Chikahisa Sumi Director, Regional Office for Asia and the Pacific International Monetary Fund

Chikahisa Sumi Director, Regional Office for Asia and the Pacific International Monetary Fund

(percent YOY) 8 6 Real GDP Growth ASSUMPTIONS A more gradual monetary policy normalization 4 2 21 211 212 213 214 215 216 217 218 219 22 Emerging Market and Developing Economies World Advanced Economies Risks to the Global Outlook Fiscal stance remains neutral Moderate inflation in both AEs and EMDEs Oil baseline projection is raised from last year but remains weak Upward revision for nonfuel commodities price projections Source: International Monetary Fund, World Economic Outlook, October 217. 2

World Advanced Economies U.S. U.K. Japan Euro Area Germany Canada Other Advanced Asia 216 3.2 1.7 1.5 1.8 1. 1.8 1.9 1.5 2.2 217 3.6 2.2 2.2 1.7 1.5 2.1 2. 3. 2.6 Revision from Jul. 217 Revision from Apr. 217.1.2.1..2.2.2.5.3.1.2 -.1 -.3.3.4.4 1.1.3 218 3.7 2. 2.3 1.5.7 1.9 1.8 2.1 2.5 Revision from Jul. 217 Revision from Apr. 217.1.1.2..1.2.2.2.1.1. -.2..1.3.3.1.1 Source: International Monetary Fund, World Economic Outlook, October 217. 3

Emerging Market and Developing Economies China India ASEAN-5* Brazil Russia 216 4.3 6.7 7.1 4.9-3.6 -.2 217 4.6 6.8 6.7 5.2.7 1.8 Revision from Jul. 217 Revision from Apr. 217..1 -.5.1.4.4.1.2 -.5.2.5.4 218 4.9 6.5 7.4 5.2 1.5 1.6 Revision from Jul. 217 Revision from Apr. 217.1.1 -.3..2.2.1.3 -.3. -.2.2 Note: ASEAN-5 include Indonesia, Malaysia, Philippines, Thailand and Vietnam. Source: International Monetary Fund, World Economic Outlook, October 217. 4

217 Inflation Forecast (Percent) 9 8 April 217 WEO October 217 WEO 7 6 5 4 3 2 1 Asia Euro area Latin America and the Caribbean Middle East and North Africa United States Source: IMF World Economic Outlook. 5

Global growth picked up further in 217H1; outlook is for higher annual growth in 217 and 218 Advanced Economies: stronger cyclical recovery in near term, subdued potential growth in medium term Emerging Market and Developing Economies: activity in stressed economies bottoming out, commodity importers generally projected to maintain high growth rates Inflation remains subdued Risks skewed to the downside in the medium term Policy priorities: macroeconomic management needs vary; common goal is to boost potential growth 6

ADVANCED ECONOMIES Cyclical rebound; varying degrees of post-crisis repair; Ongoing forces overlaid on EMERGING MARKET AND DEVELOPING ECONOMIES Rebalancing in China Adjustment to lower commodity prices Geopolitical and political factors Demographic trends Weak productivity growth 7

Growth Projections: Selected Asia Asia is in a favorable position: growth is revised up. (Percent change from a year earlier) World Asia China India Japan Korea Australia and New Zealand ASEAN Small States However, the sustainability of the pickup is still not clear. While Asia is more resilient, medium-term vulnerabilities have increased. 216 3.2 5.4 6.7 7.1 1. 2.8 2.6 4.8 3.2 217 3.6 5.6 6.8 6.7 1.5 3. 2.4 5.1 3.7 Revision from Apr. 217.2.1.2 -.5.3.3 -.5.2.1 218 3.7 5.5 6.5 7.4.7 3. 2.9 5.1 4.4 The window for reforms is now. Revision from Apr. 217.1.1.3 -.3.1.1.2. -.2 9

Asia: Contribution to Global Growth (Percent, PPP) 7 6 59 61 54 5 55 54 4 3 2 1 214 215 216 217 218 Source: IMF World Economic Outlook. 1

Selected Asia: Exports to Major Destinations (Year-over-year percent change) 4 3 2 1-1 To the United States To Euro area To Japan To China -2 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-15 Mar-16 Nov-16 Jul-17 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-15 Mar-16 Nov-16 Jul-17 Sources: Haver Analytics; CEIC Data Co. Ltd.; and IMF staff calculations. Note: Selected Asia includes China, Hong Kong SAR, Japan, Korea, Malaysia, Taiwan Province of China, Thailand, the Philippines, Singapore, and Vietnam. Indonesia is excluded due to data lags. 11

Contributions to Projected Growth (Year-over-year; percentage points) 9 8 7 6 5 4 3 2 1-1 -2 Net exports Investment Consumption Growth 216 217 218 216 217 218 216 217 218 216 217 218 216 217 218 216 217 218 Asia China India Japan Korea ASEAN Sources: IMF, World Economic Outlook database; and IMF staff calculations. Note: ASEAN includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. 12

