Download Year-end Update of ECONOMIC AND SOCIAL SURVEY Launch of

Launch of
Year-end Update of
ECONOMIC AND SOCIAL SURVEY
OF ASIA AND THE PACIFIC 2014
Dr. Shamshad Akhtar
Under-Secretary-General of the United Nations
and Executive Secretary of ESCAP
Key Messages

Asia and the Pacific is forecast to see a moderate increase in growth in 2015, aided by
structural reform programmes in a number of economies.

The dramatic recent decline in oil prices is likely to have significant macroeconomic
policy implications, both positive and negative, depending on commodity-dependence.

Despite a fairly positive outlook, the region faces a number of risks and challenges:
o At the domestic level, two key structural challenges affect the supply capacity of
economies: infrastructure deficits and labour market imperfections.
o A short-term challenge to macroeconomic stability is the impact of monetary policies of
developed economies – particularly the ongoing monetary policy normalisation by the
United States.


Addressing domestic structural challenges would involve adoption of a mix of domestic
policies (e.g. regulatory reform to increase productivity of the private sector) and
regional policies (e.g. regional financial intermediation institutions for infrastructure
development).
Mitigating consequences of exogenous factors calls for effectively managing impacts of
capital volatility and falling oil prices – this would involve calibrating the monetary and
fiscal policies, along with appropriate proactive macro-prudential frameworks and
supportive measures.
2
Growth Outlook for 2015
12
10.1
8
8.8
9.6
8.8
7.2
6.4
5.3
5.2
4
2.8
3.1
1.7
0.1
-3.4
-4
-8
2005
2007
Pre-crisis
5.6
1.4
1.8
3.1
2.8
0
5.6
2009
Crisis
1.2
5.8
2.3
Developing Asia-Pacific
Advanced economies
2011
2013
Post-crisis
2015
Forecast
3
Subregional Prospects
GDP Growth by Asia-Pacific subregion (%)
• Faster growth is expected for all
subregions, except North and Central
Asia due to falling oil prices and
geopolitical instability.
• Growth in Pacific island developing
economies will accelerate amid the
start of LNG production in Papua New
Guinea.
• South and South-West Asia is likely to
rebound on expected revival in India.
• South-East Asia will benefit from the
onset of ASEAN Economic Community.
• East and North-East Asia should see
higher growth, driven by a pickup in
Japan.
East and North-East Asia
North and Central Asia
Pacific island developing
economies
South and South-West
Asia
2015
2014
2013
South-East Asia
Developed ESCAP
economies
0
2
4
6
8
10
4
Domestic Structural Reforms
• Countries have undertaken some important structural reforms. For example:
o Fuel subsidy overhauls: India removed diesel subsidies in October,; Indonesia
lowered fuel subsidies in October and then removed gasoline subsidies in
December; and Malaysia moved from subsidies to a “managed float” in December.
o Infrastructure investment: China accelerated urban infrastructure and social
housing investment; Malaysia created a pipeline of PPP projects under its
Economic Transformation Programme; and the Philippines awarded PPPs
equivalent to 1.5% of GDP.
o Opening markets: Viet Nam privatized 40 State-owned enterprises (SOEs)and India
to allow 49% FDI in defence industries.
o Financial sector: Philippines measures taken to reduce banks’ exposure to property
sector; Viet Nam improved asset quality of banks.
• However in many other areas pledges have to be turned into action and further
structural reforms need to be enacted. For example:
o China and Viet Nam need to further open up SOEs and recapitalize banks.
o India and Indonesia need regulatory reform and opening of markets to boost
domestic and foreign investment.
o Energy-producing economies (e.g. Russian Federation, Islamic Republic of Iran)
need to diversify their economies by promoting development of other sectors.
5
2015 Outlook: Asia-Pacific Economies
Developing Asia-Pacific
Bangladesh
China
Fiji
India
Indonesia
Kazakhstan
Malaysia
Mongolia
Pakistan
Papua New Guinea
Republic of Korea
Russian Federation
Thailand
Turkey
a
Estimates
b
Forecasts (as of 5 January 2015)
Real GDP growth (%)
2013
2014a
5.7
5.6
6.0
6.1
7.7
7.3
4.6
4.2
5.0
5.5
5.8
5.2
6.0
4.6
4.7
5.7
11.7
6.3
3.7
4.1
5.1
8.4
3.0
3.4
1.3
0.3
2.9
0.8
4.1
3.3
2015b
5.8
6.5
7.0
4.0
6.4
5.6
4.8
5.2
6.2
4.5
15.5
3.8
-0.8
3.9
4.0
6
Key Challenges and Recommendations
• Despite decent performance and outlook, a number of challenges
remain:
o Infrastructure constraints and lack of decent jobs are the main domestic
structural concerns.
o Likely volatility in capital flows due to monetary policies of developed
economies.
o Dealing with a steep decline in oil prices.
• Main policy recommendations:
o Increase infrastructure financing and step up efforts to reform labour
markets.
o Tackle capital volatility through better macroeconomic fundamentals and
judicious use of foreign exchange interventions and macroprudential
measures.
o Remove fuel subsidies.
7
Domestic Structural Concerns:
Infrastructure Constraints & Lack of Decent Jobs
Infrastructure
• Total infrastructure financing
requirements for the region stand at
$800-900 billion annually.
• Region has not created enabling
environment for infrastructure.
• Lack of pipeline of feasible projects.
Lack of decent jobs
• Few jobs in the formal sector.
• Youth and women particularly
impacted by jobs challenge.
• Job quality is a concern with high
