Current Situation and Outlook of Asia and the Pacific

Current Situation and Outlook of Asia and the Pacific Dr. Aynul Hasan, Chief, DPS, MPDD Dr. M. Hussain Malik, Chief, MPAS, MPDD High-level Policy Dialogue Macroeconomic Policies for Sustainable and Resilient Growth in North and Central Asia 27-28 August 23, Almaty Key message Global economic outlook remains uncertain. Asia-Pacific region continues to drive global growth. However, beyond the short-term growth-stability nexus, policymakers should be forward-looking and create synergy among various economic, social and environmental goals. This is also true for North and Central Asia, where economic diversification remains a major challenge. 2

8 6 4 2 2 4 Global economic outlook Euro area: Short-term systemic risks have fallen, but with limited impact on real economic activity. Unemployment remains high in crisis countries. United States: Recovery continues despite sequestration. Unwinding of QE could increase financial volatility and financing costs worldwide. BRICS: Growth momentum has weakened notably, amid subdued external demand as well as significant domestic structural challenges. Real GDP growth, y-y, 2Q-23Q2 Japan United States Euro area Brazil China India Russian Federation South Africa Global economic outlook Commodity prices: After significant ups and downs, both food and fuel prices seem to have stabilized since 2. Despite some softening, prices are high compared to historical levels. US EIA projects that energy consumption will grow by 56% between 2 and 24, lead by 9% increase in non-oecd countries. Global food and fuel price indices, Jan. 27- July 23 25 2 5 4 2 8 6 5 FAO food price index (LHS) Brent crude index (RHS) /27 4/27 7/27 /27 /28 4/28 7/28 /28 /29 4/29 7/29 /29 /2 4/2 7/2 /2 /2 4/2 7/2 /2 /22 4/22 7/22 /22 /23 4/23 7/23 4 2

Asia and the Pacific After growth moderation in 22 and 23, soft rebound expected in 24. But an uncertain global environment continues to impact the region through trade and financial channels. China s slowdown is also affecting the rest of Asia. Still the most dynamic region in the world economy. Real GDP growth in ESCAP subregions, 2-24 9 8 7 6 5 4 3 2 2 2 22 23 e 24 f Developing ESCAP economies East and North East Asia (excl Japan) North and Central Asia Pacific South and South West Asia South East Asia Asia and the Pacific Growth moderation in 23: China 7.5%, India 5.%, Indonesia 5.8% Exceptions: Kazakhstan 6.%, North and Central Asia excl Russia 6.4% Real GDP growth Inflation 2 22 23 2 22 23 China 9.2 7.8 7.5 5.4 2.6 2.5 India 6.2 5. 5. 8.4.4.8 Indonesia 6.5 6.2 5.8 5.4 4.3 8. Japan -.6 2. 2. -.3.. Malaysia 5. 5.6 5. 3.2.7 2.2 Mongolia 7.3 2.3 9.4 9.2 4.3.9 Republic of Korea 3.6 2. 2.8 4. 2.2.7 Turkey 8.6 2.2 3.4 6.5 8.9 5.3 Armenia 4.7 7.2 5.6 7.8 2.4 5.6 Azerbaijan. 2.2 4.8 8.. 3.3 Georgia 7. 6. 4. 8.5 -.9 -.8 Kazakhstan 7.5 5. 6. 8.3 5. 5.9 Kyrgyzstan 5.7 -.9 6. 6.9 2.8 6.8 Russian Federation 4.3 3.4 2.4 8.4 5. 6.2 Tajikistan 7.4 7.5 6. 2.5 5.8 6.8 Turkmenistan 4.7. 2.2 2. 8.5 9. Uzbekistan 8.3 8.2 7.3 2.8 3.2 2.6 North and Central Asia 4.7 3.7 3. 8.6 5.2 6.2 North and Central Asia (excluding Russian Federation) 6.9 5.6 6.4 9.5 5.4 6.4 Developing Asia-Pacific 6.9 5.4 5.3 6.5 5.2 5.

