- International Monetary Fund. Asia and Pacific Dept
- Published Date:
- April 2009
World Economic and Financial Surveys
Regional Economic Outlook
Asia and Pacific
Building a Sustained Recovery
INTERNATIONAL MONETARY FUND
©2009 International Monetary Fund
Regional economic outlook : Asia and Pacific. -- Washington, D.C. : International Monetary Fund, 2009.
- p. ; cm. – (World economic and financial surveys, 0258-7440)
- “Oct. 09.”
- “Building a sustained recovery”
- Includes bibliographical references.
- ISBN 978-1-58906-856-8
1. Economic forecasting – Asia. 2. Economic forecasting – Pacific Area. 3. Asia – Economic conditions, 1945- . 4. Asia – Economic conditions, 1945-– Statistics. 5. Pacific Area – Economic conditions, 1945- . 6. Pacific Area – Economic conditions, 1945- – Statistics. I. International Monetary Fund. II. Series: World economic and financial surveys.
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- Executive Summary
- I. Asia’s Recovery in the Global Context
- II. How Japan Recovered from Its Banking Crisis: Possible Lessons for Today
- III. Corporate Savings and Rebalancing in Asia
- 1.1 How Have Low-Income Countries in Asia Fared Amid the Global Crisis?
- 1.2 Fiscal Stimulus: Assessing Effectiveness and Sustainability
- 1.3 Monetary Transmission in Asia: Is It Working?
- 1.4 Capital Inflows and Policy Responses
- 1.5 Implications of the Global Crisis for Asia’s Potential Output
- 1.6 Economic Impact of Recent Natural Disasters in Asia
- 1.7 Exit from SME Support Measures
- 1.8 Global Shifts in Demand: Making Up for Weaker Consumption in the United States
- 1.9 Macro-Stabilization in Mongolia: An Emerging Success Story
- 3.1 Corporate Savings, Household Income, and Private Spending in Japan
- 3.2 Savings in China
- 1.1 Asia: Real GDP
- 2.1 Japan: Public Funds Allocated to the Financial Sector (1999–2008)
- 3A.1 Private and Corporate Savings
- 3A.2 Impact of Corporate Savings on Private Savings by Region: Sensitivity to Measures of Private Savings
- 3A.3 Private Consumption and Household Property and Nonproperty Income
- 3A.4 Difference in Mean Corporate Savings, Post-2000 versus Pre-2000
- 3A.5 Corporate Savings and Corporate Governance
- 3A.6 Results from Firm-Level Regression
- 1.1 Current Recession: Real GDP Growth
- 1.2 Assessing Global Growth Momentum
- 1.3 World Growth
- 1.4 World Trade and Asia’s Industrial Production
- 1.5 Selected Asia: Industrial Production and Contribution of Final External Demand to Total Value Added
- 1.6 Selected Asia: Real GDP Growth
- 1.7 Asia: Growth Momentum
- 1.8 Asia: Industrial Production during 2008–09
- 1.9 Selected Asia: Volume of Exports during 2008–09
- 1.10 Asia: Value of Exports during 2008–09
- 1.11 Asia: Electronics and Nonelectronics Exports
- 1.12 U.S. Retail IT Inventories and Asian Electronics Exports
- 1.13 Emerging Asia (excluding China): Direction of Exports
- 1.14 Discretionary Fiscal Measures, 2009
- 1.15 Composition of Fiscal Stimulus Measures, 2009
- 1.16 Asia: Fiscal Stimulus Implementation, 2009:H1
- 1.17 Asia Business Cycle: Nominal Policy Rates
- 1.18 Deposit Money Banks: Excess Reserves at Crisis Peak
- 1.19 Emerging Asia: Net Capital Inflows
- 1.20 Selected Asia: Portfolio Inflows and Change in Exchange Rates
- 1.21 Asia: Nominal Exchange Rate against U.S. Dollar
- 1.22 Stock Markets
- 1.23 Emerging Asia: External Bond Issuance by Sector and Rating
- 1.24 Selected Asia: TED Spread
- 1.25 Emerging Markets: Bank Credit to Private Sector
- 1.26 Selected Asia: Bank Capital-to-Asset Ratios
- 1.27 China: Credit and Fixed-Asset Investment
- 1.28 Asia Business Cycle: Real Private Consumption Expenditure
- 1.29 Asia Business Cycle: Employment
- 1.30 Asia: Consumer Confidence and Volume of Retail Sales
- 1.31 Japan and NIEs: Real Private Capital Formation
- 1.32 United States: Ratio of Imports to Retail Sales—Electric and Electronic Products and Parts
- 1.33 Selected Asia: Manufacturing Capacity Utilization
- 1.34 Asia: Output Gaps
- 1.35 Japan, China, and India: Contributions to Growth
- 1.36 Selected Asia: Contributions to Growth
- 1.37 Asia: Consumer Prices
