Download Making Progress in Uncertain Times

Making Progress in Uncertain Times
Milan Brahmbhatt
Lead Economist.
East Asia & Pacific Region, World Bank
Presentation to
The Executive Forum’s East Asian Economic
Forecast
Singapore. March 14, 2003.
The global backdrop: OECD countries
expected to continue a modest recovery
OECD Growth 1990-2004
6.0
OECD
USA
Japan
Euro Area
5.0
Forecast
2003-04
4.0
3.0
2.0
1.0
0.0
1990
1992
1994
1996
1998
2000
2002
2004
-1.0
-2.0
Source: World Bank. DEC Prospects Group. Interim f orecasts
March 3,2003
2
Though 2003 projections are dropping as
uncertainty surges …
2003 growth forecasts fall...
GDP Growth (%)
4
2
Source: Consensus
Forecasts, various issues.
Forecas t Date
0
Jan-02
Mar-02
Jun-02
Japan
USA
SE As ia (4)
Germ any
Oct-02
Feb-03
EAP NIEs (4)
3
Against a backdrop of severe geopolitical
stress - Iraq, N.Korea, terrorism
Low stocks causing an oil price surge
$/bbl
35
million bbl
2850
OECD stocks
Oil price
30
2800
2750
2700
25
2650
2600
20
2550
2500
15
2450
10
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
'Jan-01
Jan-02
2400
Jan-03
Source: International Energy Agency and DECPG Commodities Group.
4
World trade momentum lost steam, while
private flows to ldcs stayed weak in ‘02
Net Private Capital Flows to
Developing Countries (% of GDP)
4.0
Portfolio equity
Net FDI
3.0
Net Private Debt
2.0
1.0
-1.0
Source: World Bank. Global Development Finance, 2003
5
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0.0
Yet a robust E.Asian recovery in 2002,
despite the global weakness…
East Asia: Real GDP Growth 1990-04
15.0
S. E. Asia
NIEs
China
East Asia
10.0
5.0
-5.0
-10.0
200
4
200
3
200
2
200
1
200
0
199
9
199
8
199
7
199
6
199
5
199
4
199
3
199
2
199
1
199
0
0.0
S.E.Asia: Indonesia, Malaysia,
Philippines, Thailand.
NIEs: Hong Kong (SAR), Korea,
Singapore, Taiw an (China).
6
Among several reasons - a fall in external
vulnerability after the financial crisis…
Ratio of Reserves to ST Debt
4.00
Indonesia
Korea
3.00
Malaysia
Philippines
Thailand
2.00
1.00
Source: BIS-IMF-OECD-World Bank
statistics on external debt
0.00
1996- 1997- 1998- 1999- 2000- 2001- 2002Q4
Q4
Q4
Q4
Q4
Q4
Q2
7
…shields the region from turbulence in
emerging capital markets
…with a few exceptions
Spreads compress across all regions
(Eurobond Spreads - %)
900
(basis points)
1300
Indonesia
1300
Latin America
1100
Korea
Philippines
1100
600
900
900
Africa
700
500
700
500
Europe
300
300
300
Asia
Nov-02
0
Jan-03
ar
Source: Bloomberg, JP Morgan-Chase
-0
1
ay
-0
1
Ju
l-0
Se 1
p0
No 1
v0
Ja 1
n0
M 2
ar
-0
M 2
ay
-0
2
Ju
l-0
Se 2
p0
No 2
v0
Ja 2
n03
Sep-02
M
Jul-02
1
May-02
M
Mar-02
n0
Jan-02
100
Ja
100
8
Easier monetary policy and post-crisis bank
reforms boost consumer credit and spending
Household Consumption (% of GDP)
80
14.0
China
Indonesia
Korea, Rep.
Malaysia
Thailand
70
Real Short Term Interest Rates
1997
Crisis
12.0
10.0
Indonesia
Korea, Rep.
Malaysia
Thailand
8.0
60
6.0
4.0
50
2.0
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
40
0.0
1985-90
1991-96
1997-98
1999-02
9
In places, supportive fiscal policies –
though keeping an eye on debt is important
Public Sector Debt 1997-02
Central Govt. Fiscal Balance 1998-02
(% of GDP)
4
Indonesia
Malaysia
Thailand
Korea
Philippines
80
0
1998
1999
(% of GDP)
100
2000
2001
2002
60
40
-4
Indonesia
Malaysia
Thailand
20
Korea
Philippines
0
-8
1997
1998
1999
2000
2001
2002
Source: IMF. Indonesia, Korea are central government. Estimate for 2002
10
East Asian Exports Hitched to the China
Locomotive in 2002
100
80
Contributions to 2002 Export Growth
(% )
To China+HK
To Other E Asia
To USA
60
To Japan
40
20
0
From NIEs (3)
From SE Asia (4) From China+HK
-20
-40
Source: IMF DOT. Data for Jan-Oct.2002
11
Share of East Asian exports going to China
rising over the last two decades
Export Markets of 4 SE Asian
Economies * (As % of Total Export)
Export Markets of 3 NIEs *
(As % of Total Export)
40
30
40
To USA
To Japan
To China+HK
To Other E. Asia
To Japan
To China+HK
30
20
20
10
10
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
20
0
02 0
110
0
* Korea, Singapore, Taiwan
(China)
To USA
0
To Other E Asia
* Indonesia, Malaysia,
Philippines, Thailand.
