Download Economic and Social Survey of Asia and the Pacific 2015: Year-end Update

Economic and Social Survey of
Asia and the Pacific 2015:
Year-end Update
United Nations Conference Centre
14 January 2016
Dr. Shamshad Akhtar
Under-Secretary-General of the United Nations
and Executive Secretary of ESCAP
Key findings and messages
• The Asia-Pacific region’s growth has plateaued around 5%. This has
implications for its ability to drive global economic recovery; the region
should focus more on domestic and regional demand to revive growth
• While deceleration in extra-regional trade is an important factor,
domestic demand and intra-regional trade also remains constrained
• Key concern is impact on trade of slowdown in China and the recent
volatility in equity and currency markets in the country and the region
• Despite relatively lower inflation, monetary policy faces unenviable
trade-offs. A more proactive fiscal policy stance is recommended to
provide countercyclical support and strengthen long-term and inclusive
growth
• Key economic policy challenges include coping with rising private debt
and higher financing costs due to US monetary policy normalization
• Overarching medium-term priority is making growth more inclusive and
strengthening productivity
2
Economic growth remains on a declining trend
– Growth estimates for 2015 and 2016
downgraded from Survey 2015
– Growth seems to have plateaued
around 5% compared to an average
9.4% growth between 2005 – 2007.
• Declining growth trend in AP
region is in contrast to somewhat
accelerating growth in adv. eco.
– AP region is no longer the leader in
global economic recovery.
– Highlights that domestic and regional
factors are gaining significance and
focus on them is important for
growth revival in the region
12
Real GDP growth in developing Asia and the Pacific, advanced
economies and the world, 2006-2016
10
Year-on-year percentage change
• Slowdown in global trade as well
as in Chinese economy together
with domestic infrastructure
constraints is holding back faster
growth
8
6
4
2
0
-2
Developing Asia (current forecast)
Developing Asia (forecast as of Survey 2015)
Advanced economies
World
-4
-6
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
3
2016 Outlook: Selected Asia-Pacific economies
Real GDP growth and inflation of selected Asia-Pacific economies
Inflation
Real GDP growth
(Percentage)
China
Fiji
India
Indonesia
Japan
Malaysia
Philippines
Republic of Korea
Russian Federation
Singapore
Thailand
Developing ESCAP economies
Least developed countries
Landlocked developing countires
Small island developing States
Total ESCAP
2014
7.3
5.3
7.3
5.0
–0.1
6.0
6.1
3.3
0.6
2.9
0.9
5.3
5.6
4.9
6.5
3.5
Latest
estimates
2015 2016
6.9
6.5
4.0
3.5
7.4
7.5
4.8
5.3
0.5
1.1
4.8
4.8
5.9
6.3
2.6
2.9
–3.9 –0.5
2.0
2.2
2.6
3.5
4.5
5.7
2.9
6.3
3.2
5.0
6.0
3.4
4.3
3.6
Survey
2015
2015 2016
7.0
6.8
4.0
4.0
8.1
8.2
5.6
5.8
0.6
0.8
4.9
5.2
6.5
6.4
3.4
3.7
–4.0 –1.6
3.1
3.5
3.9
4.0
4.9
5.7
3.2
9.6
3.4
5.2
5.8
3.9
4.8
3.7
2014
2.0
0.5
6.0
6.4
2.7
3.1
4.1
1.3
7.8
1.0
1.9
4.2
6.4
5.7
3.1
3.7
Latest
estimates
2015 2016
1.5
2.2
2.0
3.0
5.0
5.5
6.6
5.3
0.8
0.7
2.4
3.3
1.8
3.2
0.7
1.6
15.7
9.0
–0.5
0.5
–0.8
1.5
4.2
5.3
6.2
3.8
3.0
4.0
5.4
6.8
4.0
2.9
Survey
2015
2015 2016
1.7
2.5
2.5
2.5
5.5
5.8
5.5
5.0
1.0
2.2
3.0
2.9
3.0
3.2
1.9
2.6
13.0 10.0
0.3
1.5
0.3
2.0
4.3
5.5
7.1
4.3
3.1
4.4
5.4
6.9
4.3
3.6
4
Slowdown in the Chinese economy continues
Mostly due to China’s ongoing efforts, for the right reasons, to rebalance the
economy towards domestic demand, particularly consumption
•
•
Share of (net) exports and investment is declining.
Industrial production has slowed due to both external and internal factors.
