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Chaipat Poonpatpibul
ASEAN+3 Macroeconomic Research Office
14 May 2015, Tokyo, Japan
4th OECD-AMRO-ADB Asian Regional Roun...
1
Outline
1. Major Global Developments and Impact on Regional Economies
2. Developments on Regional Growth and Stability
3...
2
1. Major Global Developments and Impact
on Regional Economies
- Declining global oil prices
- Divergence of monetary pol...
3
Declining Oil Prices
Global oil prices have declined markedly since Q4 2014
Source: IMF Commodity Price Index
Index, 200...
4
Likely Impact of Lower Oil Prices (Assuming All Else Unchanged)
Source: AMRO and Consensus Forecast
Net Oil Importers Ne...
5
Divergence of monetary policy in advanced economies
Monetary policy in advanced economies have diverged
due to uneven gr...
Developments in Capital flows
6
Portfolio capital flows into emerging ASEAN have been volatile,
reflecting swings in inves...
Developments in Capital flows
7
Private fund flows from EPFR suggests a somewhat similar trend
in capital flows in selecte...
Risk of rising sovereign debt costs
8
Amid the volatility, emerging ASEAN economies have been differentiated
from other em...
9
Source: Bloomberg
Bilateral Spot Exchange Rate (vis-à-vis USD)
1 May 2014 = 100
Divergence of monetary policy in advance...
10
Growth moderation and structural changes in China
Growth in China has moderated due to slowing investment
and adjustmen...
11
China’s “New Normal” will continue to have growth
implications on regional economies
Major Economic Targets in the Repo...
12
Changes in the composition of China’s economic structure have
affected China’s imports from and exports to the rest of ...
13
Changes in the composition of China’s economic structure will
increasingly alter the types of China’s imports.
China’s ...
Source: National Authorities and AMRO Staff Estimates
14
Impact will depend on the size of exports to China and increasing...
15
2. Developments on Regional Growth and Stability
- Growth
- Stability
- Recent developments in CLMV economies
Recent Growth Performance
16
Economic growth across the region varied in 2014,
with some signs of moderating momentum in Q...
Industrial Production and Retail Sales
17
Leading indicators point to a likely moderation of manufacturing
production in 1...
18
Growth Outlook
Near-term growth outlook is varied, depending on reliance on
global trade and ability of domestic demand...
19
Growth Outlook
Near-term growth outlook is varied, depending on reliance on
global trade and ability of domestic demand...
Price stability
20
Headline inflation has rapidly fallen across most economies,
mainly due to the decline in global commod...
21
Financial stability: Financial Soundness
Overall financial condition in the region remains sound given enhanced
regulat...
22
Note: Data for Myanmar refers to fiscal year, except 2014 which refers to Dec 2014. For Vietnam , Cambodia and Lao PDR,...
Note: For Malaysia, household debt include debt to insurance companies and government housing loans through the Treasury H...
24
Corporates with large foreign currency denominated liabilities are
vulnerable to the coming US Fed rate hike and USD ap...
25
Source: National authorities and AMRO Staff Estimates
Signs of weakening external position and buoyant credit growth
wa...
26
*Foreign Currency Deposits are not yet allowed in Myanmar, thus, proxy indicators for dollarization are difficult to at...
27
3. Near-term policy discussion
28
Environment
Navigating the economy will continue to be challenging
Source: Consensus Forecasts (April 2015)
Benign fact...
Monetary Policy
29
Notes: * Policy interest rate for China refers to the 1-year benchmark lending rate
Source: National Au...
30
Macroprudential Policy
Macroprudential measures have been employed quite
extensively in the region, especially for the ...
31
Source: National Authorities
Macroprudential measures have helped mitigate pressures in
the real estate sector
Macropru...
32
Source: National authorities and AMRO Staff Estimates
Fiscal and debt positions have generally improved on stable
reven...
33
Policy to address vulnerabilities, deal with volatility
and enhance growth
Address vulnerability of sectors that are ex...
