1. Economic Outlook for the
Asia Pacific Region and the Global
Financial Crisis
Reza Baqir
IMF Resident Representative
22nd CACCI Conference
Manila Hotel, October 23, 2008

2. Overview
 The bad news
 The world economy is entering a major
downturn in the face of the most dangerous
financial shock in mature financial markets
since the 1930s.
 Risks may still be tilted to the downside
 The good news
 To date, Emerging Asia has led global growth
 Nevertheless, Asia is also exposed to global
economic conditions, and perhaps more so now
than before
2

3. An extraordinary, banking-sector shock is
striking advanced economies
Interbank Markets Bank CDS Spreads
(3-month LIBOR minus T-bill rate; in percent) (10-years; median; in basis points)
4.0 400
350
3.0 300
United
States
250 United States
Euro area
2.0 Euro 200
area
150
Japan
1.0 100
50
0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Oct. 0 3
2007 08 Oct.
2006 2007 2008 08

4. Overnight developments
 Markets sold off sharply and on a broad basis today,
including equities, emerging market assets and
commodities.
 Global recession fears continue to grip markets while
deleveraging pressures appear to be becoming broader
 The selloff in emerging market debt is gaining pace, with
the EMBIG selling off 5.5% amid spread widening of 69 bps
to 783 bps, the highest level since 2002. Selling is across
the board in the most liquid names, with the exception of
the highest-rated sovereigns.
 Emerging market equities also plunged, with major bourses
in the EMEA region off 3 to 9%, and Latin stock markets
losing 5 to 10%, except Argentina’s Merval, which has lost
over 14%.
 Emerging market currencies are selling off sharply virtually
across the board against the dollar, and even more against
the yen.
4

5. The financial sector shock comes on the heels
of, until recently, a major commodity price shock
Real Oil, Metals and Food Prices
(1970 = 100)
250 1400
Food (LHS)
1200
200
Oil (RHS) 1000
150
800
600
100
400
50
Metals (LHS) 200
0 0
5
1970 75 80 85 90 95 2000 05 Q3
08

6. As a result, advanced economies to
come close to or move into recession
Real GDP Growth Rates
(percent change) 4
Growth
Potential
April 2008 WEO 3
July 2008 WEO
2
1
0
2007 08 09 10 2007 08 09 10 2007 08 09 10
United States Euro area Japan 6

7. Outlook for advanced economies
Source: IMF World Economic Outlook, October 2008, available at 7
www.imf.org

8. Emerging economies have so far
provided support to global growth
8

9. …and Asia has led growth in emerging
economies
Real GDP Growth Rates
(percent change)
10
Growth
HP Trend Growth
April 2008 WEO 8
July 2008 WEO
6
4
2
0
07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 9
Africa Emerging Latin America Middle East Emerging
Asia Europe & CIS

10. A note on country groupings
 Emerging Asia:
 Newly Industrialized Asian Economies: Hong
Kong SAR, Korea, Singapore, Taiwan Province
of China
 Developing Asia: Afghanistan, Rep. of,
Bangladesh, Bhutan, Brunei Darussalam2,
Cambodia, China, Fiji, India, Indonesia,
Kiribati, Lao PDR, Malaysia, Maldives,
Myanmar, Nepal, Pakistan, Papua New Guinea,
Philippines, Samoa, Solomon Islands, Sri
Lanka, Thailand, Timor-Leste, Dem. Rep. of,
Tonga, Vanuatu, Vietnam.
10

11. Emerging economies account for a rising share
of global growth
14 Contributions to Global Growth
(percent change)
12
10
8
6
4
2
0
-2
Other Developing
India
-4 China
Advanced economies
11
-6

12. In general, the resilience in emerging and
developing economies has grown, notably
since the Asia crisis...
Emerging and Developing Economy External Indicators
(percent of total GDP)
45 8
External Debt
40 (left scale) 6
35 4
Change in
30 reserves 2
25 0
20 -2
Current account
12
15 -4
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

