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Far East Economic Outlook

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Far East Economic Outlook Powered By Docstoc
					Economic Outlook in
Asia and Emerging
Economies

Dr. Linda Yueh
www.lindayueh.com
Outline of presentation
 A view of the global economic crisis: Changed global
 economic structure

 Prospects: Focus on China as engine of global
 recovery

 Re-balancing the global imbalances: Strengthening
 the global economy

                                                     2
Outline of presentation
 A view of the global economic crisis: Changed global
 economic structure

 Prospects: Focus on China as engine of global
 recovery

 Re-balancing the global imbalances: Strengthening
 the global economy

                                                     3
G7 vs. BRICs
                                 2003

                    Russia, 3%
                  Brazil, 3%
           India, 6%

                                                                              2015
     China, 13%
                                        G7, 43%
                                                                 Russia, 3%
                                                               Brazil, 3%
                                                         India, 7%


                                                                                     G7, 36%
           Other, 32%
                                                  China, 19%




Source: Consensus forecasts.                                          Other, 32%



                                                                                               4
Changed global economy
                                                              Real GDP growth, 1980-present


           16


           14


           12
                                                                                                                               China

           10


           8
% growth




           6                                                                                                                      WORLD
                                                                                           France
           4                                                                                                                   USA        UK

           2

                                                                                                                                  Germ any
           0
                1980 1981 1982 1983 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
           -2                                                                                   Japan


           -4



            Source: IMF

                                                                                                                                               5
Fast growing Asia & other emerging
economies
    10
    8
    6
%




    4
    2

    0
         2000      2001     2002     2003      2004   2005    2006   2007

                United States      Euro area     Emerging markets    ASEAN

                                                                             6
    Source: IMF
Relatively higher growth rates
                                 Real GDP grow th, 2000-2008


14



                                                                                     China
12



10
                                                                                   Asia              India

                                                                                  Middle East
 8                                                                   Russia

                                                                   Cent ral & East ern Europe
                                                                                                    Af r ica
 6

                                                                                                     Lat in Amer ica

                                                                   WOR L D
 4
                                                                                                         Aust ralia

 2
                                                                                                                      EU

                                                                                                                  USA
                                                                                            Japan
 0
        2000       2001   2002      2003       2004        2005   2006               2007                      2008




     Source: IMF
                                                                                                                           7
But, lower levels of consumption
                                                          GDP Per Capita (PPP), 2008


50000


45000


40000


35000


30000

25000


20000


15000


10000


 5000


    0
        Euro area   Unit ed    Unit ed   Aust ralia and   Middle East   China   East Asia    Sout h   Sout h Asia   Af rica   Cent ral and    CIS &
                    St at es   Kingdom   New Zealand                                        America                             East ern     Mongolia
                                                                                                                                Europe




    Source: IMF                                                                                                                                       8
China rising
                                                       PPP adjusted share of global GDP


    30




    25


                                                                                                           US A
    20




    15

                                                                                                                                           Chi na

                                                                          J a pa n
    10



                                                                                                                                        Ge r m a ny
     5

                                                                                                                                        Fr a nc e       UK


     0
         1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008



Source: IMF
                                                                                                                                                             9
Low inflation during the ‘Great
Moderation’
  140



  120



  100



  80



  60



  40



  20



   0
        1980   1981   1982   1983 1984   1985   1986 1987        1988   1989   1990 1991   1992   1993   1994 1995   1996   1997 1998     1999   2000    2001 2002       2003    2004 2005   2006   2007   2008


  -20


                                                Uni ted States             East Asi a        Eur opean Uni on         Wor l d           Emer gi ng and devel opi ng economi es




                                                                                                                                                                                                                  10
Gross domestic saving, % of GDP
  50

  40

  30

  20

  10
       1997   1998   1999      2000        2001        2002        2003     2004   2005   2006

               United States            Euro area               East Asia      China




                                                                                                 11
                     Source: World Development Indicators, World Bank.
Current account balances, % of
world GDP
    1.5


      1


    0.5


      0
           1997   1998      1999        2000        2001          2002        2003       2004       2005   2006   2007
%




    -0.5


     -1


    -1.5


     -2

                                   United States      Euro area          Emerging Asia    Oil exporters



                     Source: World Development Indicators, World Bank.
                                                                                                                         12
Change in reserves, % of GDP
 15

 10

  5

  0

 ‐5
       1990    1992    1994                          1996   1998   2000    2002    2004     2006
           China                                                      India
           Latin‐America                                              Middle East Oil exporters
           Emerging Europe
 Source: World Development Indicators, World Bank.                                                 13
The global economic crisis
 Not unusual for real economy + financial
 sector slowdown to jointly contribute to a
 recession, e.g., dot.com bubble and real
 economy slowdown.
 Unusual this time due to globalisation.
 Restoring economic growth and stability will
 thus need to involve global players.

