#1Asian economic outlook and challenges ahead Juzhong Zhuang Deputy Chief Economist Asian Development Bank Presentation at the ADB-Asian Think Tank Development Forum, New Delhi, India, 27 October 2016#2Key messages Growth in developing Asia steady at 5.7% in 2016 and 2017, despite global headwinds PRC growth upgraded to 6.6% in 2016 and 6.4% in 2017, as policy support eases growth moderation India growth maintained at 7.4% in 2016 and 7.8% in 2017, along with steady progress in reforms ≫ Commodity prices picking up, yet inflation remains subdued 50 YEARS Short-term risks to the outlook tilted to the down side Asia faces long-term challenges for sustained growth ADB 2#3LO 5 4 8 00 Developing Asia's growth is steady GDP growth (%) 7 7.4 6 f = forecast 6.5 6.4 6.3 5.9 5.7 5.7 2011 2012 2013 2014 2015 2016f 2017f 50 ADB YEARS 3#4Despite the softer external environment 2016 growth 2017 growth forecast (%) forecast (%) 2015 ADO ADO Update Update 2016 2016 Major industrial economies 1.9 1.8 1.4 1.9 1.8 United States 2.6 2.3 1.5 2.5 2.4 Euro area 1.6 1.5 1.5 1.6 1.4 Japan 0.6 0.6 0.6 0.5 0.8 50 ADO - Asian Development Outlook ADB YEARS 4#5-5 Domestic demand is holding up Percentage points 15 10 Demand-side contributions to growth, H1 2016 ■Domestic demand (Consumption and investment) ■Net Exports ■Statistical discrepancy ● GDP growth 5 0 -10 India Indonesia Rep. of Korea Malaysia Philippines PRC Thailand 50 YEARS ADB Note: Data for India refer to Q1 of FY2016. ΟΙ#6Divergent growth prospects across countries 2015 2016f 2017f 2015 2016f 2017f South Asia 7.0 6.9 7.3 → East Asia 6.1 5.8 ▲ 5.6 Bangladesh 6.6 7.1 6.9 → China, People's Rep. of 6.9 6.6 ▲ 6.4 ▲ India Pakistan 7.6 7.4 7.8 → Korea, Rep. of 2.6 2.6 2.8 4.0 4.7 5.2 ▲ Taipei, China 0.6 0.9 1.5 ▼ Southeast Asia 4.4 4.5 4.6 Central Asia 3.0 1.5 ▼ 2.6 ▼ Indonesia 4.8 5.0 5.1 ▼ Azerbaijan 1.1 -2.5 ▼ 1.0 Malaysia 5.0 4.1 4.4 → Kazakhstan 1.2 0.1 ▼ 1.0 Philippines 5.9 6.4 6.2 Thailand 2.8 3.2 3.5 → The Pacific 7.2 2.7 3.5 ▲ Viet Nam 6.7 6.0 6.3 ▼ Fiji 4.0 2.4 ▼ 4.5 Papua New Guinea 9.9 2.2 ▼ 3.0 50 f = forecast, ↔ = retained forecasts in March ADO, = = upgrade, = downgrade ADB YEARS 0) 6#7PRC's growth exceeds expectations % 2007 9 7.8 0) 6 3 GDP growth Selected indicators %, year to date %, year-on- year 30 14 7.3 6.9 6.6 6.7 6.7 20 6.4 20 10 10 0 -10 Infrastructure fixed asset investment Retail sales (right axis) 12 10 10 8 6 Exports 0 2013 2014 2015 2016f 2017f f = forecast Q1 -20 4 Q2 Jul Jan2015 2016 50 YEARS ADB Jan2014 Note: Infrastructure investment and exports refer to year to date year-on-year growth, while retail sales refer to year-on-year growth. Jul Jan2016 Aug 7#8Reform supporting India's solid expansion GDP growth $ billion Announced greenfield FDI projects $ million 100 100 2° 00 % 80 80 7.8 8 7.6 Average project size (right scale) 80 7.4 60 7.2 00 60 7.1 6.6 40 6 20 40 20 40 40 20 4 2 0 2010 Index 60 50 50 2011 2012 0 2013 2014 2015 Project value (left scale) Purchasing Manager's Index Manufacturing indicates expansion indicates contraction 2013 2014 2015 2016f 2017f f = forecast Q1 Services 