Economic Outlook and Risks in the APEC Region

Transcription

1 2018/FMM/002 Agenda Item: 1.1 Economic Outlook and Risks in the APEC Region Purpose: Information Submitted by: ADB 25th Finance Ministers Meeting Port Moresby, Papua New Guinea 17 October 2018

2 Economic Outlook and Risks in the APEC region Stephen P. Groff Vice-President (Operations 2) Asian Development Bank APEC Finance Minister s Meeting 17 October 2018 Port Moresby, Papua New Guinea

3 Key messages Developing APEC Asia projected to grow at a healthy rate of 5.9% in 2018 and 5.7% next year; but risks tilted downward Largest downside risk stems from escalating US PRC trade conflict; heightened uncertainty around tariff and global trade policies posing a threat to business confidence and investment The region needs to build greater economic and financial resilience by strengthening their regional value chain and economic complementarity Changes in global liquidity condition expose pockets of domestic financial vulnerability; stabilization policy must be tapped when needed 2

4 APEC Economic Outlook and Risks 3

5 APEC-Asia economic growth held up well 8 GDP Growth (%) APEC Developing APEC-Asia f 2019f f=forecast Source: Asian Development Outlook 2018 Update, ADB: World Economic Outlook Database April 2018, IMF: and national sources. 4

6 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 benefiting from a sustained growth in trade value Monthly Trade Value Growth (%, y-o-y, 3-month moving average) Developing APEC-Asia Developing APEC-Americas Advanced APEC y-o-y = year-on-year. 3MA = 3-month moving average. Note: No data available for Papua New Guinea. Actual data for Brunei Darussalam are only available until May Trade values for the months of June and July 2018 were estimated average growth rate during the preceding three years with available data. Source: ADB calculations using data from CEIC (accessed September 2018). 5

7 and robust domestic demand Demand-side contributions to growth, selected economies, first half 2018 Percentage points 15 Consumption Investments Net exports GDP growth NIEs ASEAN PRC IND HKG KOR SIN TAP INO MAL PHI THA VIE Notes: ASEAN = Association of Southeast Asian Nations; NIEs = newly industrialized economies; GDP = gross domestic product; HKG = Hong Kong, China; IND = India; INO = Indonesia; KOR = Republic of Korea; MAL = Malaysia; PHI = the Philippines; PRC = People s Republic of China; SIN = Singapore; TAP = Taipei,China; THA = Thailand. IND data refers to Q1 FY2018. Components do not add up to total due to a statistical discrepancy. Sources: Haver Analytics and CEIC Data Company (accessed 17 September 2018); Asian Development Outlook database. 6

8 But large variation persists across APEC economies GDP Growth Rates (y-o-y,%) Economy f 2019f Economy f 2019f Advanced APEC Developing APEC-Asia Australia NIEs Canada Japan Brunei Darussalam New Zealand PRC Russian Federation Indonesia US Malaysia Developing APEC-Americas Papua New Guinea Chile Philippines Mexico Thailand Peru Viet Nam f = forecast, NIEs = newly industrialized economies, PRC = People s Republic of China. Note: Developing APEC-Asia based on ADB s definition. Source: Asian Development Outlook 2018 Update, ADB: World Economic Outlook Database April 2018, IMF: and national sources.

9 Trade conflict is main risk to the outlook Trade conflict chronology Note: Current scenario includes all tariffs implemented as of end-september among US, PRC and other countries trade. * The $35.8 billion in retaliatory tariffs against US steel and aluminum tariffs are by Mexico, EU, Canada, India, Russia, and Turkey. It excludes pending cases filed by EU (US$ 4.1 bn) and Japan (US$ 1.9 bn) via the WTO dispute settlement mechanism. 8 Source: ADB staff estimates based on published official information.

10 with the PRC likely to be most affected. GDP impact of trade conflict by economic region Current scenario PRC-US escalation scenario % of own GDP Direct and Indirect Effects 0.8 Trade Redirection Effects Net Impact (with partial redirection) NIEs = newly industrialized economies of Hong Kong, China; Republic of Korea; Singapore; and Taipei,China. ASEAN-5 = Indonesia, Malaysia, Philippines, Thailand, and Viet Nam. Rest of Asia = Bangladesh, Bhutan, Brunei Darussalam, Cambodia, Fiji, India, Lao People's Democratic Republic, Maldives, Mongolia, Pakistan, and Sri Lanka. Source: ADB Staff estimates.