Contact us:
ASEAN+3 Macroeconomic Research Office (AMRO)
10 Shenton Way,
#11-07 MAS Building,
Singapore 079117
Tel: +65 63...
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Macroeconomic trends and near-term policy challenges in Emerging Asia

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1. Major Global Developments and Impact on Regional Economies
2. Developments on Regional Growth and Stability
3. Near-term Policy Discussion

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Macroeconomic trends and near-term policy challenges in Emerging Asia

  1. 1. Chaipat Poonpatpibul ASEAN+3 Macroeconomic Research Office 14 May 2015, Tokyo, Japan 4th OECD-AMRO-ADB Asian Regional Roundtable 0 Macroeconomic trends and near-term policy challenges in Emerging Asia Disclaimer: The findings, interpretations, and conclusions expressed in this material represent the views of the author(s) and are not necessarily those of the ASEAN+3 Macroeconomic Research Office (AMRO) or its member authorities. Neither AMRO nor its member authorities shall be held responsible for any consequence of the use of the information contained therein.
  2. 2. 1 Outline 1. Major Global Developments and Impact on Regional Economies 2. Developments on Regional Growth and Stability 3. Near-term Policy Discussion
  3. 3. 2 1. Major Global Developments and Impact on Regional Economies - Declining global oil prices - Divergence of monetary policy in advanced economies - Growth moderation and structural changes in China
  4. 4. 3 Declining Oil Prices Global oil prices have declined markedly since Q4 2014 Source: IMF Commodity Price Index Index, 2005=100
  5. 5. 4 Likely Impact of Lower Oil Prices (Assuming All Else Unchanged) Source: AMRO and Consensus Forecast Net Oil Importers Net Oil Exporters Inflation • Lower oil prices will lessen inflation pressure, with inflation in 2015 forecasted1 to average 1.9 percent for the region, down from 3.0 percent in 2014. Trade Balance • Generally an improvement, reducing external vulnerabilities • Lower trade balance Fiscal Position • Mostly neutral • China and Thailand have raised taxes related to petroleum, capturing some fiscal gains • Mostly negative as revenues from oil drop, but some have mitigated by reducing fuel subsidies Growth2 • Generally positive, most of the impact expected to be felt with some lag in 2015 (0.5 – 1.2 ppts impact on private consumption) • Some softening of growth Note: Preliminary analysis 1/ Based on Consensus Forecast for China, Indonesia, Japan, Malaysia, Philippines, Singapore, Korea, Thailand and Vietnam 2/ Impact on growth will vary depending on energy intensity, whether the economy produces oil, size of the oil price decline in domestic currency and differences in pass-through of lower oil prices to the economy. Declining Oil Prices Lower oil prices have started to benefit many oil importers and pose challenges to oil exporters in the region.
