
GS
3.6
2.8
7.3*
2.3
3.6
2.0
4.4
4.1
2.6
3.8
5.7
4.2
1.6
1.6
0.1
2013
Consensus
3.9
3.0
7.4*
2.1
4.2
1.7
4.0
3.4
2.3
3.0
5.6
3.4
1.6
1.6
0.0
GS
4.0
3.5
6.0*
3.1
3.5
2.0
4.2
3.6
2.5
3.8
5.3
3.8
1.7
1.8
2.2
3.5
5.0*
2.5-3.5
0.5-3.0 **
3.5-5.5
3.0-5.0
2.0
2.0***
2.0
*WPI for India on fis cal year bas is ; inflation objective rather than target
**Core inflation target
***ECB aim s to m aintain inflation rates "below, but clos e to, 2% over the m edium term "
Source: Cons ens us Econom ics , GS Global ECS Res earch Es tim ates
Goldman Sachs Global Economics, Commodities and Strategy Research
15
May 30, 2013
Asia Economics Analyst
Forecast Tables (continued)
Policy Interest Rate s (pe rce nt)
2013
2014
Curre nt
M ay 30
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
6.00
7.25
2.50
1.9
6.00
7.50
2.75
1.9
6.00
7.25
2.50
1.9
6.00
7.00
2.50
1.9
6.00
7.00
2.50
1.9
6.25
7.00
2.50
1.9
6.25
7.00
2.75
1.9
6.50
7.00
2.75
2.0
6.50
7.00
3.00
2.0
3.00
2.50
5.75
3.50
0.14
0.50
0.07
3.00
2.75
5.75
3.50
0.14
0.75
0.10
3.00
2.50
5.75
3.50
0.13
0.50
0.10
3.00
2.50
5.75
3.50
0.13
0.50
0.10
3.00
3.00
5.75
3.50
0.13
0.50
0.10
3.50
3.00
6.25
4.00
0.13
0.50
0.10
3.50
3.00
6.25
4.00
0.13
0.50
0.10
3.50
3.00
6.25
4.00
0.13
0.50
0.10
3.50
3.00
6.25
4.00
0.13
0.50
0.10
Asia e x-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
USA
Euro area
Japan
Policy interes t rates : C hina: 1-year lending rate, India: repo rate; Korea: 7-day repo; Malays ia: overnight policy rate;
Thailand: 1-day repo, Philippines : repo rate, Indones ia: 1-m onth SBI rate, Taiw an: redis count rate; U SA: Fed funds effective rate;
Euro Area: Main refinancing operations : fixed rate; Japan: Overnight call rate.
Source: GS Global EC S R es earch Es tim ates .
Exchange Rates (local currency units per USD)
Current
May 30
3-Month Horizon
Forward
Forecast
6-Month Horizon
Forward
Forecast
12-Month Horizon
Forward
Forecast
Asia ex-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
Euro area*
Japan
6.19
6.19
6.20
6.20
6.20
6.23
6.18
56.16
1131
7.8
30.0
57.05
1135
7.8
30.0
55.00
1110
7.8
30.3
57.86
1138
7.8
29.9
53.00
1110
7.8
30.3
59.45
1143
7.8
29.8
52.00
1090
7.8
30.3
1.27
3.05
30.1
9865
42.1
1.27
3.07
30.2
10015
42.3
1.22
3.00
28.5
9650
41.0
1.27
3.08
30.4
10145
42.3
1.20
2.95
28.3
9600
39.8
1.27
3.11
30.6
10410
42.4
1.18
2.90
28.0
9500
37.5
1.29
102.1
1.29
1.34
1.29
1.37
1.29
1.40
102.0
105.0
102.0
105.0
101.7
110.0
* USD per Euro
Source: GS Global ECS Res earch Es tim ates
Goldman Sachs Global Economics, Commodities and Strategy Research
16
May 30, 2013
Asia Economics Analyst
Highlights of Recent GS ECS Research
Asia ex Japan
Asia-US swap rate differentials have narrowed too far
May 27, 2013
Abenomics: In search of its Asian spillover channels
May 16, 2013
A redesigned MAP of emerging Asia data
May 10, 2013
Domestic demand influencing interest rate differentials between Asia’s small open economies
Mar 5, 2013
Measuring growth in emerging Asia
Mar 1, 2013
Greater China
Global Economics Paper: 218 - China: More efficient cities key to a brighter growth path
May 21, 2013
China: A structural improvement in 1Q? Not exactly
May 22, 2013
China: Is credit losing its cyclical growth impact?
May 21, 2013
The Hukou system: Holding back China's rebalancing
May 1, 2013
Explaining strong credit and weak growth in China
Apr 30, 2013
Korea
Could under-hedging by Korean exporters give rise to KRW strength?
Apr 23, 2013
Revision of our macro forecasts for Korea on aggressive monetary easing in Japan
Apr 16, 2013
Korea: Cutting the Gordian knot—a large supplementary budget to be unveiled soon
Apr 3, 2013
Changes in our won view on persistent yen weakness and elevated geopolitical tensions
Mar 16, 2013
Recent yen-won movements—a manageable headwind for Korean exports
Feb 1, 2013
India
India: The INR’s improving fundamentals
May 10, 2013
India: Reforms: Inching forward
May 2, 2013
India: Five reasons for a gradual pickup in growth
Apr 18, 2013
What level of current account deficit can India sustain?
Jan 28, 2013
Can India’s balance sheets support growth?
Jan 18, 2013
ASEAN
ASEAN ‘soft patch’—stronger than meets the eye
May 29, 2013
Malaysia 2013 Elections: Incumbent BN wins, but with a narrower majority
May 6, 2013
Coping with capital inflows in ASEAN
Apr 29, 2013
ASEAN beneficiaries of yen weakness
Mar 15, 2013
Singapore Budget 2013: At the crossroads
Feb 26, 2013
Japan (this section is provided by our Japan Economics Team based in Tokyo)
Global Economics Paper: 215 - Sustainability of debt financing in Japan and the JGB enigma
Aug 14, 2012
Japan: Lessons from pre-War Takahashi policy: Risk BOJ can’t stop large-scale JGB purchases
May 24, 2013
Japan: Will the first two Abenomics arrows hit the mark? Pointers from Takahashi policy
May 22, 2013
Japan: A guide to Takahashi fiscal policy, the model for Abenomics
May 16, 2013
Japan: Modest macro wealth effect from equities but strong luxury impact
Apr 10, 2013
Goldman Sachs Global Economics, Commodities and Strategy Research
17
May 30, 2013
Asia Economics Analyst
Disclosure Appendix
Reg AC
We, Goohoon Kwon, CFA and Sungsoo Chung, hereby certify that all of the views expressed in this report accurately reflect our personal views about
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18