•
•
•
Lower demand by advanced economies for Chinese exports
Less demand for new projects due to higher supply from previous activity.
China growth contributions, by expenditure, 2005-2014
China slowdown in manufacturing and Industrial output,
2012-2015
55
13
54
12
53
11
10.6%
13
11
15.0%
11.5%
3.1%
9
1.3%
42.5%
87.9%
7
52.1%
67.3%
1.4%
46.2%
41.6%
54.5%
49.3%
48.1%
50.7%
5
56.6%
42.5%
10
43.7%
45.8%
3
44.8%
58.2%
48.1%
64.5%
57.1%
1
Percentage
31.9%
51
9
50
8
49
7
48
-45.1%
-1
-13.5%
-8.6%
-2.6%
PMI (manufacturing) RHS
47
6
Industrial production index
-3
46
5
45
4
Net exports
Growth
2014
2013
2012
2011
2010
2009
2008
Investment
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
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
Cosumption
2007
2006
-5
2005
Percentage
52
Percentage change
15
Chinese slowdown having large spillovers to the region
• Slowdown in domestic demand by China is impacting regional trade.
– Most affected are commodity-exporters ( Indonesia) and manufacturing
exporters (Singapore, Republic of Korea, Taiwan Province of China)
• In 2015, it has impacted both the equity and currency markets in China as
well as the region; as seen again in recent days.
Growth of exports to China for selected Asia-Pacific economies,
2012-2015
Equity market performance for China and selected economies,
2015-2016
160
5
150
0
140
Thailand
China
India
Index January 2015 = 100
-5
-10
-15
Indonesia
Korea
130
Singapore
120
110
100
-20
90
Note: Data for 2015 is available up to November 2015.
01-Jan-16
01-Nov-15
Republic of Korea
Japan
80
01-Sep-15
Thailand
Indonesia
2015
01-Jul-15
2014
01-May-15
Malaysia
Singapore
2013
01-Mar-15
-25
2012
01-Jan-15
Year-on-year percentage change
10
6
Moderate recovery in advanced economies also affecting the
region given its export-led growth orientation
• Apart from slowing demand in China,
slow recovery in advanced
economies is affecting exporting
economies in region directly …
– China has seen consecutive months
of export contraction over second
half of 2015
– This translates into less demand for
products from the region for
processing and onward export by
China
Indonesia
Republic of Korea
60
Russian Federation
Thailand
40
Singapore
20
0
-20
-40
-60
Jan-2010
Mar-2010
May-2010
Jul-2010
Sep-2010
Nov-2010
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
• …and indirectly through re-exports
from China.
80
Percentage change
– Global trade in 2015 is expected to
show slowest expansion since 2009
Monthly export growth for selected AP economies, 2010-2015
7
Domestic demand is also not growing in a robust manner
• Consumption being affected in some economies due to rapid accumulation in
private debt and relatively high inflation
• Investment being affected by slow progress in reforms, a constrained private
sector, and high economic uncertainty.
Contributions of private consumption to economic growth in
selected developing Asia-Pacific economies, 2012-2014
Contributions of fixed investment to economic growth in selected
developing Asia-Pacific economies, 2012-2014
5
5
2012
2013
2014
2012
2013
2014
4
3
3
Percentage points
Percentage points
4
2
1
2
1
0
0
-1
-1
Malaysia
Russian
Federation
Indonesia
Thailand
Malaysia
Russian
Federation
Indonesia
Thailand
8
Slower economic activity coupled with lower commodity
prices drive inflation downwards
•
lower imported inflation in SouthEast Asia and East and North East
Asia
For commodity-exporters, there is
higher exchange rate depreciation
due to low commodity prices.
•
higher imported inflation in North
and Central Asia
6
5
4
3
2009
2010
2011
2012
2013
2014
2015
2016
Oil and commodity price trends, 2009-2015
230
120
210
110
190
100
170
90
150
80
130
70
110
90
All commodity price index (LHS)
Average crude price (RHS)
60
70
50
50
40
Average crude price (USD per Barrel)
•
Inflation for developing Asia-Pacific region, 2009-2016
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
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
For most commodity-importers,
exchange rate impact is less
pronounced due to lower
commodity prices
Year-on-year percentage change
•
An important factor behind inflation
dynamics is the effect of commodity
imports/exports on exchange rates
All commodity price Index (2005 = 100)
•
7
Currency depreciation has accelerated due to US MP policy
normalization and Chinese growth concerns
•
US policy normalization will be an
ongoing factor. Initial impact in
December 2015 was factored in but
uncertainty regarding path of increase
could lead to volatility
Weaker economic data from China and
managed depreciation of the
Renminbi is a growing concern, as
seen again in recent days
Countries have allowed currency
weakness due to concerns about
export prospects
•
However competitive devaluations
are not beneficial.
