Southeast Asia: a SWOT analysis by the OECD ECMI Symposium on Marketing and Innovation Rotterdam, 28 May 2014 Yves Leterme Deputy Secretary-General Organization for Economic Cooperation and Development
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Outline of the talk 1 Economic Outlook and Near- term (Macro) Policy Challenges 2 Medium- term (Structural ) Policy Challenges 3 Special Focus: Beyond the middle- income trap 4 Main messages
Growth prospects in emerging economies"
Outlook: Emerging Asia remain resilient, while China and India will moderate gradually Real GDP Growth of Southeast Asia, China and India (annual percentage changes) 2012 2018 2014-2018 2000-2007 ASEAN- 6 countries Brunei 1.0 2.4 2.3 - Indonesia 6.2 6.1 6.0 5.1 Malaysia 5.6 5.3 5.1 5.5 Philippines 6.8 5.9 5.8 4.9 Singapore 1.3 3.1 3.3 6.4 Thailand 6.5 5.3 4.9 5.1 CLMV countries Cambodia 7.2 7.1 6.8 9.6 Lao PDR 7.9 7.5 7.7 6.8 Myanmar - 7.0 6.8 - Viet Nam 5.2 6 5.4 7.6 Average of ASEAN 10 5.5(*) 5.6 5.4 5.5(**) 2 large economies in Emerging Asia China 7.7 7.5 7.7 10.5 India 3.7 6.1 5.9 7.1 Average of Emerging Asia 6.4 6.9 6.9 8.6 Notes: The cut- off date for data is 6 September 2013. Emerging Asia includes ASEAN 10 countries plus China and India. (*) Excludes Myanmar (**) Excludes Brunei Darussalam and Myanmar. Source: OECD Development Centre, MPF- 2014.
Domes[c demand and emerging middle class in Asia Popula[on share of middle class PopulaNon with consumpnon expenditure of $2- $20 person per day and $5- $20 person per day in 2005 PPP$ Source: Southeast Asian Economic Outlook 2013:With Perspectives on China and India, CEIC
Rapid ageing of the popula[on in Asia Percentage of popula[on aged 65 or over (% of total popula[on) 40 35 FORECAST 30 25 20 15 10 5 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Indonesia Malaysia Philippines Singapore Thailand Vietnam China India OECD average Source: UN; Southeast Asian Economic Outlook 2011/12, OECD Development Centre
Emerging Asia con[nues to remain an a]rac[ve des[na[on for investment Notes: China includes Mainland, Taiwan province, Macao and Hong Kong. Southeast Asia does not include Timor- Leste. Source: UNCTAD World Investment Report 2013. Foreign direct investment inflows (in billions USD) 400 350 300 250 200 150 100 50 0 2006 2007 2008 2009 2010 2011 2012 Southeast Asia China and India
Key macroeconomic policy challenges to sustaining healthy growth Managing the spill over effects of capital flows o o Focus on implemen[ng structural policies to reap the benefits of capital inflows Greater regional co- ordina[on to deal with capital flows Fostering closer economic co- opera[on and integra[on in the region o o ASEAN needs to step up efforts to ensure that economic integra[on remains on track Narrow development gaps and enhance regional integra[on
Downside risk to growth in the near- term, from financial vola[lity and capital ouflow " Current account balances and changes in nominal exchange rates Indonesia India Source: OECD development Centre s calcula[on based on na[onal sources. Malaysia Thailand Philippines Singapore - 22-20 - 18-16 - 14-12 - 10-8 - 6-4 - 2 0 2 Change in exchange rate against USD, June- December 2013 China 25 20 15 10 5 0-5 - 10 Current account balance as % of GDP, 3Q2013
Interna[onal reserves posi[ons have improved USD Millions 300000 200000 Southeast Asia and India Interna[onal Reserves USD Billions 3.500 3.000 2.500 2.000 China 100000 1.500 1.000 0 2000 2002 2004 2006 2008 2010 2012 Brunei Darussalam Cambodia India Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Note: UNCTAD es[mate for Lao PDR 2012. Source: Interna[onal Financial Sta[s[cs (IFS) 500 0 2000 2002 2004 2006 2008 2010 2012
While development gaps have narrowed, they remain significant ASEAN- OECD Narrowing Development Gap Indicators (NDGIs): Dispari[es between CLMV and ASEAN- 6, 2012 Poverty Gap Sub- Index Tourism Gap Sub- Index Infrastructure Gap Sub- Index 10 9 8 7 6 53,3 4 3 2 1 0 4,2 1,6 3,1 3,8 3,1 Human Resource Development Gap Sub- Index ICT Gap Sub- Index Trade and Investment Gap Sub- Index Note: Each sub- index of the NDGI, whose value ranges from 0 to 10 base points where 0 denotes no gap and 10 the widest gap is built from mul[ple variables within six key policy areas shown above. Source: ASEAN Secretariat and OECD Development Centre.
