Developing East Asia and Pacific:
Prospects and Policy Challenges
With a Focus on Aging
January 26th, 2016
Axel van Trotsenburg
Vice President
East Asia and Pacific Region
1
Global Growth -- Another Disappointing Year
GDP Growth
12
World
High-income countries
Developing countries
Percent (%)
8
4
0
-4
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Year
Source: World Bank.
Note: Several countries were reclassified from middle-income to high-income country status in 2015, including Argentina, Hungary, and Venezuela.
All series have been adjusted to ensure a constant sample according to current income status.
2
A Synchronized Slowdown in Growth
GDP Growth (Percent)
8
1990-2008 Average
2003-08 Average
6
4
2
Emerging Markets
Source: World Bank.
Note: Weighted average growth
Frontier Markets
Advanced Economies
2015
2014
2013
2012
2011
2010
2015
2014
2013
2012
2011
2010
2015
2014
2013
2012
2011
2010
2015
2014
2013
2012
2011
2010
0
World
3
Large Emerging Markets Are Likely to Slow Sharply
Percentage points
0.0
Contribution to Global Growth Revisions from
June 2015 GEP
-0.1
-0.2
China
Brazil
Russia
Other com. exp.
Other com. imp.
-0.3
-0.4
2015
2016
2017
Year
Source: World Bank.
4
Contribution of all countries to revisions to global growth between June 2015 Global Economic Prospects and January 2016 Global Economic Prospects.
Cumulated contributions from individual country growth revisions may differ from global growth revisions reported due to rounding effects.
Downside Risks: Old and New
Sharper slowdown in large emerging markets
-
Possible continued slow growth in global trade volumes
Prospects for weak commodity prices
Financial market turbulence
-
Rising U.S. interest rates and U.S. dollar appreciation coupled with
heightened risk aversion, and deteriorating creditworthiness could further
slow capital flows
Geopolitical risks
-
Terrorist attacks: Limited effects so far but potentially large effects possible
Geopolitical tensions: Regional and global repercussions
Refugee crisis: Repercussions in some regions with possible spillovers
5
Global Trade Still Subdued
8
Forecasts of Global Trade Growth for 2015
15
Global Import Growth
2000-08
2011-2014
2015H1
10
6
Percent
5
4
0
-5
2
-10
0
-15
Oct-11
Oct-12
Oct-13
Oct-14
Apr-15
World
Source: IMF WEO database, CPB World Trade Monitor, and World Bank staff estimates.
Left panel: Annual percent change in trade volume of goods and services forecast for 2015. Right panel: For 2000-08 and 2011-14,
average annual merchandise import growth. For 2015H1, 6-month-over 6-month merchandise growth, annualized.
Emerging
Economies
6
Commodity Prices Remain Weak
EMEs in Global Commodity Exports
Commodity Prices
Chile
Malaysia
South Africa
Nigeria
Russia
Indonesia
Brazil
60
140
50
120
40
100
30
80
20
60
10
40
(Percent of total)
0
Source: World Bank.
Left panel: The latest observation is for August 2015.
Right panel: Average over 2008-2013. Including exports of ores (e.g. bauxite) and oil products.
Soybean
Corn
Wheat
Energy
Metals
Agriculture
70
Coal
Oil
Gas
160
(US$ nominal, 2010=100)
Nickel
Iron
Aluminium
Copper
180
7
Financial Market Turbulence: Elevated Debt
130
Private Debt and Credit Growth
in Emerging Markets
(Percent of GDP, percent)
Private debt
Number of Emerging Markets with
Elevated Government Debt
25
80
(Percent, share of countries)
2007
Credit growth (RHS)
120
2015
60
20
110
40
100
15
20
90
10
80
2010
2011
2012
2013
2014
2015
0
Debt >
40% of GDP
Debt >
60% of GDP
Source: World Bank, International Monetary Fund, Bank for International Settlements.
Left panel: Weighted-average of debt-to-GDP ratios of households and non-financial corporations in Brazil, Russia, India, South Africa, Mexico, Indonesia, Malaysia, and Turkey. Right
8
panel: EM with general government debt above 60 percent of GDP in 2015 include Brazil, Egypt, India, Hungary, Morocco, Pakistan.
