Speech

ASEAN Matters: Cooperation for A Stronger and More Resilient Global Economy

September 5, 2023

As prepared for delivery

Introduction

Thank you, President Jokowi, it gives me great pleasure to address the ASEAN summit — it is uplifting to be with the leaders from a region with remarkably strong performance at a difficult and uncertain time for the world economy.

Let me make three points—on the global outlook, ASEAN’s prospects, and what I see as the key priorities.

1. Global outlook

Starting from the global outlook, we recognize that the world economy has shown resilience to the string of negative shocks—pandemic, war, climate events, and a cost-of-living crisis — and the recovery from these shocks continues. But it is slow and uneven. Trillions of dollars of global output have been lost compared to global pre-pandemic trends.

This economic “scarring” is large and unevenly distributed across countries. Of the major economies, only the US has fully recovered. The Eurozone is still around 2 percent below trend, while China and other emerging market and developing economies are around 5 percent below trend, with low-income countries hit even harder.

After strong, over 6 percent growth in 2021, the recovery slowed down significantly, largely due to the shock from Russia’s war in Ukraine. We predict this weak performance to continue, with global growth around 3 percent over the medium-term. This is the lowest growth level in decades, in an inflation environment where interest rates are expected to be higher for longer and in the context of growing risks of fragmentation.

2. ASEAN prospects

How does ASEAN fit in this picture?

First, the good news—we are projecting growth of about 4.5 percent this year and next. In fact, ASEAN countries are contributing 10 percent to global growth, which is more than twice their weight in the global economy. This is a reflection of the past reforms undertaken by policymakers.

But as a region of highly integrated economies ASEAN is experiencing significant scarring from the supply chain disruptions and low external demand arising from global shocks. The average growth in the last three years was only half of the pre-pandemic projections, generating output losses of around 8 percent of GDP, well above the global average. Thus, ASEAN needs even stronger growth to fully recover and continue on the pre-pandemic path to prosperity.

This is not an easy task. Economic fragmentation makes it even harder. If the world were to break into separate economic blocs, this would have profound implications for dynamic open economies such as ASEAN.

It is thus imperative that we work together to combat this threat.

3. Policy priorities

This brings me to my last point: what should policymakers do? Let me propose two overarching priorities.

First, invest in international cooperation. This means pushing back against the forces of fragmentation—ASEAN can be an example and an advocate for the benefits of cooperation. And you can count on the IMF as your partner in supporting these efforts with our near-universal membership.

Second, invest in growth-enhancing reforms. In an environment with weak medium-term growth prospects, domestic reforms are essential. This means:

1. Invest in health, education, and the digital infrastructure – so vital to ensure that new technologies work for your people, not against them;

2. Pursue sound economic policies to build buffers against shocks and maintain economic and financial stability; and

3. Make further progress on the climate and energy transitions, including by boosting green finance and incentivize the private sector to play its part.

Let me conclude.

President Jokowi, as you said, “ASEAN reflects a harmony in diversity.” I could not agree more on the importance of ASEAN bringing this spirit to the rest of the world.

ASEAN matters as an example of how cooperation can drive a stronger and more resilient global economy.

Excellencies, thank you. Terima kasih!