Asia and Pacific
Asia and Pacific: Shifting Risks, New Foundations for Growth
April 2013
©2013 International Monetary Fund
Growth in the Asia-Pacific region shows signs of improving as extreme risks emanating from advanced economies have receded and domestic demand remains resilient, supported by relatively easy financial conditions and robust labor markets. A small and gradual pick-up in growth to over 5¾ percent is projected in the course of 2013. Risks to the outlook from within the region, such as rising financial imbalances and asset prices in some economies, are coming clearer into focus. Although Asia’s banking and corporate sectors have solid buffers, monetary policymakers should stand ready to respond early and decisively to shifting risks, and macroprudential measures will also have a role to play. In many Asian economies, some fiscal consolidation could also rebuild the space needed to respond to future shocks and preempt potential overheating pressures from capital inflows. In particular, there is a growing need to make tax and spending policies more efficient. To sustain high growth rates and alleviate the “middle-income trap” across Emerging Asia, the policy agenda will vary by jurisdiction but will also often include strengthening infrastructure investment and reforming goods and labor markets.
| Contents | ||
| Executive Summary | ||
| I. Managing Shifting Risks | ||
| Signs of Pickup amid Receding Tail Risks | ||
| Stronger Prospects in the Period Ahead Hinge on Internal Demand Dynamics | ||
| More Balanced, but Shifting Risks | ||
| A Transition to Rebuilding Policy Space | ||
| Laying Foundations for Sustained and Shared Prosperity | ||
| II. Fiscal Policy: Dampening Cyclical Fluctuations and Supporting Inclusive Growth | ||
| The Role of Fiscal Policy in Dampening Cyclical Fluctuations in Asia | ||
| Increasing Space to Support Sustained and Inclusive Growth | ||
| III. Is Middle-Income Asia at Risk of a Sustained Growth Slowdown? | ||
| What Is a Sustained Growth Slowdown? | ||
| Are Middle-Income Economies Different? | ||
| What Explains the Likelihood of Getting Trapped? | ||
| Are Middle-Income Asian Economies at Risk of a Sustained Growth Slowdown? | ||
| Can Emerging Asia Get Old before It Gets Rich? | ||
| References | ||
| Boxes | |||
| Chart | Data | 1.1 | ASEAN-5 Integration as a Source of Resilience |
| Chart | Data | 1.2 | Asia’s Electronics Sector: An Engine of Growth for All? |
| Chart | Data | 1.3 | Effects and Spillover Channels of a Successful Reflation in Japan |
| Chart | Data | 1.4 | Remittances: Shock Amplifier or Absorber for Emerging and Developing Asia? |
| Table | 1.5 | Macroprudential Measures and Capital Flow Measures: The Experience in Asia | |
| Chart | Data | 1.6 | Chinese Capital Account Liberalization and the Internationalization of the Renminbi |
| Chart | Data | 1.7 | How Will the Basel III Capital and Liquidity Requirements Affect Asian Banks? |
| 1.8 | Myanmar—Reintegrating with the World | ||
| Chart | Data | 1.9 | Is Emerging Asia Shifting to Lower Trend Growth? |
| Chart | Data | 1.10 | Lifting Potential Growth in the Pacific Islands: Structural Impediments and the Role of Policies |
| 2.1 | Cash Transfers in India | ||
| 3.1 | Identifying Sustained Slowdowns in Growth | ||
| Tables | |||
| 1.1 | Asia and Pacific: Real GDP | ||
| Figures | |||
| Chart | Data | 1.1 | GDP Growth and Financial Market Conditions |
| Chart | Data | 1.2 | Selected Asia: Equity and Bond Funds––Quarterly Net Flows during 2010–13 |
| Chart | Data | 1.3 | Asia: Stock Markets |
| Chart | Data | 1.4 | Asia: Change in Credit to GDP, 2012 |
| Chart | Data | 1.5 | Asia: Effective Exchange Rates |
| Chart | Data | 1.6 | Asia: Changes in Real GDP at Market Prices |
| Chart | Data | 1.7 | Selected Asia: Exports to Major Destinations |
| Chart | Data | 1.8 | Asia: Headline Inflation |
| Chart | Data | 1.9 | Asia: Contributions to 2012 Change in Headline Inflation Rate |