2016 40 Jan Jan 2013 2014 Jan 2015 Jan 2016 Aug 50 YEARS ADB 8#9Global commodity prices picking up $/barrel 160 Price of Brent crude oil -Spot -Annual average 120 80 40 40 0 Food commodity price indexes 2010-100 160 115 130 MLM 45 100 -Food 000 Edible oils 26 70 Jan Jul 2013 Jan 2014 Jul Jan Jul Jan Jul 2015 2016 2010 2011 2012 2013 2014 2015 2016 50 ADB YEARS 6#10CO 6 But Asia's inflation largely subdued Inflation (%) 5.9 5 LO 3.9 4 3.7 3.0 2.9 3 2.6 2.1 2 1 0 2011 2012 2013 2014 2015 2016f 2017f f: forecast 50 ADB YEARS 10 10#11Short-term risks are tilted to the downside 1. Fragile external environment Weak demand from the US, euro area, and Japan 2. Advanced economies' monetary policies. ➤ Capital flow disruption; complicating macro management 3. Growing protectionism ➤ Further impacting the region's already weak exports 4. Rising private debt ➤ Requiring close monitoring to prevent systemic risks 5. Natural disasters 50 YEARS ➤ Increasing vulnerability in view of global climate change ADB 11#12Long-term challenges for sustained growth 1. Innovation and upgrading 2. Closing the infrastructure gap 3. Investing in human capital 4. Addressing rising income inequality 5. Moving toward low-carbon growth 6. Population aging 50 YEARS ADB 12#13Innovation and upgrading China, People's Rep. of Korea, Rep. of Japan Singapore Malaysia Research and development expenditure (% of GDP) 4.29 3.58 2.19 2.05 1.26 India 0.82 Hong Kong, China 0.73 Thailand 0.48 Nepal 0.30 Pakistan 0.29 Armenia 0.24 Mongolia 0.23 Azerbaijan 0.21 Uzbekistan 0.20 Viet Nam 0.19 Kazakhstan 0.17 Myanmar 0.16 Most Asian economies spend considerably less on R&D than the global average of 2.1% of GDP Philippines 0.14 Kyrgyz Republic 0.13 Sri Lanka 0.10 Georgia 0.10 Indonesia 0.08 Cambodia 0.05 Lao PDR 0.04 Brunei Darussalam 0.04 0.0 1.0 2.0 3.0 4.0 5.0 50 Note: Data for 2014 or latest available year. ADB Source: World Bank, World Development Indicators online database. YEARS 13#14Closing the infrastructure gap Rural access to electricity (% of rural population) Japan Armenia Azerbaijan China Georgia Hong Kong SAR, China Kazakhstan Korea, Rep. Kyrgyz Republic Malaysia Maldives Tajikistan Turkmenistan Uzbekistan Thailand Singapore Việt Nam Indonesia Samoa Pakistan Sri Lanka Tonga Philippines Nepal Mongolia India Brunei Darussalam Lao PDR Bhutan Bangladesh Fiji Kiribati Marshall Islands Micronesia, Fed. States of 50 Palau Afghanistan Tuvalu Myanmar Timor-Leste Cambodia Vanuatu Solomon Islands Papua New Guinea YEARS 0 20 40 60 80 100 Mobile cellular subscriptions and internet users (per 100 persons) Hong Kong, China Maldives Kazakhstan Singapore Turkmenistan Malaysia Cambodia Kyrgyz Republic Indonesia Viet Nam Georgia Thailand Japan Korea, Rep. of Philippines Timor-Leste Armenia Sri Lanka Azerbaijan Brunei Darussalam Mongolia Fiji Tajikistan Nepal China, People's Rep. of Bhutan Bangladesh India Myanmar Uzbekistan Solomon Islands Pakistan Vanuatu Tonga Afghanistan Samoa Lao PDR Papua New Guinea Tuvalu Kiribati Marshall Islands Mobile Internet 100 200 300 ADB → Large gaps in infrastructure remain 14 