  6. 6. 5 Divergence of monetary policy in advanced economies Monetary policy in advanced economies have diverged due to uneven growth Source: Bloomberg US, Euro Area, Japan Annual GDP Growth %, q-o-q, s.a. and US Dollar Index 0 20 40 60 80 100 120 140 -3 -2 -1 0 1 2 3 4 5 6 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Apr 2011 2012 2013 2014 2015 2005=100US Euro Area Japan Dollar index (RHS) % ECB Announce start of QE 22 Jan 2015 US Fed Announce end of QE 29 Oct 2014 BOJ announce QQE2 31 Oct 2014BOJ QQE 4 Apr 2014 Bernanke Statement 22 May 2013
  7. 7. Developments in Capital flows 6 Portfolio capital flows into emerging ASEAN have been volatile, reflecting swings in investor risk sentiment Non-Resident Net Purchases of Equities and Debt Securities, Selected Regional Economies USD bn USD bn Equities Debt Securities Source: National Authorities -12 -10 -8 -6 -4 -2 0 2 4 6 8 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2013 2014 2015 Indonesia Thailand Malaysia Korea Bernanke's Statement 22 May 2013 ECB's Announcement of QE 22 Jan 2015 Divergence of monetary policy in advanced economies -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2013 2014 2015 Indonesia Thailand Philippines Malaysia Vietnam Korea Bernanke's Statement 22 May 2013 ECB's Announcement of QE 22 Jan 2015
  8. 8. Developments in Capital flows 7 Private fund flows from EPFR suggests a somewhat similar trend in capital flows in selected regional economies Note : Data for April 2015 is up until 29 Apr. Source: EPFR Divergence of monetary policy in advanced economies Private Net Capital Flows in selected regional economies Equities Debt Securities USD bn USD bn -4 -3 -2 -1 0 1 2 3 4 5 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2013 2014 2015 Indonesia Thailand Phiippines Vietnam Malaysia Korea Bernanke's Statement 22 May 2013 ECB's Announcement of QE 22 Jan 2015 -4 -2 0 2 4 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2013 2014 2015 Indonesia Thailand Philippines Vietnam Malaysia Korea Bernanke's Statement 22 May 2013 ECB's Announcement of QE 22 Jan 2015
  9. 9. Risk of rising sovereign debt costs 8 Amid the volatility, emerging ASEAN economies have been differentiated from other emerging markets (Brazil, Turkey and South Africa) so far. % % 10Y Government Bond Yields Sovereign CDS Spread Note: ASEAN-5 refers to Indonesia, Malaysia, Philippines, Thailand and Vietnam Source: National Authorities Divergence of monetary policy in advanced economies
  10. 10. 9 Source: Bloomberg Bilateral Spot Exchange Rate (vis-à-vis USD) 1 May 2014 = 100 Divergence of monetary policy in advanced economies Several regional currencies have moved widely in response to capital flows fluctuations Against the backdrop of likely delay in first Fed rate hike, Asian currencies have recently strengthened along with the return of capital inflows into this region in April 2015
  11. 11. 10 Growth moderation and structural changes in China Growth in China has moderated due to slowing investment and adjustments to the “new normal” stage Source: National Economic Bureau of China and Customs and AMRO staff calculations China Annual GDP Growth (% yoy) China Quarterly GDP Growth (% yoy)
  12. 12. 11 China’s “New Normal” will continue to have growth implications on regional economies Major Economic Targets in the Report on the Work of the Government and Actual Developments 2014 actual/targets 2015 targets GDP growth 7.4% /target: about 7.5% about 7% Growth in per unit GDP energy consumption - 4.8%/ target: higher than -3.9% -3.1% Total newly-hired workers in urban area 13.2 mn */ target: about 10 mn about 10 mn Growth in trade (imports and exports) 6.1% / target: 7.5% about 6% CPI inflation 2.0% / target: about 3.5% about 3% M2 growth 12.2%/ target: about 13% about 12%** Fiscal deficit (% of GDP) -2.1%*** /target: -2.1% -2.3% * The number of net newly-increased workers was 10.7 mn. ** The actual growth may be slightly higher than this depending on the needs of economic development (2015 Report on Work of the Government) *** Deficit here refers to general government balance (revenues – expenditures) + budget adjustment funds and others. Source: National Bureau of Statistics Growth moderation in China
  13. 13. 12 Changes in the composition of China’s economic structure have affected China’s imports from and exports to the rest of the region China’s Imports: Contribution to Value Growth (YoY) for Major Imports (% Pts) Total Imports Price Change Volume Change Total Import Growth Note: The number in brackets following each product is the share in imports in 2014. The quarter data is averaged monthly data Source: General Administration of Customs and AMRO staff calculations Growth moderation and structural changes in China