80 9 82 9 84 9 86 9 88 9 90 9 92 9 94 9 96 9 98 0 00 -10
9
1
1
1
1
1
1
1
1
1
1
2 21
0
20
12
China’s imports shifting towards ‘high
tech’ – especially components for assembly
50
China's Import Structure Shifting
Towards 'High Tech'... (% of Total Imports)
China specializing in import of high-tech
components for assembly
2.5
1990
1996
2000
2001
40
(Share of components in China's imports
relative to share of components in w orld
trade)
2
RCA
30
1.5
20
1
10
0
Resource
Based
Low Tech
Medium Tech
High Tech
0.5
Office/Adding
Mach.
Telecom Equipm. Electrical Mach.
13
SE Asian countries find high tech ‘niches’
in China’s import market …
Thailand RCAs in China's
Manufactured Imports, 1990 and 2000
Revealed Comparative Advantage in
China's Manufactured Imports. 2000
2.50
2.50
1990
Resource Based
2.00
Low Tech
2000
2.00
Medium Tech
RCA Index
High Tech
1.50
1.50
1.00
1.00
0.50
0.50
0.00
0.00
Korea
Philippines
Thailand
Japan
Resource
Based
Low Tech
Medium
Tech
High Tech
14
… while China also gains its own niches in
high tech components exports
2
China also specializing in production of
high-tech components for export
1996
2001
(Share of components in China's exports relative
to share of components in w orld trade)
RCA
1.5
1
0.5
0
Office/Adding Mach.
Telecom Equipm.
Electrical Mach.
15
But FDI ex-China has weakened during
this period of industrial restructuring...
Net Private Capital Flows to East
Asia (% of GDP)
Net FDI Inflows (1996-02; US$ Bill.)
60.0
6.0
50.0
4.0
40.0
2.0
30.0
20.0
0.0
90 991 992 993 994 995 996 997 998 999 000 001 002
9
1
1
1
1
1
1
1
1
1
1
2
2
2
-2.0
-4.0
Korea
SE Asia (4)
China
Portfolio equity
Net FDI
Net Private Debt
Source: World Bank. Global Development Finance, 2003
10.0
0.0
1996
-10.0
1997
1998
1999
2000
2001
2002
(e)
16
5 years after the crisis, fixed investment
remains erratic, corporate debt high
East Asia-Real Fixed Investment
1997:Q1 -- 2002:Q4 (SA; 1997 Q1 = 1)
8
East Asia: Corporate Debt-Equity Ratios
1997 & 2001
1997
2001
1.05
Philippines
6
0.85
Korea
4
0.65
Indonesia
2
Thailand
Q
1-
19
Q 97
319
Q 97
119
Q 98
319
Q 98
119
Q 99
319
Q 99
120
Q 00
320
Q 00
120
Q 01
320
Q 01
120
Q 02
320
02
0.45
0
Indonesia
Korea
Malaysia
Philippines
Thailand
17
Making progress in uncertain times:
stick to fundamentals
• After Bali: public security and rule of law
• In this risk-averse and volatile global environment:
prudent macro management pays dividends
• More resources for key public goods: strengthen
governance and public accountability
• Focus on entrepreneurial climate: move ahead with
core private sector development issues (including
rural!), corporate & financial restructuring and
reform
• Regional co-operation
18
Annex: International Economic
Environment
GDP Growth – OECD
- USA
- Japan
- Euro Area
World Trade Volume
Consumer Prices – G7 Countries
Non-oil commodity prices
Oil Prices - $/bbl
- % Change
Interest Rate – US$ LIBOR (6 mo)
2001
2002
2003
2004
0.9
0.3
0.4
1.5
0.4
1.5
-9.1
24.4
-13.7
3.5
1.5
2.4
0.3
0.8
3.0
1.0
5.1
24.9
2.4
1.8
1.8
2.5
0.6
1.4
6.2
1.4
8.2
26
4.4
1.7
2.8
3.5
1.6
2.6
8.1
1.3
2.3
21
-19.2
3.2
Source: World Bank data and provisional staff estimates. March 5, 2003. All variables
except interest rate and the oil price are percentage change from year earlier.
19
Annex: East Asia & Pacific Growth
Forecast
East Asia & Pacific: Real GDP Growth
East Asia
Developing East Asia
S.E. Asia
Indonesia
Malaysia
Philippines
Thailand
Transition
China
Vietnam
East Asia NIEs
Hong Kong (SAR)
Korea
Singapore
Taiwan (China)
2001
3.5
5.5
2.4
3.4
0.4
3.2
1.9
2002
5.6
6.6
4.3
3.7
4.2
4.6
5.0
2003
5.4
6.2
4.0
3.3
4.5
4.0
4.5
2004
5.6
6.3
4.7
4.0
5.5
4.5
5.0
7.3
5.0
0.7
0.6
3.0
-2.0
-2.2
8.0
6.0
4.2
2.0
5.9
2.3
3.3
7.5
7.0
4.1
2.8
5.2
3.8
3.3
7.2
7.0
4.6
3.2
5.5
4.9
4.0
Source: World Bank data and provisional staff estimates, March 7, 2003.
Consensus forecasts for Hong Kong (SAR), Singapore and Taiwan (China).
20