- 1.38 Asia: Current Account Balances
- 1.39 Asia GDP Growth
- 1.40 Comparing Asia Now with Japan in the 1990s and Early 2000s
- 1.41 Property Prices
- 1.42 Fiscal Impulse in 2010
- 1.43 Asia: Difference Between Broad Money Growth and Nominal GDP Growth
- 1.44 Selected Asia: Contributions of Final External Demand to Total Value Added
- 1.45 Contributions to Growth in World Imports: Consumer Goods
- 1.46 Selected Asia: Private Savings—Changes in the Share of Household and Nonhousehold Savings in GDP
- 2.1 Phases in Japan’s Banking Crisis
- 2.2 Japan: Industrial Production and Unemployment
- 2.3 Japan: Fiscal Stimulus and Growth
- 2.4 Japan: Policy Rate and Stock Market Index
- 2.5 Japan: Nonperforming Loans
- 2.6 Japan: Bank Capital and Lending
- 2.7 Japan: “Triple Excesses” of the Corporate Sector
- 2.8 Japan: Contributions to GDP Growth
- 2.9 Japan: Corporate Leverage and Investment
- 2.10 Japan: Public Debt
- 2.11 Bank of Japan Assets
- 2.12 Recovery Heat Maps in Japan: Three Phases of the Banking Crisis
- 2.13 Recovery Heat Maps in Advanced Economies in 2009
- 2.14 Household Debt
- 2.15 Japan: Real GDP
- 3.1 Change in Savings since 2000
- 3.2 Difference in Mean Corporate Savings, Post-2000 versus Pre-2000
- 3.3 Non-Asian Emerging Markets: Savings
- 3.4 Emerging Asia (excluding China): Savings
- 3.5 Emerging Asia Corporate Savings
- 3.6 Leverage in Emerging Asia
- 3.7 Private and Corporate Savings
- 3.8 Household and Corporate Savings
- 3.9 Corporate Savings Offset by Households
- 3.10 Households: Consumption and Disposable Property Income
- 3.11 Marginal Propensities to Consume
- 3.12 Financial Reform, 2005
- 3.13 Corporate Governance Quality, 2008
- 3.14 The Effect of Financial Liberalization on Corporate Savings
- 3.15 The Effect of Corporate Governance Reform on Corporate Savings
- 3.16 Financial Reform since the Asian Crisis
- 3.17 Measure of Investor Protection in Asia
In this Regional Economic Outlook: Asia and Pacific, the following groupings are employed:
- “Emerging Asia” refers to China, India, Hong Kong SAR, Korea, Singapore, Taiwan Province of China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
- “Industrial Asia” refers to Japan, Australia, and New Zealand.
- “Asia” refers to emerging Asia plus industrial Asia.
- “Newly industrialized economies” (NIEs) refers to Hong Kong SAR, Korea, Singapore, and Taiwan Province of China.
- “ASEAN-4” refers to Indonesia, Malaysia, the Philippines, and Thailand
- “ASEAN-5” refers to Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.
- “G-2” refers to the euro area and the United States
- “G-3” refers to the euro area, Japan, and the United States
- “G-7” refers to Canada, France, Germany, Italy, Japan, United Kingdom, and the United States.
- “G-20” refers to Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States.
- “TED Spreads” refers to the difference between the interest rates on interbank loans and short-term government debt.
The following abbreviations are used:
Association of Southeast Asian Nations
Bank of Japan
consumer price index
domestically oriented Asia
export-dependent emerging Asia
Flexible Credit Line
foreign direct investment
gross domestic product
Global Integrated Monetary and Fiscal model
generalized method of moments
initial public offering
Japanese government bonds
newly industrialized economy
Organization for Economic Cooperation and Development
real effective exchange rate
Regional Economic Outlook
seasonally adjusted at an annual rate
Special Drawing Right
Standard International Trade Classification
small and medium-sized enterprise
World Economic Outlook
The following conventions are used:
- In tables, a blank cell indicates “not applicable,” ellipsis points ( … ) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
- An en dash (—) between years or months (for example, 2007–08 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2007/08) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2008).
- An em dash (—) indicates the figure is zero or less than half the final digit shown.
- “Billion” means a thousand million; “trillion” means a thousand billion.