  14. 14. 13 Changes in the composition of China’s economic structure will increasingly alter the types of China’s imports. China’s Imports: Contribution to Value Growth (YoY) for Major Imports (% Pts) Iron Ore (5% of Total Imports) Integrated Circuits (11% of Total Imports) Cosmetics (0.1% of Total Imports) Price Change Volume Change Total Import Growth Note: The number in brackets following each product is the share in imports in 2014. The quarter data is averaged monthly data Source: General Administration of Customs and AMRO staff calculations Growth moderation and structural changes in China
  15. 15. Source: National Authorities and AMRO Staff Estimates 14 Impact will depend on the size of exports to China and increasingly on the types of goods exported. Exports to China by Major Products Items : Selected Economies (2014) Growth moderation and structural changes in China
  16. 16. 15 2. Developments on Regional Growth and Stability - Growth - Stability - Recent developments in CLMV economies
  17. 17. Recent Growth Performance 16 Economic growth across the region varied in 2014, with some signs of moderating momentum in Q1 2015. Notes: For Korea, Singapore and Vietnam, data for 1Q 2015 are preliminary. For Lao PDR, data for 2013 and 2014 refer to FYE Oct 2012 to Sep 2013, and FYE Oct 2013 to Sep 2014, respectively. For Myanmar, data for 2013 refer to FYE Apr 2013 to March 2014, while data for FYE Apr 2014 to Mar 2015 refers to the target GDP. Source: National Authorities Real GDP Growth (% yoy)
  18. 18. Industrial Production and Retail Sales 17 Leading indicators point to a likely moderation of manufacturing production in 1Q 2015. Consumption in some has started to benefit from declining oil prices. Industrial Production Index (% yoy) Retail Sales (% yoy) Source: National Authorities Note: Monthly retail sales for the Philippines is proxied based on net sales volume Index
  19. 19. 18 Growth Outlook Near-term growth outlook is varied, depending on reliance on global trade and ability of domestic demand to drive growth. % yoy Outlook for Real GDP Growth, Selected Economies Source: Consensus Forecasts (April 2015)
  20. 20. 19 Growth Outlook Near-term growth outlook is varied, depending on reliance on global trade and ability of domestic demand to drive growth. Source: Consensus Forecasts (April 2015) Shared factors • Enhanced policy to strengthen domestic demand • Reforms since the Asian crisis • Room for counter-cyclical policy Different factors • Impact of declining oil prices • Degrees of openness • Ability to adjust to structural changes in China • Size of policy space
  21. 21. Price stability 20 Headline inflation has rapidly fallen across most economies, mainly due to the decline in global commodity prices. Data for Hong Kong, China excludes the effects of the government’s one-off relief measure. Data for Myanmar, Cambodia, and Lao PDR refer to Jan ‘15, data for Brunei, Singapore, Malaysia, Japan and Hong Kong, China refer to Feb’15, and Thailand, Korea, Vietnam , China, the Philippines and Indonesia refer to Mar ’15. Source: National Authorities and AMRO Staff Estimates Headline Inflation % yoy BN = Brunei Darussalam; CN = People’s Republic of China; HK = Hong Kong, China; ID = Indonesia; JP = Japan; KH = Cambodia; KR = Korea; LA = Lao People’s Democratic Republic; MM = Myanmar; MY = Malaysia; PH = Philippines; SG = Singapore; TH = Thailand; VN = Vietnam
  22. 22. 21 Financial stability: Financial Soundness Overall financial condition in the region remains sound given enhanced regulation, supervision and deployment of macro-prudential measures Source: IMF’s FSI Indicators Regulatory Capital to Risk-Weighted Assets Non-performing Loans to Total Gross Loans
  23. 23. 22 Note: Data for Myanmar refers to fiscal year, except 2014 which refers to Dec 2014. For Vietnam , Cambodia and Lao PDR, data are up to Dec 2014. Data for Brunei are available from 1Q 2012 (and up to 4Q 2014). Latest data for China is as at Mar’15. For Japan, Korea, Singapore, Thailand, Malaysia, Indonesia and the Philippines, latest data is as at Feb’15. Source: National Authorities Average Credit Growth % yoy Private sector credit growth moderated across larger ASEAN economies. Credit growth remains somewhat buoyant in smaller ASEAN economies. Financial stability: Credit Growth
  24. 24. Note: For Malaysia, household debt include debt to insurance companies and government housing loans through the Treasury Housing Loans Division. For Thailand, household debt refers to loans to households from financial institutions. For Korea, household debt excludes debts held by the self- employed. For Hong Kong and Singapore, data refers to loans to professional/private individuals, and DBU consumer loans, respectively. Source: National Authorities 23 The speed of growth in household debt has stabilized. The accumulated stock remains high. Financial Stability : Household Debt Household Debt, Selected Economies (% yoy, in Local Currency) *Most loans have flexible rates in Singapore, Hong Kong, Thailand and Malaysia, with Korea having a fairly even distribution between loans that have flexible and fixed rates.
