Asian Development Outlook 2013 Update

Governance and Public Service Delivery

Joseph E. Zveglich, Jr.

Assistant Chief Economist Asian Development Bank Osaka and Tokyo OctoberNovember 2013

The views expressed in this document are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank or its Board of Governors or the governments they represent.

Key findings: Outlook

Asias growth is declining to 6% in 2013 from 6.1% in 2012 before picking up to 6.2% in 2014 The two giants growth is moderating despite signs of advanced economies recovery Inflation easing to 3.6% and 3.7% in 2013 and 2014, though country variations exist Talk of US quantitative easing taper shook emerging markets, but Asia can weather the storm

Asias growth slower than expected

% 10
9 8 7 6 5 4 3 2 1 0 2010 f = forecast 2011 2012 2013f 2014f
4

GDP growth, 20102014

9.2 7.3 6.1 ADO 2013 ADO 2013 Update 6.6 6.0 6.7

6.2

despite firming recovery in advanced economies

2013f
GDP Growth (%) 2011 2012 ADO 2013 -0.3 1.2 ADO 2013 Update 0.9 1.7 -0.5 1.9

2014f
ADO 2013 1.2 1.4 ADO 2013 Update 1.8 2.4 1.2 1.4

Major adv. econ. United States

1.3 1.8 1.5 -0.6

1.5 2.8 -0.6 2.0

Euro area
Japan

Note: The US rebased national accounts data in July 2013, resulting in a much higher 2012 growth rate and rendering ADO 2013 forecasts incomparable with the forecasts for the Update.

Growth moderation notable in the PRC and India

2013f 2012
ADO ADOU ADO ADOU

2014f 2012

2013f
ADO ADOU

2014f
ADO ADOU

South Asia
India Pakistan Sri Lanka Southeast Asia Indonesia Malaysia Philippines Singapore Thailand Viet Nam

5.1
5.0 4.4 6.4 5.6 6.2 5.6 6.8 1.3 6.5 5.2

5.7
6.0 3.6 6.8 5.4 6.4 5.3 6.0 2.6 4.9 5.2

4.7
4.7 3.6 6.8 4.9 5.7 4.3 7.0 2.6 3.8 5.2

6.2
6.5 3.5 7.2 5.7 6.6 5.5 5.9 3.7 5.0 5.6

5.5
5.7 3.0 7.2 5.3 6.0 5.0 6.1 3.5 4.9 5.5

Central Asia
Kazakhstan Kyrgyz Republic East Asia PRC Hong Kong, China Korea, Rep. of Taipei,China The Pacific Fiji Papua New Guinea

5.6
5.0 -0.9 6.5 7.7 1.5 2.0 1.3 7.5 2.2 9.8

5.5
5.2 5.5 7.1 8.2 3.5 2.8 3.5 5.2 2.0 5.5

5.4
4.8 7.5 6.6 7.6 3.2 2.8 2.3 5.2 2.8 5.5

6.0
5.6 4.5 7.1 8.0 3.8 3.7 3.9 5.5 2.3 6.0

6.0
5.6 4.5 6.6 7.4 3.8 3.5 3.3 5.5 2.4 6.0

as the PRC undertakes structural reform and reins in credit growth

Current account balance, PRC
% of GDP 12

Liquidity levels, PRC

% of GDP 180 170 160 150 140 130 120 110 100

10
8 6 4 2 0

10.1

9.3

Broad money (M2)

4.9

4.0 1.9 2.3 2.2 2.1

Total social financing

Sources: CEIC Data company; ADO database.

Note: Total social financing represents the total fundraising by PRC non-state entities. Sources: People's Bank of China, Asian Development Bank staff estimates.

and Indias structural problems dent business confidence

Fixed capital formation and investment
Gross Fixed Capital Formation (% of GDP) 36% 35% 34% 33% 32% 31% 30% 29% 28% 27% 200506:Q1 200708:Q1 200910:Q1 201112:Q1 Gross Fixed Capital Formation (% of GDP) Investment Growth Rate 25% 20% 15% 10% 5% 0% -5% -10% Investment Growth Rate

Consolidated fiscal deficit

% of GDP 12% 10% 8% 6% 4% 2% 0% 2001-02

Centre

State

2005-06

2009-10

2013-14 Est.

Sources: CEIC Data company; ADO database.

East and Southeast Asia more vulnerable to slower PRC growth

percentage points 0
-0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.63 Developing East Asia exc Southeast Central Asia The Pacific Asia exc PRC PRC Asia
PRC = Peoples Republic of China a Weighted predicted values.

Impact of PRC growth slowing by 1 percentage point on the rest of developing Asia, 20072012a
-0.02 -0.17 -0.14 -0.10

-0.25

South Asia

but two giants slower growth will not hobble rest of Asias growth
% 7 6 5 4 3 2 1 0 2012 Developing Asia f = forecast
10

GDP growth, 20122014

6.1 6.0 6.2 4.6 4.0 4.0

2013f 2014f Developing Asia exc PRC and India

Growth variation across subregions

% 8 6
5.6 5.4 6.0 5.1 5.5 4.7

2012
6.5 6.6 6.6

2013f

2014f
7.5

5.6 4.9

5.3

5.2

5.5

4
2 0 Central Asia East Asia South Asia Southeast Asia The Pacific

f = forecast
11

Growth driven by domestic demand

Contributions to growth (demand), first half-2013
Percentage points 12 8 4 0 -4 Private consumption Investment Statistical discrepancy Government consumption Net exports GDP growth

HKG

INO

KOR

MAL

PHI

SIN

TAP

THA

HKG=Hong Kong, China; INO=Indonesia; KOR=Rep. of Korea; MAL=Malaysia; PHI=Philippines; SIN=Singapore; TAP=Taipei,China; THA=Thailand.

