2017 Asia and Pacific Regional Economic Outlook:

Transcription

1 217 Asia and Pacific Regional Economic Outlook: Preparing for Choppy Seas Ranil Salgado International Monetary Fund Asia and Pacific Department May 12, 217 OAP Seminar

2 Key messages and roadmap The near-term outlook for the Asia-Pacific region remains robust and globally the strongest. While there are some upside risks to growth, the outlook, on balance, is clouded by significant downside risks. Medium-term growth faces secular headwinds, including population aging and limited productivity convergence. 2

3 Growth Outlook in Asia 3

4 The outlook for the Asia-Pacific region remains robust and globally the strongest Growth Projections: Selected Asia (percent change from a year earlier) World Asia China Japan Korea India Singapore Thailand Australia New Zealand ASEAN APD Small States Revision from Oct Revision from Oct Source: IMF staff. Note: Figures for India are on a fiscal year basis. 4

5 Pickup since mid-216 with positive momentum Economic Surprise Index Asia PMI: Manufacturing Asia-Pacific EM United States Europe /1/216 4/1/216 7/1/216 1/1/216 1/1/217 Sources: Citigroup; Haver Analytics M1 215M5 215M9 216M1 216M5 216M9 217M1 Sources: World Economic Outlook Database; Haver Analytics; and IMF calculation. 5

6 China and Japan: Strong Near-term Outlook China: Growth and 217Q1 Outturn (In percent, year-over-year) Nominal GDP growth Nominal growth services Japan: Growth and 217 Q1 Forecast (In quarter-over-quarter percent, seasonally adjusted annual rate) BNP Morgan Stanley IMF 217 April WEO IMF-JPN Team's Nowcast Real GDP 8 5 growth (RHS) 7 Nominal growth industry 6 1Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 Sources: CEIC; and IMF staff calculations. 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q Note: the labels indicate the sources. 6

7 Domestic demand is strong, supported by robust private consumption Asia: Contribution to Growth (Year-over-year; percentage points) 1 Consumption Investment Net exports Growth Proj. 218 Proj. Sources: : IMF World Economic Outlook database; and IMF staff calculations. 7

8 Commodity price recovery has modestly pushed up headline inflation Asia: Headline Inflation and Expectations (Year-over-year; percent) Latest 216 (period average estimate) Change from Jan 216 in inflation expectations (right scale) Hong Kong SAR Taiwan Taiwan Province POC of China Japan Singapore China New Zealand Thailand Australia Korea Philippines India Indonesia Malaysia Sources: CEIC Data Company Ltd.; Consensus Economics; Haver Analytics; IMF, World Economic Outlook database; and IMF staff calculations. Note: For India, inflation expectations and the 216 projection are based on a fiscal year basis. 8

9 Breadth and sustainability of the pickup still not clear Selected Asia: Retail Sales Volumes (Year-over-year change; percent) Jul-13 Japan Hong Kong SAR Korea China India 1 ASEAN Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Sources: CEIC Data Company Ltd.; Haver Analytics; and IMF staff calculations. 1 ASEAN includes Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Jan-17 Selected Asia: Exports Volume by Economies (Year-over-year growth of 3mma) M1 26M1 27M1 Japan Korea ASEAN China 28M1 29M1 21M1 211M1 212M1 213M1 214M1 215M1 216M1 Sources: CEIC Data Company Ltd.; Haver Analytics; and IMF staff calculations. 217M1 9

10 Risks to the Outlook 1

11 The risks, on balance, remain slanted to the downside Near-term: Upside Risks Strong Momentum and Larger U.S. Policy Stimulus Tighter global financial conditions, in light of balance sheets weaknesses More inward-looking policies in major global economies A bumpier-than-expected transition in China Medium-term: Parts of Asia risk growing old before becoming rich Productivity growth has slowed, with limited convergence 11

12 Tighter-than-expected global financial conditions could trigger capital flow volatility 2.5 United States: Interest Rates Federal funds rate Fed funds rate: market expectation (current) Fed funds rate: market expectation (prior to U.S. Elections) Federal funds rate: March 217 FOMC median 2. Forecast horizon Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Source: Bloomberg L.P. Note: FOMC = Federal Open Market Committee. 12