13. ...but countries with vulnerabilities
are feeling the pressure
Emerging Economies: Credit Default Swap Spreads, 2004–08
(In basis points, July 2007 = 100)
1600
1400
1200 Countries with current account deficits > 5%
Countries with current account surpluses (or small
1000
deficits)
800
600
400
200
0 13
Sep.
2004 05 06 07
08

14. Risks to global growth are to the downside
Global GDP Growth 6.0
(percent change, ppp-GDP weighted average)
5.5
5.0
4.5
4.0
3.5
3.0
90% Confidence interval
2.5
70% Confidence interval
50% Confidence interval 2.0
1.5
1.0
14
2005 2006 2007 2008 2009

15. According to one indicator, a global
recession is more likely than not
15

16. Major down side factors include potential further
deterioration in financial conditions and domestic
demand in the US.
16

17. Outlook for Asia
17

18. Outlook for Asia
18

19. Trade exposure to the US has risen
Export Exposure to the United States
(In percent of GDP)
Direct Tot al
1994 2006 1994 2006
Japan 2.5 3.4 3.0 4.4
Aust ralia 0.9 1.1 1.6 2.1
New Zealand 2.8 3.0 3.7 4.0
China 5.6 9.6 7.6 12.2
India 1.7 2.4 2.0 3.1
Hong Kong SAR 16.7 14.8 20.0 21.8
Korea 4.9 5.1 6.1 8.7
Singapore 23.9 17.3 31.9 30.8
Taiwan PO C 10.4 9.9 12.9 15.5
Indonesia 3.3 3.5 4.5 5.6
Malaysia 18.0 22.7 25.0 31.7
Philippines 8.8 8.0 9.8 12.0
Thailand 7.0 10.5 8.9 15.1
Viet nam 1.4 15.2 2.8 18.5
Asia 7.7 9.0 10.0 13.3
Industrial Asia 2.1 2.5 2.8 3.5
Emerging Asia 9.2 10.8 12.0 15.9
19
Sources: UN COMTRADE Dat abase; and IMF st af f calculat ions.

20. …as has exposure to financial assets
Financial Exposure to the United States
(In percent of GDP)
U.S. Holdings of Asian Asian Holdings of U.S.
Port f olio Securit ies Port f olio Securit ies
Dec-94 Dec-06 Dec-94 Jun-06
Japan 2.5 13.0 4.4 25.0
Aust ralia 6.8 20.4 2.6 15.0
New Zealand 10.5 9.3 2.9 12.7
China 0.3 2.2 2.3 28.8
India … 5.5 … 2.5
Hong Kong SAR 12.6 42.2 14.8 61.3
Korea 1.4 12.4 1.2 14.2
Singapore 8.6 35.8 42.9 129.2
Taiwan PO C 0.2 19.4 13.1 39.8
Indonesia 1.2 3.7 1.0 3.4
Malaysia 11.5 9.2 6.8 10.5
Philippines 3.1 7.9 3.3 7.9
Thailand 3.1 5.7 4.4 8.2
Viet nam … 0.1 … 4.1
Asia 5.1 13.3 8.3 25.9
Industrial Asia 6.6 14.2 3.3 17.6
Emerging Asia 4.6 13.1 10.0 28.2
Sources: U.S. Depart ment of t he Treasury, Treasury Int ernat ional Capit al
Syst em; CE Dat a Company Lt d.; Haver Analyt ics; and IMF, Inf ormat ion
IC 20
Not ice Syst em, and st af f calculat ions.

21. Perhaps due to higher exposure, growth in Asia is now
more correlated with U.S. growth than in the 1990s.
Growth Correlation with the United States
1990-96 2000-07
Japan -0.06 0.41
Australia 0.74 0.38
New Zealand 0.28 0.23
China … 0.08
India … 0.14
Hong Kong SAR 0.16 0.61
Korea -0.32 0.30
Singapore 0.31 0.62
Taiwan POC 0.24 0.61
Indonesia 0.06 0.05
Malaysia -0.26 0.52
Philippines 0.28 0.47
Thailand -0.20 0.47
Vietnam … 0.20 21
Sources: CEIC Data Company Ltd.; and IMF staff calculations.