Prospects and Policy Challenges for Developing EAP
• In 2016-17, we expect China to continue to slow gradually
and rebalance while the region’s other major economies
rebound slightly
• But the downside risks noted before suggest continued
caution
• There is little room for counter-cyclical macroeconomic
policies in most countries
• The focus needs to be on deepening structural reforms that
would both enhance long-term growth prospects and boost
confidence
• These reforms will differ according to countries’ current
development challenges but two medium-term challenges
stand out across much of developing EAP -- infrastructure
gaps and aging populations
Growth Across Developing EAP Has Generally Slowed
GDP growth (percent)
8
7
6
5
4
2012
China
2013
Developing EAP excl. China
2014
Malaysia
2015
Vietnam
China Expected to Slow Gradually
The Rest of the Region Likely to Pick Up Modestly
GDP growth (percent)
7
6
5
4
2016
China
2017
Developing EAP excl. China
2018
Malaysia
Vietnam
Credit Growth Has Generally Slowed
Percent, year-on-year, real
20
2011
2012
2013
2014
2015
15
10
Vietnam
Philippines
Malaysia
Thailand
-5
China
0
Indonesia
5
Debt Levels Have Risen …
And Foreign Holdings are Significant in Some
Countries
Percent of GDP
Public debt
250
60
200
50
150
40
30
100
20
50
China
Thailand
Philippines
Malaysia
CHN MYS THA VNM PHL IDN
0
Indonesia
2007
2015
2007
2015
2007
2015
2007
2015
2007
2015
10
2007
2015
0
Foreign holdings
(percent of local bonds)
Percent
US$ Billion
Infrastructure Investment Needs Are Among the Largest
(2014-20, US$, billion, at 2011 prices)
350
Maintenance
300
Capital
14%
250
GDP
Percentage
12%
16%
10%
200
8%
150
6%
100
4%
50
2%
0
0%
ECA
LAC
MENA
EAP
SSA
SAR
East Asia Already Has More Older People Than Any
Other Region
EAP is Aging Faster Than Any Other Region
(percent of population 65+)
40%
35%
30%
25%
20%
15%
10%
5%
0%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
China
EAP High-In come
EAP Developing
ECA Emerging
LAC Developing
MENA Deve loping
OECD
South Asia
SSA
But the Pace of Aging Differs Across the Region
(share of population 65+)
40%
36%
35%
30%
24%
25%
20%
14%
15%
10%
5%
0%
6%
4%
13%
Timor-Leste
Lao PDR
PNG
Philippines
Cambodia
Indonesia
Myanmar
Malaysia
Mongolia
Vietnam
China
Japan
Thailand
Singapore
Korea
Hong Kong SAR
Percentage change
Working Age Populations in Many EAP Countries Will Shrink
(Projected percent change, population aged 15–64, 2010-2040)
15
10
5
0
-5
-10
-15
-20
Developing EAP Will Also Get Old Before Getting Rich
(GDP per capita, 2005 US$ PPP; and Elderly Dependency Ratio, percent)
$60,000
Si ngapore
$50,000
Uni te d States of Ame rica
GDP per capita ($2005 PPP)
$40,000
Ja pa n
Re public of Korea
$30,000
$20,000
Tha iland
$10,000
I ndonesia
$-
Vi e t Na m
0.00
0.05
0.10
0.15
0.20
Elderly Dependency Ratio
0.25
0.30
0.35
0.40
In Much of EAP, Work Rather Than the State or the
Family is the Main Source of Financial Support
(primary source of support 60 years & over, percent; top panel: rural; bottom panel: urban)
But Expectations of the State to Provide Old Age
Support Remain High
(share of expected primary source of support in old age)
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
South Korea
Taiwan, China
Singapore
Retirees Themselves
Malaysia
Government
China
Indonesia
Philippines
Grown Children or Other Family Members
Thailand
Vietnam
Key Policy Considerations Of Rapid Aging
• Potential impacts on the drivers of economic growth – and why
EAP is better prepared than most regions to manage them
• Mitigating the labor market impact of an aging workforce with
action across the life cycle
• Addressing the impacts of aging on pension systems and reform
priorities
• Implications of aging for the delivery and financing of healthcare
and long-term care
The Macro Economy and Aging
As populations in EAP countries age and their working age populations decline, there is now
fear of a “demographic tax” ( reversing the earlier demographic dividend)
The Aging Report argues that most developing countries in EAP are better placed than those
in other regions to manage these impacts:
•
Savings rates are generally high and people save till later in life
•
Most developing EAP countries can still improve the intermediation of savings into
investment through financial sector reforms
•
The dramatic increase in educational attainment in EAP means that the quality of future
workers will be higher, even if there are fewer of them
•
There is scope to mitigate the fall in the working age population through reforms in such
areas as childcare, pensions, migration policies and measures to extend working lives
•
Older people provide a new channel to stimulate domestic consumption, provided they
can reduce overly high precautionary savings over time
What Should Countries Do To Address Rapid Aging
• Mitigating the labor market impact of an aging
workforce with action across the life cycle
• Addressing the impacts of aging on pension
systems
• Implications of aging for healthcare and long-term
care delivery and its financing