13 Household and corporate leverage are high Selected Economies: Change in Household Debt to GDP Ratio (Percentage points; from end-27 to end-215) Thailand Malaysia Norway China Sweden Canada Switzerland Australia Korea Hong Kong SAR Belgium Singapore France Indonesia Italy Netherlands New Zealand Japan India Austria UK Germany Portugal Spain US Sources: Bank of International Settlement, and IMF staff calculations Asia: Nonfinancial Corporate Sector Debt Issuance (Percent of GDP) Indonesia Philippines avg. India Korea Japan China Taiwan Taiwan Province POC of China Thailand Malaysia Australia New Zealand Singapore Sources: Dealogic; and IMF, World Economic Outlook database. Note: Includes both bond issuance and syndicated loan issuance. Data compiled on residency basis. Hong Kong SAR 13

14 Trade exposures to major trading partners Exports and Value added to United States, European Union, and China (In percent of National GDP, 214) 12 Foreign value added Domestic value added United States 1 European Union 1 China Korea China Japan Indonesia India Australia Sources: WIOT, IMF; and IMF staff calculations Korea China India Indonesia Japan Australia Korea Australia Japan Indonesia India 14

15 Asian EMEs appear relatively better positioned to deal with external shocks Selected Vulnerability Indicators FX reserve coverage NFC interest coverage External financing 1 requirement Bank capital adequacy FX share in public debt 1 FX share in NFC debt 1 Asia EM Average EM Average excluding Asia Sources: IMF, Vulnerability Exercise database; and IMF staff calculations. 1 Inverted axis with the maxium axis value at the center and the minimum at the periphery. 15

16 Medium-Term Headwinds 16

17 Asia is aging fast Number of Years for the Old-Age Dependency Ratio to Increase from 15 Percent to 2 Percent Europe United States New Zealand Australia Hong Kong SAR Philippines Malaysia India Indonesia Korea Japan Vietnam China Thailand Singapore Source: IMF staff calculations based on United Nations, World Population Prospects: 215 Revision (mediumfertility scenario). 17

18 There has been convergence in incomes with world leaders, but not much in productivity GDP per Capita (Percent of U.S. PPP per Capita) Japan China ASEAN-4 Latin America Korea India EMDEs Eastern EU Total Factor Productivity (At current PPPs; United States=1) Japan China ASEAN-4 Latin America Korea India EMDEs Eastern EU Sources: Penn World Table 9.; and IMF staff calculation Note: All TFPs are weighted by PPP; EMDEs for GDP include Bangladesh, Sri Lanka, Vietnam, Bhutan, Cambodia, Laos, Myanmar, Nepal, Fiji; ASEAN-4 include Indonesia, Malaysia, the Philippines, and Thailand; EMDEs for TFP include Sri Lanka, Laos, Fiji. 18

19 Openness, human capital, and R&D are important for productivity Estimated Impact on Sectoral Labor Productivity Growth (Percentage point) 2.5 Low (25th Percentile) High (75th Percentile) R&D Import Export Inward FDI Sources: Financial Flows Analytics Database; and IMF staff calculations. Note: The 25th and 75th percentiles are calculated based on the R&D expenditure, import from U.S., export to U.S., and inward FDI for all sectors and countries. 19

20 Policy Recommendations 2

21 Policy recommendations Reinforcing the growth momentum o o The three-pronged approach (monetary, fiscal, and structural policies) remains appropriate Asia needs to continue to build buffers in light of balance sheet weaknesses Addressing near-term risks Dealing with challenges from demographic transition and boosting productivity Heterogeneous recommendations; the pickup provides opportunity to accelerate structural reforms 21

22 Near-term risks to Asia and policies to address them Risks Significant further strengthening of the US dollar and/or higher rates Policies Strengthen macroprudential framework Exchange rate flexibility Disruptions to trade Preserving the gains from trade integration Continue multilateral cooperation 22

23 Critical to deal with challenges from demographic transition and to boost productivity Structural reforms: labor markets and pension systems (country specific) Macroeconomic policies should adapt early before aging sets in How to raise productivity when external factors might not be as supportive as they were before? 23

24 Key messages and roadmap The near-term outlook for the Asia-Pacific region remains robust and globally the strongest. While there are some upside risks to growth, the outlook, on balance, is clouded by significant downside risks. Medium-term growth faces secular headwinds, including population aging and limited productivity convergence. 24