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as Asias rebalancing continues

% of GDP 4.0
3.5 3.0 2.5 2.0 3.5

Current account balance, 20102014

ADO 2013 ADO 2013 Update

2.0

1.8

1.9 1.6

1.8

1.6

1.5
1.0 0.5 0.0 2010 f = forecast 2011 2012 2013f 2014f
13

Weaker growth and tepid commodity prices

Selected commodity prices
2005=100 280 Beverage Raw materials Grains Food Edible Oils Other Food $/barrel 130
year-to-date average

Brent crude spot price

120 240 110 200 100 160

90

120

80

Sources: World Bank. Commodity Price database; Bloomberg

14

keeping inflation in check

% 6
5 4 3 2 1 0 2010 f = forecast 2011 2012 2013f 2014f
15

Inflation, 20102014
5.9 ADO 2013 ADO 2013 Update 4.0 3.7 3.6 4.2 3.7

4.4

but considerable variation remains

Inflation rates, latest month
%, year on year
MON BAN NEP ARM INO

10 8 6
CAM KAZ HKG TAJ 2012 average = 3.7% LAO PAK

SRI VIE IND

2011 average = 5.9%

4 2 0 -2
GEO TAP KOR THA MAL SIN

PHI AZE

PRC

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Talk of quantitative easing taper shook financial markets

Change in local currency unit/$
Brazil Russian Federation India

Change in main stock index

Brazil Russian Federation India PRC South Africa Indonesia -30 -15 0 15 Week of 22 MayWeek of 28 Aug Week of 28 AugWeek of 25 Sep

PRC
South Africa Indonesia -20 -10 0 10 Week of 22 MayWeek of 28 Aug Week of 28 AugWeek of 25 Sep

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with India and Indonesia hit hard due to widening current account deficits
Current account balance, % of GDP
China, People's Rep. of Hong Kong, China India Indonesia Korea, Rep. of Malaysia Philippines Singapore Taipei,China Thailand Viet Nam Developing Asia -15 -10 -5 0 2007 5 2012 10 15 20 25 30

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Region stronger than in 1997

Select Vulnerability Indicators (1997 vs. latest available data)a
Fiscal Balance (% GDP) China, Peoples Rep. of Hong Kong, China Indiaa Indonesia Korea, Rep. of Malaysia Philippines Singapore Taipei,China Thailand Viet Nam 1996 -1.8 2.1 -7.0 1.0 0.2 0.7 0.3 21.3 -1.4 2.1 -0.9 2012 -1.6 3.2 -7.5 -1.8 -2.9 -4.5 -2.3 1.1 -1.6 -4.1 -6.9 Current Account (% GDP) 1997Q2b 2013Q2c 0.8 2.3 -0.3 -3.1 -3.6 -1.8 -2.4 -2.1 6.7 -4.4 1.1 -4.2 5.3 20.0 20.0 1.5 11.9 -7.9 -5.1 -8.2 4.6 Import cover (months) Jun-97 Latestd 10.6 22.1 4.0 6.9 0.6 6.8 5.7 5.2 2.6 5.1 4.0 7.7 3.5 14.5 7.4 8.3 9.3 19.4 5.4 7.6 2.3 Short-Term External Debt / Reserves 1997Q2 2012Q4 28.8 12.4 280.6 65.3 54.0 191.0 49.0 232.0 44.1 69.2 25.5 105.5 21.2 245.4 75.1 26.6 12.1 157.7 15.8 53.3 56.3

aFor

India, latest figures are compared with 1991 , not 1997. Fiscal data is for central and state governments. 1996 current account as % of GDP data for the Peoples Republic of China; Hong Kong, China; India; Malaysia; Philippines; Tha iland; and Viet Nam. c2012Q4 data for Viet Nam; 2013Q1 data for Hong Kong, China; India; Indonesia; Malaysia; and Philippines. dRefers to June 2013 except for Viet Nam (May); Hong Kong, China; and Malaysia (July); India; Indonesia; and Taipei,China (August).
bAnnual

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...but growing financial volatility calls for vigilance

Capital inflow and volatility
% of GDP 10 8 6 4 2 0 1995-1997 1998-2002 2003-2007 2008-2011 1995-1997 1998-2002 2003-2007 2008-2011 1995-1997 1998-2002 2003-2007 2008-2011 1995-1997 1998-2002 2003-2007 2008-2011 Inflow (bars) Inflow volatility, rhs (dots) Standard deviation 10 8 6 4 2 0

Emerging Asia except the People's Republic of China

People's Republic of China

Latin America

Other developing economies

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Key findings: Outlook

Asias growth is declining to 6% in 2013 from 6.1% in 2012 before picking up to 6.2% in 2014 The two giants growth is moderating despite signs of advanced economies recovery Inflation easing to 3.6% and 3.7% in 2013 and 2014, though country variations exist Talk of US quantitative easing taper shook emerging markets, but Asia can weather the storm

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