number of own-account or
contributing family workers.
Unemployment rates in selected Asia-Pacific economies, 2014
Armenia
16.4
Iran, Islamic Rep.
13.1
Maldives
12.0
Uzbekistan
10.6
Tajikistan
10.6
Turkmenistan
10.5
Turkey
10.0
5
10
15
Per cent
8
Global Monetary Policy Developments – Impacts Capital Volatility
Exchange rate indices in selected Asia-Pacific economies
Higher interest rates would constrain growth
Hong Kong, China
Singapore
Republic of Korea
China
Thailand
Russian Federation
Philippines
Indonesia
India
Malaysia
Turkey
-0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0.0
Reduction in GDP growth relative to
the baseline (percentage points)
9
Mixed Impacts of Decline in Oil Price
The net impact for oil importing countries will be a significant boost to growth, while oil
exporters will experience substantial negative impacts
Republic of Korea
Philippines
Singapore
Thailand
Turkey
India
China
Hong Kong, China
Japan
Australia
Malaysia
Indonesia
Russian Federation
-1.2
-0.9
-0.6
-0.3
0.0
0.3
0.6
Change in GDP growth relative to baseline
(percentage points)
AUS: Australia
HKG: Hong Kong, China
IDN: Indonesia
KOR: Republic of Korea
PHL: Philippines
SGP: Singapore
TUR: Turkey
CHN: China
IND: India
JPN: Japan
MYS: Malaysia
RUS: Russian Federation
THA: Thailand
10
External Accounts Improve on Falling Oil Price
While Inflation Decreases for Most Economies
Change in inflation relative to
baseline (percentage points)
-2.5
Change in current account/GDP relative to baseline
(percentage points)
-1.5
-0.5
0.5
1.5
2.5
0.0
HKG
IDN
-0.1
JPN
RUS
-0.2
KOR
AUS
-0.3
TUR
SGP
MYS
-0.4
-0.5
IND
CHN
PHL
THA
-0.6
AUS: Australia
HKG: Hong Kong, China
IDN: Indonesia
KOR: Republic of Korea
PHL: Philippines
SGP: Singapore
TUR: Turkey
CHN: China
IND: India
JPN: Japan
MYS: Malaysia
RUS: Russian Federation
THA: Thailand
11
(1) Policy Options: Addressing Domestic Structural Weaknesses:
Infrastructure
• Need to use alternative regional sources of funds, especially
from the private sector, on top of public resources and ODA:
o Region has $8.4 trillion in national savings and $7.5 trillion in foreign reserves
that could be tapped for development
• Better financial intermediation at the regional level is needed:
o Development of capital markets will encourage pension funds and other
institutional investors.
o Recent establishment of AIIB and BRICs Bank is in line with long-standing
ESCAP call for regional financial intermediation facility.
12
(2) Policy Options: Addressing Domestic Structural Weaknesses:
Labour
• To increase decent jobs and reduce youth unemployment,
workers’ skills must be made more relevant to demand:
o Asia-Pacific countries have to initiate active labour market policies for better
job quality, enhancing skills, and boosting productivity and wages, in
particular minimum wages.
• Improving women’s job prospects requires a fundamental shift in
social perceptions and attitudes as well as stronger antidiscrimination legislation for workplaces:
• Examples include: quality education and training that promotes nonconventional tracks for women, access to quality and affordable child care
and maternity protection, reducing gender wage disparities and fostering
demand that creates decent jobs.
13
(3) Policy Options: Mitigating Risks from Capital Flows Volatility
• Strong macroeconomic
fundamentals, through
a prudent monetary
and fiscal policy
stance, are essential
for economic and
financial stability.
ESCAP financial vulnerability index
Least
vulnerable
China
Russian Federation
• Countries should be
more judicious and
vigilant regarding
intervention in the
foreign exchange
market .
• Macro-prudential
measures can play an
important supportive
role.
Philippines
Thailand
India
Indonesia
Republic of Korea
Kazakhstan
• Proper sequencing of
measures is essential.
Most
vulnerable
Malaysia
0
50
100
January 2014
150
January 2015
200
250
300
14
(4) Policy Options: Reduce Fuel Subsidies
to Create Fiscal Space for Development Spending
•
Fuel-related subsidies continue to represent a large share of budgets for many
countries in the region, despite steps taken in some countries to reduce this burden.
•
Energy subsidies often benefit the wealthiest in society, encourage wastage, and
result in fuel-intensive production.
•
Rationalizing subsidies is a key reform to raise public financial resources for
productive investment in the region, including those for financing sustainable
development.
•
A substantial decline in oil price is an opportune time to decrease subsidies:
o Countries with high budget and current account deficits due to fuel subsidies are
most prone to macroeconomic instability from capital outflows.
o The burden of subsidy cuts on citizens, in the form of potential inflationary
impact of higher domestic fuel prices, will be smaller due to lower international
oil price.
15
Conclusion
• Growth in the region is expected to pick up slightly but remains
below potential for many economies.
• This is due to the failure of countries to sufficiently undertake
the domestic structural reforms required to increase their
productive capacity.
• The reduction of fuel subsidies during the window of lower oil
prices will free valuable resources for development spending,
however this should not divert attention from the need to
undertake far more comprehensive reforms to boost growth
and progress.
16
Thank you
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