14#15Investing in human capital Many developing Asian economies have not been able to translate educational investments even into basic quality skills Science-mathematics test performance, Republic of Korea Singapore % of students 28.6 94.5 38.6 93.7 Japan 27.7 93.3 Viet Nam 14.9 93.2 Taipei, China 29.9 91.1 OECD 15.2 84.9 USA 11.3 82.9 Armenia** 2.7 82.7 Mongolia*** 1.1 71.8 Thailand 2.6 66.8 Kazakhstan 0.6 65.7 Malaysia 1.2 58.5 Philippines** 0.3 39.5 Indonesia 0.2 35.4 18.6 Kyrgyz Republic* 0.1 18.5 50 ■600+ 100 400+ PISA/TIMSS test scores representative of students aged 14-15 0400 = basic cognitive skills 80600 = top-level cognitive skills 50 YEARS ADB India (Tamil Nadu)* 0.0 Source: PISA 2009* and 2012; TIMSS 2003**; TIMSS 2007*** 15#16Addressing rising income inequality Singapore Gini Coefficients, selected Asian economies, 1990s and 2000s Georgia PRC Indonesia India Lao PDR Mongolia Sri Lanka Taipei,China Bangladesh Tajikistan Korea, Rep. of 50 ADB YEARS 0 10 20 44.2 46.3 37.1 42.1 32.4 42.1 29.2 38.9 32.5 37.0 30.4 36.7 33.2 36.5 32.5 36.4 31.2 33.8 27.6 32.1 29.0 30.8 24.5 28.9 30 40 50 ■1990s 2000s ⇒ A number of economies experienced rising inequality between the 1990s and 2000s 16#17Moving toward low-carbon growth Developing Asia's primary energy composition, Business as usual Billion tons of oil equivalent (BTOE) 10 Developing Asia's primary energy composition, To meet 2°C climate goal Billion tons of oil equivalent (BTOE) 10 00 8 34% (3.4 BTOE) 8 Oil 1% (0.1) CO 6 6 Nuclear 14% (1.4) Oil Gas 2 Coal 34% (2.1 BTOE) 2% (0.1) Gas Nuclear 11% (0.7) 10% (0.6) 43% (2.6) 41% (4.1) 2 Coal Renewables 0 Renewables 2015 2020 2025 2030 2035 2040 2045 2050 50 ADB YEARS 10% (0.9) 0 2015 2020 2025 2030 2035 2040 2045 2050 → Energy consumption must fall by 40% to 6 BTOE by 2050, of which only 10% will come from coal and 43% from renewables including wind, solar, hydro, and biomass, to meet the 2°C global climate goal 17#18Population aging 16 Share of population aged 60 and over (%) 15.4 Top 10 economies (plus Japan) with the largest elderly population share (%), 2015 1990 2015 Japan 33.1 14 12.3 Hong Kong, China 21.7 12 11.2 Georgia 19.3 10 9.3 9.0 8.4 8 Taipei, China 18.6 Korea, Rep. of 18.5 Singapore 1990 17.9 5.8 2015 6 Armenia 16.3 Thailand 9.1 15.8 4 8.3 8.2 7.0 6.0 6.4 China, People's Rep. of 15.2 2 4.1 Sri Lanka 13.9 Kazakhstan 10.7 Asia 0 10 20 30 40 Central East Asia South Asia Southeast The Pacific Developing World Asia Asia 50 ADB → Asia's population is graying fast, especially in East Asia YEARS 18#19Key messages Growth in developing Asia steady at 5.7% in 2016 and 2017, despite global headwinds PRC growth upgraded to 6.6% in 2016 and 6.4% in 2017, as policy support eases growth moderation India growth maintained at 7.4% in 2016 and 7.8% in 2017, along with steady progress in reforms ≫ Commodity prices picking up, yet inflation remains subdued 50 YEARS Short-term risks to the outlook tilted to the down side Asia faces long-term challenges for sustained growth ADB 19#20Thank you! 80 03 For more information, please contact [email protected] 20 20