Asia and Pacific
Leading the Global Recovery: Rebalancing for the Medium Term
April 2010
Executive Summary also available in Korean, Laotian, and Vietnamese
One year after the deepest recession in recent history, Asia is leading the global recovery. The Regional Economic Outlook: Asia and Pacific discusses the near-term outlook for the region, as well as the medium-term policy challenges that countries face. As in many emerging and developing markets, Asia rebounded swiftly during 2009 and in the first quarter of 2010, and in the near term the region is expected to continue leading the global recovery. In the medium term, the global crisis has highlighted the importance for Asia of ensuring that private domestic demand becomes a more prominent engine of growth.
Video: IMF Says Asia Leading the Recovery
Contents
| Definitions | |||||
| Executive Summary | |||||
| SECTION A––Asia and Pacific: Leading the Global Recovery | |||||
| I. | Recent Developments and Main Themes | ||||
| A. Overview | |||||
| B. Recent Developments | |||||
| C. Asia, the Inventory Cycle, and the Role of China | |||||
| D. Transitioning from Public to Private Domestic Demand? | |||||
| E. Are Large Capital Flows Threatening Financial Stability? | |||||
| II. | Projections, Risks, and Policy Challenges | ||||
| A. Projections for 2010–11 | |||||
| B. Risks to the Outlook | |||||
| C. Policy Challenges | |||||
| SECTION B––Asia and Pacific: Rebalancing for the Medium Term | |||||
| III. | Does Asia Need Rebalancing? | ||||
| A. Introduction | |||||
| B. Assessing Asia’s Export Dependence | |||||
| C. What Does Rebalancing Mean for Asian Economies? | |||||
| D. Are There Any Supply-Side Imbalances? | |||||
| E. Impact of Rebalancing: Illustrative Model Simulations | |||||
| F. Conclusions | |||||
| Technical Appendix 3.1 | |||||
| ANNEX––Low-Income Countries and Pacific Islands Countries | |||||
| Chart | Data | A1 | Asian Low-Income Countries: Recovery Prospects and Policy Challenges | ||
| Chart | Data | A2 | Impact of the Global Crisis on the Pacific Island Countries | ||
| Chart | Data | A3 | Restoring Macroeconomic Sustainability in Maldives | ||
| References | |||||
| Boxes | |||||
| Chart | Data | 1.1 | Recent Exchange-Rate Developments in Asia | ||
| Chart | Data | 1.2 | What is the Outlook for Japan’s Domestic Demand? | ||
| Chart | Data | 1.3 | China: An Extraordinary Investment Response in 2009 | ||
| Chart | Data | 1.4 | Lessons from Past Episodes of Large Capital Inflows in Asia | ||
| Chart | Data | 2.1 | Assessing Monetary Policy Stances in Asia | ||
| Chart | Data | 3.1 | Boosting Consumption in China: Is Public Spending on Health the Right Medicine? | ||
| Chart | Data | 3.2 | Consumption and Financial Development in Asia | ||
| Chart | Data | 3.3 | Rebalancing Growth in Asia: What Role for Investment? | ||
| 3.4 | The Asia GIMF Model and Policy Assumptions | ||||
| Tables | |||||
| Table | 2.1 | Asia: Real GDP Growth | |||
| Table | 2.2 | Selected Asia: Macroprudential Measures | |||
| Figures | |||||
| Chart | 1.1 | Assessing Global Growth Momentum | |||
| Chart | Data | 1.2 | Contributions to Global Growth | ||
| Chart | Data | 1.3 | Asia: Domestic Demand Around Business Cycles | ||
| Chart | Data | 1.4 | Selected Emerging Asia: Growth Differential vis-à-vis the United States versus Net Capital Inflows | ||
| Chart | Data | 1.5 | Selected Asia: Exports | ||
| Chart | Data | 1.6 | Net Flows to Equity Funds | ||
| Chart | Data | 1.7 | Selected Asia: Corporate Bond (AAA) Spread over Government Securities | ||
| Chart | Data | 1.8 | Selected Asia: Labor Market Conditions | ||
| Chart | Data | 1.9 | Selected Asia: Manufacturing Capacity Utilization | ||
| Chart | Data | 1.10 | Emerging Asia: Consumer Prices | ||
| Chart | 1.11 | Asia: Growth Momentum | |||
| Chart | Data | 1.12 | Selected Asia: Industrial Production and Inventory Cycle | ||
| Chart | Data | 1.13 | Selected Asia: Inventory and Shipments | ||
| Chart | Data | 1.14 | Asia’s Exports to the United States and Inventory Cycle in the United States | ||
| Chart | Data | 1.15 | Asia: Export Links | ||
| Chart | Data | 1.16 | Selected Asia: GDP Growth and Value Added Linked to China Final Demand | ||
| Chart | Data | 1.17 | Selected Asia: Change in REER and World Export Market Shares | ||