                                                14
Avenues of impact on emerging
economies
 Financial effects: contagion
   Minimal effects on banking systems
   Some direct exposure, e.g., Lehman creditors
   Global credit crunch
   Regional currency swap agreements
   But, no domino like collapses
 Real economy effects: de-coupling…

                                                  15
Disparate impact on emerging
economies
 Worst affected:
   Indebted ones needing IMF bailouts, e.g., Eastern
   Europe, Latin America and Sub-Saharan Africa
   Export-led emerging economies, e.g., Singapore,
   most of developing Asia
 But, large countries with domestic markets are
 growing, e.g., China, India, Brazil


                                                   16
Assessment
 Nearly all countries in Asia have trade/GDP
 ratio over 100%
 Collapse in exports, though, has not resulted
 in bail-outs
 Though stable, recovery will depend on
 consumption growing… but looking toward not
 just USA/EU but China

                                             17
Outline of presentation
 A view of the global economic crisis: Changed global
 economic structure

 Prospects: Focus on China as engine of global
 recovery

 Re-balancing the global imbalances: Strengthening
 the global economy

                                                     18
     China’s GDP growth, 1979-2008

    16
    14
    12
    10
     8
%




     6
     4
     2
     0
     79

           81

                 83

                       85

                             87

                                   89

                                         91

                                               93

                                                     95

                                                           97

                                                                 99

                                                                       01

                                                                             03

                                                                                   05

                                                                                         07
    19

          19

                19

                      19

                            19

                                  19

                                        19

                                              19

                                                    19

                                                          19

                                                                19

                                                                      20

                                                                            20

                                                                                  20

                                                                                        20
     Source: China National Bureau of Statistics (NBS).

                                                                                              19
Asia in the Global Economy     ASIA'S SHARE IN WORLD GDP
                                         (at PPP)


70

60

50

40

30

20
             33

10                       17
                                                                                 12
                                        9
                                                             5            5
 0
           1820         1870        1913                    1950         1973   2001

     Source: Maddison
                                China       India   Japan   Other Asia




                                                                                       20
Domestic demand?
 Limited financial sector exposure, and plenty
 of reserves.
 More worrisome is the real economy effects,
 particularly in terms of unemployment in the
 export sector.
 Question is whether China has sufficient
 domestic demand to offset the external sector.

                                              21
Falling consumption
              Composition of GDP in China:1978-2006

   100%
    80%
    60%
    40%
    20%
     0%
   -20%
      1978 1981    1984   1987   1990 1993   1996   1999     2002 2005

     Consumption   Government Spending   Investment        Net Exports

                                                                         22
Exports, unemployment
 Exports have collapsed, resulting in 20 million
 unemployed migrant workers.
 Unemployment as a result is rising, though
 not captured by official figures which is
 expected to rise to 4.5%.
 Annual growth was 9% in 2008 and 6.1% in
 2009Q1, with fears of continued fall in exports
 dragging down growth but will it be offset by
 increased government spending?
                                               23
Fiscal stimulus & public spending
 4 trillion RMB/$586 billion to be spent as a
 stimulus measure, plus another $125 billion on
 health care (to achieve universal coverage by
 2020)
 Quarter funded by central government; half on
 infrastructure
 But, no measures to address corporate
 savings and little on other social welfare
 coverage, e.g., pensions, unemployment
                                              24
Outlook
 Opportunity to focus on reducing motives for
 precautionary savings and address social
 insecurities.
 Public works (infrastructure) to create jobs to
 absorb job losses and future benefits
 Less favourable moves to subsidise export
 sector
 Must do more to shore up institutional
 foundations of the market
                                                   25
Will China serve as an engine?
 In a limited sense, but…
   Consumption base is poorer
   Market access restrictions
   Institutional instability
 Nevertheless, re-orientation toward domestic
 demand is promising, including for trade
 partners, e.g., EU: technology, Japan: cars,
 Africa/Australia/L. America: commodities

                                                26
Outline of presentation
 A view of the global economic crisis: Changed global
 economic structure

 Prospects: Focus on China as engine of global
 recovery

 Re-balancing the global imbalances: Strengthening
 the global economy

                                                     27
Economic forecast: 2008-2010
             8




             6




             4




             2
         %




             0
                          2008                           2009                          2010


             -2




             -4




             -6




             -8

                  World      Developed economies   USA     Euro area   Japan   Developing countries
Source: IMF.
                                                                                                      28
Global re-balancing
   Recent indicators of some re-balancing:
     China’s exports (and imports) are down and
     the U.S. trade position has improved.
     U.S. savings rate is up some three-fold and
     Chinese consumption is steady (retail sales up
     15% in March 2009 y-o-y).
   Gradual re-balancing is preferable as
   Western governments issue record levels
   of debt, and China may well continue its
   surplus this year.                                 29
Looking ahead
 Potential asset bubbles, e.g., stock exchanges
 and housing, precipitating global re-balancing.
 Chinese firms “going global” as are Indian
 companies.
 Boosted aggregate demand in large emerging
 economies, though export-orientation is likely
 to remain.


                                               30
Stabilising the global economy
 Global regulatory reforms, including ‘early
 warning’ system against build up of global
 imbalances.
 G20 countries playing a larger role in global
 governance, e.g., IMF and World Bank.
 Guarding against protectionism, particularly as
 this crisis is global so resolving it must be too.

                                                  31
Conclusions
 Global imbalances likely to improve, though
 will remain – positive in short-term.
 Globalisation & North-South trade particularly
 vital since new markets in China/India are
 emerging (firms are going international) and
 they are keen for technology & know-how.
 Ireland open to international trade/investment
 in goods & services would benefit.

                                                  32

				
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Description: Far East Economic Outlook