22. Financial correlations have also increased over time
Correlations in Stock Market Returns
1990-96 2000-07
Japan 0.26 0.52
Australia 0.52 0.71
New Zealand … 0.49
China … 0.08
India -0.01 0.45
Hong Kong SAR 0.35 0.69
Korea 0.12 0.59
Singapore 0.49 0.61
Taiwan POC 0.16 0.49
Indonesia 0.26 0.43
Malaysia 0.37 0.30
Philippines 0.34 0.45
Thailand 0.38 0.43
Vietnam … 0.10
Asia 0.29 0.45
High financial exposure 0.35 0.57
Low financial exposure 0.23 0.34 22
Sources: Bloomberg LP.; and IMF staff calculations.

23. Key results from investigating spillovers
from US to Asia:
 On average over the last fifteen years, a one
percentage point slowdown in the U.S. has
led to an estimated ¼ percentage point
slowdown in Japan, and a ¼-½ point
slowdown in emerging Asia.
 The average spillover for emerging Asia
masks wide cross-country variation within the
region, with particularly large spillovers for
the most-trade/financially exposed countries.
 These long-sample estimates of spillovers
may understate current vulnerabilities. 23

24. Estimated spillovers show large variations
within the region
Summary of Results: Impact of one percentage point U.S. Slowdown
(In percentage points)
Cross-Country VAR with Financial
Regressions Variables
Japan 0.3 0.2
Australia 0.7 0.5
New Zealand 0.9 0.3
China 0.1 0.0
India -0.2 0.0
Hong Kong SAR 1.0 0.8
Korea 0.1 0.1
Singapore 1.1 0.9
Tawan POC 1.2 0.9
Indonesia 0.2 0.4
Malaysia 0.5 0.7
Philippines 0.6 0.4
Thailand 1.0 0.5
Asia 0.3 0.2
Emerging Asia 0.2 0.2
Emerging Asia
(excl. China and India) 0.5 0.5
24
Source: IMF staff estimates.

25. Key results (cont’d)
 Why might long-sample estimates understate
spillovers at the current juncture?
→ Reestimating our regressions over shorter samples
suggests that spillovers have increased over time, not least
for China, consistent with our finding of growing trade and
financial integration with the United States.
→ When U.S. demand shocks are accompanied by realistic
declines in global confidence, model simulations predict
substantially larger spillovers (0.7 percentage point growth
slowdown in Asia for a one percentage point slowdown in the
U.S.)
→ Specific U.S. recessions have in the past generated large
negative spillovers to Asia, as witnessed by the 2001
recession. 25

26. Finally, U.S. slowdowns can have very large impacts on
Asia, as evidenced by the 2001 recession.
Impact of 2001 U.S. Recession1
(In percent )
Hodrick-Prescot t Baxt er-King
Filt er Filt er
Unit ed St at es -1.90 -1.89
Japan -1.41 -1.49
Aust ralia -0.70 -0.92
New Zealand -0.04 -0.18
China -0.42 -1.53
India 0.16 -0.73
Hong Kong SAR -2.84 -3.39
Korea -0.94 -1.01
Singapore -7.80 -7.72
Taiwan POC -5.54 -5.59
Indonesia 0.48 0.61
Malaysia -3.41 -3.51
Philippines -1.17 -1.63
Thailand -0.98 -1.15
Viet nam -0.60 …
Asia2 -1.80 -2.17
High trade exposure2 -3.19 -3.83
Low trade exposure2 -0.41 -0.75
Sources: CE Dat a Company Lt d.; and IMF st af f calculat ions.
IC
1
Measured as t he average change in t he out put gap during t he recession 26
relat ive t o preceding f our quart ers.
2
Arit hmet ic nonweight ed average.

27. To conclude
 The world is facing a major economic
shock
 To date, Asia has held up better than the
rest of the world
 But Asia is exposed and the spillover
effects could be larger than expected
27

28. Thank you
REZA BAQIR
IMF Office Manila
(02) 536 0785, 400 4985
28