110
100
90
80
70
60
50
40
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
•
•
Exchange rate indices in selected Asia-Pacific economies,
2013-2015
General outflow of portfolio capital
Index January 2013 = 100
•
China
Malaysia
Thailand
India
Philippines
Turkey
Indonesia
Russian Federation
Republic of Korea
Note: A declining trend represents depreciation and vice versa
10
Monetary policy constrained by capital outflow concerns
•
Most economies have lowered
policy rates recently.
Policy rates in selected developing Asian developing economies,
2012-2015
18
16
•
However, despite subdued growth
and inflation outlook, risk of capital
outflow and financial stability
considerations hampers further
monetary easing
14
12
10
8
6
4
2
•
Countries more at risk of excessive
outflow are those with weak
macroeconomic fundamentals and
substantial commodity dependence
0
China
India
Indonesia
Malaysia
Thailand
Russian Federation
Domestic financing costs in the region may rise due to increase
in US interest rate
• US federal funds rate expected to
gradually rise in 2016 and could
reverse part of the foreign funds
invested in the region
– Impact on equity and debt market
and cross-border bank loans, and
pressure on exchange rates
• Whether domestic interest rates will
increase accordingly depends on
country-specific factors, such as ...
– Exchange rate regime, external debt,
asset prices, effectiveness of macroprudential measures, etc.
Asia-Pacific policy rate and United States federal funds rate,
2012-2015
Rapid increases in private debt call for vigilance
Household, corporate and sovereign debt in 2014, % of GDP
• Household debt in Malaysia,
Thailand on a par with OECD
levels, while China holds more
corporate debt than the US
– Exposure to real estate sector and
concentration in low income
households and low profit firms
Debt service ratios (DSR) for the private non-financial sector
• Risks for financial stability and
economic growth prospects
– Pressure on debt servicing
capacity if financing costs rise
when income growth is slowing
Fiscal policy can play a proactive role
Fiscal balance, regional average, 2001-2016
1
– More countercyclical and
expansionary policy can be adopted
•
… and support inclusive, longterm growth
0
-1
-2
-3
– Spending on education, health and
infrastructure is low or uneven
Fiscal space contingent on tax
and other reforms
– But there are no mechanical and
universally accepted thresholds
25
Percentage of GDP
•
Mean, unweighted
-4
20
Median
Selected current and capital expenditures, % of GDP
infrastructure
health
15
education
10
5
0
Pakistan
Philippines
Indonesia
Georgia
Sri Lanka
Armenia
Tajikistan
Iran
Bangladesh
Russia
Kazakhstan
India
Cambodia
Azerbaijan
Lao PDR
Afghanistan
Nepal
Bhutan
Fiji
Thailand
Viet Nam
Mongolia
Malaysia
Maldives
China
…to stabilize the economy
Percentage of GDP
•
1
4
Medium term economic challenge is to strengthen productivity and
make economic growth more inclusive
•
Despite tremendous progress,
development has not been inclusive
in the region.
Labour income share in Asia and the Pacific from 1991 to
2011 (in per cent of output)
54%
52%
50%
48%
•
•
Higher economic growth has not
created enough decent jobs, and
higher labour productivity has not
translated into commensurate
increases in real wages.
With growth of total factor
productivity having declined in recent
years, greater effort is needed to
strengthen productivity and ensure
that its benefits are passed on to the
labour force.
46%
44%
42%
40%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Average for AP
Annual percentage growth rate of total factor productivity
and labour productivity, 1991-2013
Five takeaways
1. A “new normal” of economic growth continues amidst weak global
trade and China’s slow growth; AP economies will need to look
more towards domestic and regional demand.
2. Fiscal policy can tackle cyclical and long-term challenges, and
relieve pressure on monetary policy, provided tax revenues are
strengthened
3. Rapid increases in private debt call for vigilance, especially as
financing costs are likely to increase in the region.
4. Productivity growth should be accelerated and its benefits
adequately shared with the labour force.
5. With the adoption of 2030 Agenda for Sustainable Development, it
is not just about economic growth anymore ---- we live in the era of
sustainable development!
1
6
Thank you
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