11 Electronics the hardest hit in the escalation scenario, but also trade and business services. GDP impact of trade conflict by sector Note: Values in red are in $ billion. NIEs = newly industrialized economies of Hong Kong, China; Republic of Korea; Singapore; and Taipei,China. ASEAN-5 = Indonesia, Malaysia, Philippines, Thailand, and Viet Nam. Rest of Asia = Bangladesh, Bhutan, Brunei Darussalam, Cambodia, Fiji, India, Lao People's Democratic Republic, Maldives, Mongolia, Pakistan, and Sri Lanka. Source: ADB Staff estimates. 10

12 Other risks to the outlook also on the downside Interest-rate induced capital flow shifts Baseline assumes rising path of US Fed interest rates A more aggressive stance could reverse Asia s capital flows Volatile oil prices Uncertain geopolitical developments add to financial market jitters Improved fiscal and financial positions bolster developing Asia s resilience to shocks 11

13 Maintaining stability amid heightened uncertainty 12

14 Sudden capital flow reversals may imperil stability and weaken currencies Capital flows to selected Asian economies $ billion Nominal exchange rate and foreign exchange reserve, selected Asian economies Index, 2006= Quantitative easing Taper talk $ billion Exchange rate Other investment Portfolio investment Foreign direct investment Net flow Foreign exchange reserves Notes: Selected Asian economies consists of Hong Kong, China; India; Indonesia; Malaysia; People s Republic of China; the Philippines; the Republic of Korea; Singapore; Taipei,China; Thailand; and Viet Nam. In the chart on the right panel, a depreciation is represented as an increase in the index; an appreciation by a decrease. 13

15 Debt buildups can weigh on the real economy Total debt relative to GDP Private debt relative to GDP % of GDP 250 GFC % of GDP 250 GFC East Asia Developing Asia Southeast Asia East Asia Developing Asia South Asia Central Asia The Pacific Southeast Asia South Asia Central Asia The Pacific 14

16 Implement policies carefully to manage multiple risks effectively Macroeconomic stabilization tools Fiscal policy Monetary policy Exchange rate regime Capital flow management Macroprudential policy Hybrid policies 15

17 Safeguarding Asia against heightened uncertainty Macroeconomic management requires close monitoring of vulnerabilities Policy tools are plentiful, but favorable results require coordination: Domestic policy coordination to boost effectiveness Cross-border cooperation to avoid unwanted external spillovers Stabilization policies work best where fundamentals are strong 16

18 Thank you! 17

19 SPARE SLIDES 18

20 PRC growth on track, amidst downside risks in trade percentag e points 10 Demand-side contributions to growth Net exports Investment Consumption Gross domestic product 55 Confidence indicators Purchasing manager's index Consumer confidence expansion optimism 125 Jul-18 5 Aug Q Q3 Q Q3 Q Source: National Bureau of Statistics of China (accessed 17 September 2018). contraction pessimism 45 Jan-15 Jan-16 Jan-17 Jan-18 Source: CEIC Data Company (accessed 22 September 2018)

21 Deeper financial integration compounds susceptibility to shocks ASEAN4 = Association of Southeast Asian Nation (Indonesia, Malaysia, Philippines, and Thailand); AUS = Australia; EUA = euro area; HKG = Hong Kong, China; IND = India; JPN = Japan; KOR = Republic of Korea; PRC = People s Republic of China; SIN = Singapore; UK = United Kingdom. Notes: The figure displays the returns-based network of 15 equity markets and regional groupings from 1 March 1995 to 30 December Edges were calculated using bivariate Granger causality tests between markets at the 5% level of significance. The thickness of the lines indicates the average relative strength of each market (or regional grouping). The size of the nodes increases with the number of outward links of each respective market (or regional grouping). 20

22 Updates on Regional Integration in Asia and the Pacific 21

23 Asia s regional integration deepens Intraregional Shares Asia and the Pacific (% of total) FDI = foreign direct investment (flows data); Equity = equity asset holdings (stock data); Debt = debt asset holdings (stock data). Note: Asia and the Pacific includes ADB s 45 regional developing members plus Australia, Japan, and New Zealand, where data are available. Source: ADB, Asian Economic Integration Report database. 22

24 Asia-Pacific Regional Integration Index Insititutional and Social Integration Trade and Investment Integration Money and Finance Integration Free Movement of People Regional Value Chain Infrastructure and Connectivity Central East Southeast South Oceania Pacific Source: ADB estimates. 23

25 World-wise normalization: APRII estimates Asia vs Other Regions Insititutional and Social Integration Trade and Investment Integration Money and Finance Integration Free Movement of People Regional Value Chain Infrastructure and Connectivity ASEAN Asia Africa Latin America EU Source: ADB estimates. 24