| Chart | Data | 1.10 | Asia: Current Account Balances |
| Chart | Data | 1.11 | Indicator Model for Asia: Projected vs. Actual Real GDP Growth |
| Chart | Data | 1.12 | Selected Asia: Contributions to Projected Growth |
| Chart | Data | 1.13 | Asia: Financial Conditions Index (FCI) |
| Chart | Data | 1.14 | Emerging Asia: Response of Credit Growth and Long-Term Interest Rate to Non-FDI Inflows |
| Chart | Data | 1.15 | Emerging Asia: Response of Domestic Demand to Portfolio Equity Flows |
| Chart | Data | 1.16 | Selected Asia: External Dependence and Role of U.S. and EU Demand versus Japan and China |
| Chart | Data | 1.17 | Asia: Headline Consumer Price Inflation |
| Chart | Data | 1.18 | Asia: Real GDP Growth |
| Chart | 1.19 | Asia Financial Stability Heat Map | |
| Chart | Data | 1.20 | Asia: Nonfinancial Corporate Debt-to-Equity Ratio |
| Chart | Data | 1.21 | Corporate Debt-to-Equity Ratio |
| Chart | Data | 1.22 | Selected Asia: Nonfinancial Corporate Sector––Return on Assets |
| Chart | Data | 1.23 | Selected Asia: Tier 1 Capital Ratio |
| Chart | Data | 1.24 | Selected Asia: Liquidity Ratio |
| Chart | Data | 1.25 | Selected Asia: Return on Assets |
| Chart | Data | 1.26 | Selected Asia: Nonperforming Loans Ratio |
| Chart | Data | 1.27 | Selected Asia: Commercial Banks’ Loss-Absorbing Buffers |
| Chart | Data | 1.28 | Selected Asia: Contribution to Export Growth |
| Chart | Data | 1.29 | Selected Asia: Links to Japan and Export Growth in 2011:Q2 |
| Chart | Data | 1.30 | China Slowdown Scenario: Impact on Real GDP after Two Years |
| Chart | Data | 1.31 | Japan Risk Contagion Scenario: Impact on Real GDP after Two Years |
| Chart | Data | 1.32 | Selected Asia: Policy Rates |
| Chart | Data | 1.33 | Selected Asia: Monetary Policy Stances |
| Chart | Data | 1.34 | Output Gap vs. Credit Gap, Latest |
| Chart | Data | 1.35 | Selected Asia: FX Reserve Accumulation |
| Chart | Data | 1.36 | Selected Asia: Cyclically Adjusted Fiscal Balance |
| Chart | Data | 1.37 | Selected Asia: Size of Automatic Stabilizers and Vulnerabilities to a Slowdown in the United States and European Union |
| Chart | Data | 1.38 | There Seems to Be a Middle-Income Trap |
| Chart | Data | 2.1 | Correlation between Government Spending and GDP |
| Chart | Data | 2.2 | Fiscal Impulse, 2007–12 |
| Chart | Data | 2.3 | Procyclicality and Institutional Strength, 1980–2011 |
| Chart | Data | 2.4 | Multipliers for Government Spending and Public Investment in Asia, Four-Quarters |
| Chart | Data | 2.5 | Automatic Stabilizers, 2001–11 |
| Chart | Data | 2.6 | General Government Revenue and GDP per Capita, 2011 |
| Chart | Data | 2.7 | Yields from Personal Income Tax |
| Chart | Data | 2.8 | Yields from Corporate Income Tax |
| Chart | Data | 2.9 | Yields from VAT and Sales Tax |
| Chart | Data | 2.10 | Selected Tax Revenues by Category |
| Chart | Data | 2.11 | Public Investment and Infrastructure |
| Chart | Data | 2.12 | Public Social Spending: Health and Education |
| Chart | Data | 2.13 | Subsidies and Social Benefits |
| Chart | Data | 2.14 | Food and Energy Subsidies |
| Chart | Data | 3.1 | Past Growth Trajectories |
| Chart | Data | 3.2 | GDP per Capita Convergence in the Four Asian “Tigers” |
| Chart | Data | 3.3 | GDP per Capita Convergence in Seven Emerging Asian Economies |
| Chart | Data | 3.4 | Contributions to ASEAN Growth before and after the Global Financial Crisis |
| Chart | Data | 3.5 | Frequency of Past Sustained Growth Slowdown Episodes by Region |
| Chart | Data | 3.6 | There Seems to Be a Middle-Income Trap |
| Chart | Data | 3.7 | The Impact of Changes in Fundamentals on the Probability of a Sustained Slowdown |
| Chart | Data | 3.8 | Strengths and Weaknesses of Asian MIEs |
| Chart | Data | 3.9 | Strengths and Weaknesses of Asian MIEs Relative to Other Emerging Regions |
| Chart | Data | 3.10 | Overall Dependency Ratios |
| Chart | Data | 3.11 | Tertiary Education Enrollment |
| Chart | Data | 3.12 | Research and Development Expenditure |