- “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
As used in this report, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
This Regional Economic Outlook: Asia and Pacific was prepared by a team coordinated by Joshua Felman and Roberto Cardarelli of the IMF’s Asia and Pacific Department, under the overall direction of Anoop Singh and Mahmood Pradhan. The team included Steven Barnett, Ran Bi, Varapat Chensavasdijai, Leif Lybecker Eskesen, Roberto Guimarães, Sonali Jain-Chandra, Sanjay Kalra, Kenneth Kang, Meral Karasulu, Erik Lueth, Malhar Nabar, Papa N’Diaye, Nathan Porter, Uma Ramakrishnan, Marta Ruiz Arranz, Martin Sommer, Chad Steinberg, Murtaza Syed, Suchanan Tambunlertchai, Kiichi Tokuoka, and Olaf Unteroberdoerster. To-Nhu Dao, Souvik Gupta, Ioana Hussiada, Shuda Li, Adil Mohommad, and Fritz Pierre-Louis provided research assistance; Livia Tolentino and Lesa Yee provided production assistance. Sean Culhane and Martha Bonilla of the IMF’s External Relations Department edited the volume and coordinated its publication and release. This report includes comments from other departments and some executive directors.
Asia is rebounding fast from the depths of the global crisis. Initially, the region was hit extremely hard, with output in most countries contracting by more than even those nations at the epicenter of the crisis. But now Asia is leading as the world pulls out of recession. What explains this remarkable comeback? And what challenges does the recovery pose to Asian policymakers?
Asia’s impressive recovery from the global downturn, even as output elsewhere remains sluggish, has prompted some observers to revive the notion that the region has “decoupled” from the rest of the world. But, as Chapter 1 explains, careful consideration of the forces behind the rebound reveals that the primary driver of Asia’s recovery has been a return toward normalcy following the abrupt collapse in global trade and finance at the end of 2008. Just as the U.S. downturn triggered an outsized fall in Asia’s GDP because international trade and finance froze, now their normalization is generating an outsized Asian upturn. For this reason, the rebound in economic activity has been fastest in the export-dependent Asian economies that were hit most severely at the end of 2008.
The other key driver of Asia’s recovery has been the region’s rapid, forceful, and comprehensive policy response. This vigorous reaction was made possible by Asia’s relatively strong initial conditions: in many countries, government fiscal positions were sounder, monetary policies more credible, and corporate and bank balance sheets sturdier than at any time in the past. These conditions gave Asia the space to cut interest rates sharply and adopt large fiscal stimulus packages. As a result, overall domestic demand has held up remarkably well, despite weak private demand.
What lies ahead for the region? Global conditions are expected to continue to improve in 2010. But the recovery is expected to be a sluggish one. According to the IMF’s latest forecasts, output in the large G-7 economies is forecast to grow by just 1¼ percent next year, recouping only half of the loss estimated for 2009. In essence, the problem is that private demand in these countries remains hobbled by the legacy of the crisis. Households will find it difficult to spend and banks to provide credit since they must focus instead on repairing their balance sheets after the sizable destruction of wealth that occurred during the recession. G-7 consumption is consequently likely to remain weak for some time, limiting external demand for Asia’s products. As a result, the region’s GDP growth is forecast at 5¾ percent in 2010, well below the 6⅔ percent average recorded over the past decade.
Overall in Asia, policymakers consequently face two major challenges. In the near term, they will need to manage a balancing act, providing support to economies until it is clear that the recovery is sufficiently robust and self-sustaining, while ensuring that it is not maintained for so long that it ignites inflationary pressures or concerns about fiscal sustainability. Striking the right balance will be difficult. But the key is clear: policymakers will need to assess the state of private demand and the extent to which it can substitute for a withdrawal of public sector demand. As discussed in Chapter 2, Japan’s experience with the crisis in the 1990s shows that a durable recovery may emerge only when “green shoots” spread from industrial production and exports to employment and private domestic demand. So far, private demand remains weak, and the outlook far from encouraging, both in Asia and abroad. Consequently, Asian countries will likely need to maintain policy support for some time.
The other major policy challenge will be to devise a way to return to sustained, rapid growth in a new global environment of softer G-7 demand. In this “new world,” Asia’s longer-term growth prospects may be determined by its ability to recalibrate the drivers of growth to allow domestic sources to play a more dynamic role. This type of successful rebalancing will require action on a broad front. Better social safety nets will be needed to reduce private precautionary savings and, as discussed in Chapter 3, continued efforts at financial sector and corporate governance reforms would also allow households to offset higher corporate saving by increasing consumption. At the same time, structural reforms could raise productivity and allow for a smooth reallocation of resources across the economy to compensate for the lower momentum from exports. Finally, Asia will need to be willing to live with smaller current account surpluses and more flexible exchange rate management.