Searching for a new growth model and development strategy Medium- term development plans of Southeast Asia, China and India Source: OECD Development Centre based on na[onal sources.
Key structural policies in the region Human capital / educa[on development SME / private sector development Infrastructure development Tax, fiscal reforms Financial sector development Green growth strategy / disaster risk management Informal economy
Challenges to sustain growth beyond the middle- income trap over the long- term Best scenario simula[on of es[mated [me required to become high income countries for selected Asian middle income countries (years) Malaysia China Thailand Indonesia Philippines Viet Nam India in 2020 in 2026 in 2031 in 2042 in 2051 in 2058 in 2059 0 10 20 30 40 50 60 Note: Based on World Bank s criterion for classifying economies, high income countries are defined as having GNI per capita above USD 12 000 in 2013. Growth prospects in this simula[on are in line with MPF- 2014. Popula[on projec[ons are based on UN data. Source: OECD Development Centre.
Structural policies are needed to enhance produc[vity Historical decomposi[on of output gap (%, 2009-11) a) Indonesia b) Philippines Source: MPF-SAEO 2011/12, Southeast Asian Economic Outlook 2011/12, OECD Development Centre
Ins[tu[onal capaci[es must be enhanced, together with closer regional integra[on OECD PISA score in Southeast Asia and OECD countries, by area, 2012 World Bank Doing Business indicators in Asia (rankings out of 185 countries) Source: World Bank (2012b), Doing Business 2013 - Smarter Regula[ons for Small and Medium Sized Enterprises, World Bank, Washington D.C. Note: PISA scale was set such that approximately two- thirds of students across OECD countries score between 400 and 600 points. Gaps of 72, 62 and 75 points in reading, mathema[cs and science scores, respec[vely, are equivalent to one proficiency level. Source: OECD, PISA database.
Service sector development needs to be reinvigorated Composi[on of services sector in Asia, by type, 1990 and 2010 Traditional Services Wholesale and retail trade Modern Services 1990 2010 1990 2010 1990 2010 China 70.2 78.3 26.7 24.4 29.8 21.7 India 80.9 79.5 27.8 30.2 19.1 20.5 Indonesia 84.7 79.3 39.4 36.3 15.3 20.7 Japan 77.3 76.3 21.4 16.9 22.7 23.7 Korea 78.3 72.5 27.6 18.6 21.7 27.5 Malaysia 67.9 68.3 29.2 30.9 32.1 31.7 Philippines 77.4 74.8 28.9 31.6 22.6 25.2 Thailand 77.8 82.1 45.6 41.4 22.2 17.9 Singapore 60.8 58.7 24.5 26.1 39.2 41.3 Notes: Modern services comprise finance, business, and ICT services; traditional services comprise all other services. Sources: OECD Development Centre`s calculation based on CEIC database; Noland, M., Park, D. and Estrada, G. B. (2012), Developing the Service Sector as Engine of Growth for Asia: An Overview, ADB Economics Working Paper Series, No. 320, November 2012.
To develop services sector, especially modern services, regulatory barriers must be removed The OECD Indicators of Product Market Regula[on (PMR) are a comprehensive and interna[onally- comparable set of indicators that measure the degree to which policies promote or inhibit compe[[on in areas of the product market where compe[[on is viable. The coded informa[on is normalised over a scale of 0 (=least restric[ve) to 6 (=most restric[ve), reflec[ng increasing restric[veness of regulatory provisions for compe[[on. The indicator of administra[ve regula[on is a simple average of the two indicators "Regulatory and administra[ve opacity" and "Administra[ve burdens on startups " in the domain "Barriers to entrepreneurship". Domes[c economic regula[on is the simple average of "Public ownership", "Involvement in business opera[on" and Barriers to compe[[on. Source: OECD, Product Market Regula[on Database. 5 4 3 2 1 OECD Product Market Regula[on (PMR) indicators in BRIICS, Japan and Korea, 2008 0 Brazil China India Indonesia Russian South Africa Japan Korea Federa[on Overall product market regula[on Domes[c economic regula[on Administra[ve regula[on
Main messages Ø The medium- term outlook for Southeast Asia remain favourable, with growth of 5.4% in the next five years. o To realise this growth poten[al, the region needs to manage spillover effects of capital flows and press on the efforts to foster closer economic co- opera[on and integra[on Ø New growth and development strategies must include structural policy reforms to ensure sustained and robust produc[vity growth. Ø Over the longer term, some countries face difficult challenges to grow beyond the middle- income trap. o Ins[tu[onal capaci[es must be enhanced, together with closer regional integra[on o Factory Asia needs to evolve and modern services sector must be further developed to boost technological progress and produc[vity growth
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