  25. 25. 24 Corporates with large foreign currency denominated liabilities are vulnerable to the coming US Fed rate hike and USD appreciation Outstanding International Debt Securities by Non-Financial Corporations (By Residence of Issuer), Selected Economies USD bn Notes: Since the mid-2000s, borrowers from many countries are able to borrow offshore in their own currency. Notwithstanding these developments, bonds denominated in foreign currencies, i.e. in a currency different from that of the country where the borrower resides still account for about half of total outstanding international debt securities (BIS Quarterly Review, December 2012). Source: BIS Financial Stability : Corporate FX Liabilities
  26. 26. 25 Source: National authorities and AMRO Staff Estimates Signs of weakening external position and buoyant credit growth warrant vigilance. Credit Growth (%)Current Account Balance (% of GDP) Recent Developments in CLMV economies
  27. 27. 26 *Foreign Currency Deposits are not yet allowed in Myanmar, thus, proxy indicators for dollarization are difficult to attain as the total value of US dollars in circulation remain unknown. Source: AMRO Staff Estimates CLMV economies have strived to create fiscal space and increase usage of domestic currencies. Foreign Currency Deposit (in % of broad money)*Central Government Fiscal Balance (% of GDP) Recent Developments in CLMV economies
  28. 28. 27 3. Near-term policy discussion
  29. 29. 28 Environment Navigating the economy will continue to be challenging Source: Consensus Forecasts (April 2015) Benign factors • Low inflation • Policy space from earlier prudent policy • Stable financial conditions Risks and vulnerabilities • Slower external demand • Sudden stop and volatility of capital flows • Impact of the rising cost of funds and USD appreciation on private sector leverage
  30. 30. Monetary Policy 29 Notes: * Policy interest rate for China refers to the 1-year benchmark lending rate Source: National Authorities Since Q4 2014 several authorities have eased policy rate in consideration of the benign outlook of inflation bps bps
  31. 31. 30 Macroprudential Policy Macroprudential measures have been employed quite extensively in the region, especially for the property markets Source: National Authorities
  32. 32. 31 Source: National Authorities Macroprudential measures have helped mitigate pressures in the real estate sector Macroprudential Policy
  33. 33. 32 Source: National authorities and AMRO Staff Estimates Fiscal and debt positions have generally improved on stable revenues and streamlined budgets Central Government Debt (% of GDP)Central Government Fiscal Balance (% of GDP) Fiscal Policy
  34. 34. 33 Policy to address vulnerabilities, deal with volatility and enhance growth Address vulnerability of sectors that are exposed to interest rate and FX risks such as through macroprudential measures. Carefully employ monetary policy taking into account limitations of monetary policy and caution about the effects on private debt accumulation. Prepare and manage fiscal space to address risks to growth ahead. Enhance policy coordination on crisis prevention and management – strengthen coordination between different layers of financial safety nets. Safeguard Stability +Enhance Growth
  35. 35. Contact us: ASEAN+3 Macroeconomic Research Office (AMRO) 10 Shenton Way, #11-07 MAS Building, Singapore 079117 Tel: +65 6323 9830 Fax: +65 6223 8187 www.amro-asia.org THANK YOU

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