Policy challenge : Uncertain global environment Fiscal challenges + policy uncertainties in Euro area, U.S. Impact on Asia-Pacific Lower export growth, decreased economic activity Estimated regional GDP loss of 3% since the onset of the global crisis five years ago - $87 billion 6 5 4 3 2 2 3 4 5 Merchandise export growth, y y, % change, 28Q 23Q 28Q 28Q2 28Q3 28Q4 29Q 29Q2 29Q3 29Q4 2Q 2Q2 2Q3 2Q4 2Q 2Q2 2Q3 2Q4 22Q 22Q2 22Q3 22Q4 23Q World Asia CIS Loose monetary policies, QE of developed economies Impact on Asia-Pacific Short-term capital flows volatility Rapid short-term currency appreciation 7 8 6 4 2 2 4 Policy challenge 2: Regional slowdown + rebalancing China is the largest individual export market for the rest of Asia, particularly for intermediate goods. Slowdown in China s output and export growth could negatively affect the region. But a rebalancing China could also benefit the region, particularly exporters of consumer goods, through increased penetration in the Chinese market. ESCAP estimates some $3 billion gain over 23-25. Monthly export growth in China, by custom type, Jan. 2 - July 23 Exports: Ordinary Trade Exports: Processing and Assembling Exports: Processing with Imported Materials Impact of China rebalancing in export growth of Asian countries, average during 23-25 8

Policy challenge 3: Economic insecurity High incidence of low-quality, informal sector jobs: Nearly. billion of the region s workforce, especially women and youth. Youth employment slightly edging up in 23: 3.4% in South-East Asia and the Pacific, % in South Asia, 9.8% in East Asia. Inadequate social security: Less than 2% of GDP in many countries. Share of population living in poverty (bar, LHS) and income inequality (line, RHS), early 99s and latest available year 9 Policy challenge 4: Infrastructure deficit Impediment to growth, especially in South Asia, Pacific islands and LDCs (Afghanistan, Cambodia, Myanmar). Power is the most critical bottleneck and then transportation. Financing requirement: $6 billion to $8 billion per year. In North and Central Asia, national infrastructure is relatively well developed (amid considerable crosscountry differences), but regional infrastructure development and connectivity are vital given that several countries are landlocked. Population without electricity access Papua New Guinea Myanmar Solomon Island Afghanistan Vanuatu Tim o r-le ste Cambodia Korea, Dem Rep Bangladesh Nepal Lao PDR Pakistan Indonesia Mongolia Bhutan Ind ia Sri Lanka Fiji Philippines Samoa Viet Nam Iran, Islamic Rep Thailand Malaysia China Brunei Darussalam Maldives Korea, Rep 2 4 6 8

Policy challenge 5: Economic diversification A major challenge particularly in North and Central Asia, which has become more exposed to commodity-related risks than it had been a decade ago. Concentration of oil, gas, metal and minerals in total exports increased or remains high in the past decade. More important than the short-term impact is the long-term implications of limited diversification. Governments should focus on sectors with high spillover effect on the economy. When considering the most appropriate path for diversification, it is also useful to get a sense of how products are related. Policy challenge 6: Labour migration A popular notion of migrant workers taking away jobs or lowering wages does not have strong empirical foundations. Studies show significant benefits to host countries, including through lower prices that consumers pay as larger supply of goods and services is made available. By this measure, economic contribution of migration workers are some.3% of GDP ($2.5 billion) per year in Russia and.57% of GDP ($. billion) in Kazakhstan. It is essential to strengthen social safety nets for migrant workers, generate employment opportunities at home and formulate regionally coordinated migration policies and laws. 5 4 3 2 5 4 3 2 Tajikistan Migrant remittance flows as a share of GDP, 2, % Kyrgyzstan Armenia Old age dependency ratio 2 25 Georgia Azerbaijan Russia Kazakhstan 2

Thank you! Macroeconomic Policy and Development Division (MPDD), ESCAP Visit us at www.unescap.org/pdd