Asia: Current Account Balances (Percent of GDP) 8 7 6 5 4 3 2 1-1 -2 215 216 217 (Projection) 218 (Projection) Asia China India Japan Korea ASEAN Sources: IMF, World Economic Outlook database; and IMF staff calculations and projections. Note: ASEAN includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. 13

Total Portfolio Flows (Billions of U.S. dollars) 6 Africa & Middle East Emerging Europe Latin America Emerging Asia 5 4 3 2 1-1 -2-3 -4 Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17 Sources: National Sources; Bloomberg Finance L.P.; and Institute of International Finance. 14

Cyclical Drivers of Asia's Exports (Year-over-year percent change) 14 12 1 8 6 4 2-2 -4-6 -8 Industrial production Global tech inventory Other Real export growth Real metal price Real effective exchange rate Retail sales Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 Sources: Haver Analytics; and IMF staff estimates. Note: The bars above are calculated by multiplying the estimated regression coefficients to the cross-country average of each variable in a given period. All the estimated coefficients are statistically significant at the 5 percent level or lower. The sample consists of nine Asian economies over the period of January 211-June 217. 15

Tighter global financial conditions, amid high leverage. Geopolitical tensions. Inward looking policies. Sharp adjustment in China over the medium term. Climate change and natural disasters. 16

Leverage and debt service costs increased Leverage Continues To Rise (Average Debt-to-GDP Ratios for G2 Economies, Percent) 7 6 5 4 3 General Government Non-Financial Companies Households Change in debt service ratio Change in Debt and Debt Service Ratios (For Non-Financial Private Sector, 26-16, Percentage Points) 1 8 6 4 2-2 -4 Greater debt payment pressure JPN DEU IDN IND USA ZAF BRA FRA MEX ITA RUS TUR KOR AUS CAN CHN 2 9 92 94 96 98 2 4 6 8 1 12 14 16-6 GBR -4 1 6 11 Change in debt to GDP 9 Source: International Monetary Fund, Global Financial Stability Report, October 217

Credit Gap (Percent, PPP weighted) 2 15 1 EM Asia EMs AEs Credit above trend 5-5 -1-15 1996 1997 1998 2 21 23 24 25 27 28 21 211 213 214 215 Source: Bank for International Settlements. 18

Fast Credit Growth and Wide Credit Gap (Percent of GDP) 35 3 Hong Kong SAR 25 2 Thailand 15 1 Korea Malaysia China Singapore 5 Indonesia Vietnam Mongolia Cambodia 1986 1989 1992 1995 1998 21 24 27 21 213 216 Notes: Total credit to the private nonfinancial sector. Sources: Bank for International Settlements; and IMF staff estimates. 19

Selected Asia: Private and Public Debt (Percent of GDP) 18 16 Private Public 14 12 1 8 6 4 2 27 28 29 21 211 212 213 214 215 216 Sources: Bank for International Settlements; IMF Wolrd Economic Outlook; and IMF staff calculations. Note: Selected Asia is PPPGDP weighted by Australia, China, Hong Kong SAR, Japan, Korea, India, Indonesia, Malaysia, New Zealand, Singapore, and Thailand. 2

Households Credit (Percent of GDP) 14 12 1996 Q4 216 Q4 1 8 6 4 2 Australia China Hong Kong SAR India Indonesia Japan Korea Malaysia New Zealand Singapore Thailand All countries Advanced Economies AE Note: For green bars: Advanced Economies, 1999Q4; Indonesia, 21Q4; Malaysia, 26Q1; China, 26Q1; India, EM Asia, 27Q2; EMs, All Countries, 28Q1. Sources: Bank for International Settlements; and IMF staff calculations. EMs EM Asia 21

Implication of the expansion in household debt Expansion in household debt provides growth in the short-term However, it may pose risks to growth in the medium- and long-term Macroprodential policy can tame household credit growth, particularly in emerging market economies Source: International Monetary Fund, Global Financial Stability Report, October 217 GROWTH EFFECT OF A 1 PERCENT INCREASE IN HOUSEHOLD DEBT TO GDP (PERCENT).15.1.5. -.5 -.1 -.15 -.2 -.25 Advanced Economies Emerging Economies t t+3 Years 22 1

Main Challenge Key structural policy recommendations China India Japan Korea AUS and NZL ASEAN Credit growth Corporate and banking sector strains Reflation and fiscal sustainability Declining productivity growth and demographic headwinds Housing affordability and recalibrating investment incentives Infrastructure gaps and quality Growth targets should be de-emphasized and the focus should be more on the quality and sustainability of growth. Addressing corporate and banking sector balance sheet weaknesses is key to safeguard financial stability and support credit growth and private investment. A comprehensive policy package of structural reforms combined with income and demand policies should help to reflate the economy and lift potential growth. Enhance the role of women in the economy, and emphasize innovation, especially in SMEs. Promote housing affordability and supply through planningzoning reforms and infrastructure push. Recalibrate tax incentives. Tackle structural constraints to growth such as the low quality of infrastructure. Small States Natural disasters/climate change Restore fiscal discipline to build buffers. 23

Malaysian Institute of Economic Research National Economic Outlook Conference November 21, 217