| Chart | Data | 1.18 | Asia’s Exports: Forward-Looking Indicators | ||
| Chart | Data | 1.19 | Impact of Fiscal Stimulus on 2009 Real GDP | ||
| Chart | Data | 1.20 | Selected Export-Oriented Asia: Contribution of Private Domestic Demand (excl. Inventories) to Growth | ||
| Chart | Data | 1.21 | Contribution to Recovery of Private Consumption in Asia | ||
| Chart | Data | 1.22 | Selected Asia: Private Consumption, Consumer Confidence, and Stock Prices | ||
| Chart | Data | 1.23 | Employment | ||
| Chart | Data | 1.24 | Household Credit, 2009 | ||
| Chart | Data | 1.25 | Selected Asia: Private Domestic Demand | ||
| Chart | Data | 1.26 | Selected Asia: Change in Real Cost of Capital | ||
| Chart | Data | 1.27 | Selected Asia: Bank Credit to Corporate Sector | ||
| Chart | Data | 1.28 | Selected Asia: Credit to Households and Corporations | ||
| Chart | Data | 1.29 | Asia: Corporate Balance Sheet | ||
| Chart | Data | 1.30 | Selected Asia: Bond Issuance in Local Currency | ||
| Chart | Data | 1.31 | Bank Credit to SMEs and Large Corporations | ||
| Chart | Data | 1.32 | Asia: Fiscal Impulse, 2010 | ||
| Chart | Data | 1.33 | Impact of Fiscal Stimulus on 2010 Real GDP | ||
| Chart | Data | 1.34 | Selected Emerging Asia: Net Capital Inflows | ||
| Chart | Data | 1.35 | Selected Asia: Net Capital Inflows | ||
| Chart | Data | 1.36 | Emerging Asia: Equity Prices and Price-Earnings Ratio | ||
| Chart | Data | 1.37 | Selected Asia: Property Prices | ||
| Chart | Data | 1.38 | Emerging Asia (excl. China): Excess Liquidity and Net Capital Inflows | ||
| Chart | Data | 1.39 | China and India: Composition of Reserve Money | ||
| Chart | Data | 2.1 | China and India: Contributions to Growth | ||
| Chart | Data | 2.2 | NIEs and ASEAN-5: Contributions to Growth | ||
| Chart | Data | 2.3 | Industrial Asia: Contributions to Growth | ||
| Chart | Data | 2.4 | Asia: Consumer Prices | ||
| Chart | Data | 2.5 | Asia: Current Account Balance | ||
| Chart | 2.6 | Asia: GDP Growth | |||
| Chart | Data | 2.7 | Outstanding Consolidated Claims of BIS Reporting Banks vis-à-vis Major Asian Economies | ||
| Chart | Data | 2.8 | Emerging Economies: Projected Rollover of Foreign Currency Bonds and Loans by Corporations | ||
| Chart | Data | 2.9 | Selected Asia: Policy Interest Rate and Implied 6-Month Forward Interest Rate | ||
| Chart | Data | 2.10 | Output Gap: Projected Closure Dates | ||
| Chart | Data | 2.11 | 1-Year Ahead Inflation Expectation: Change between 2009:Q2 and 2010:Q1 | ||
| Chart | Data | 2.12 | Selected Asia: Mortgage Loans | ||
| Chart | Data | 2.13 | Asia: Cyclically Adjusted General Government Balance | ||
| Chart | Data | 2.14 | Public Debt | ||
| Chart | Data | 2.15 | Japan: Consumer Price Inflation | ||
| Chart | 3.1 | Effect of Vertical Integration on Trade | |||
| Chart | Data | 3.2 | Share of Export Value Added in GDP | ||
| Chart | Data | 3.3 | Selected Asia: Export Dependence and Exposure | ||
| Chart | Data | 3.4 | Selected Asia: Average Contribution to Real GDP Growth | ||
| Chart | Data | 3.5 | Selected Asia: Share of Export Value Added in GDP | ||
| Chart | Data | 3.6 | Selected Asia: Share of Medium and High-Tech Goods in Total Exports | ||
| Chart | Data | 3.7 | Selected Asia: Impact on Value Added of Actual Decline in U.S. Private Final Demand | ||
| Chart | Data | 3.8 | Private Consumption | ||
| Chart | Data | 3.9 | Consumption Relative to Steady State | ||
| Chart | Data | 3.10 | Cumulative Change in Ratio of Private Consumption to GDP (2000-07): Estimated Contribution of Disposable Income and Savings Rate | ||
| Chart | Data | 3.11 | Investment | ||
| Chart | Data | 3.12 | Capital-to-Output and Investment-to-Output Ratio | ||
| Chart | Data | 3.13 | Model Based Determinants of Deviation of Investment-to-GDP Ratio from Sample Mean | ||
| Chart | Data | 3.14 | Selected Asia: Excess Share of Industry in GDP | ||
| Chart | Data | 3.15 | Selected Asia: Model Based Excess Share of Industry in GDP | ||
| Chart | Data | 3.16 | Asia: Productivity Levels | ||
| Chart | Data | 3.17 | Output | ||
| Chart | Data | 3.18 | Investment-to-GDP Ratio | ||
| Chart | Data | 3.19 | Consumption-to-GDP Ratio | ||
| Chart | Data | 3.20 | Current Account Balance-to-GDP Ratio | ||
| Chart | Data | 3.21 | Exports | ||
| Chart | Data | 3.22 | Imports | ||