Asia Pacific: Recent Economic and Trade
Performance with
Focus on North and Central Asia
8 February 2016
Dr. Shamshad Akhtar
Under-Secretary-General of the United Nations
and Executive Secretary of ESCAP
Key findings and messages
•
The Asia-Pacific region’s growth has plateaued around 5% -- 2015 registered slowdown
relative to average growth of 9.4% between 2005-2007; outlook for 2016 and 2017
remains subdued as well.
– Deceleration in external demand persists
– Domestic demand is also a constraint
•
Commodity prices, especially oil, are hurting oil producers -- Russia and Kazakhstan in
particular. Negative consequences felt across North and Central Asia -– Economic diversification beyond resource-based sectors needs to be urgently
pursued
•
Regional trade growth remains low and is impacted by slowdown in China
•
Room for fiscal and monetary policy constrained, even though need for countercyclical
support is growing
•
Key economic policy challenges include coping with rising private debt and higher
financing costs
•
Overarching medium-term priority is rebalancing growth and making it more inclusive,
and strengthening productivity
2
Real GDP growth in Developing Asia-Pacific relative to Advanced
Economies and the World, 2006-2016
Risk of Asia-Pacific no longer being able to drive global growth
12
Year-on-year percentage change
10
8
6
4
2
0
-2
-4
Developing Asia (current forecast)
Developing Asia (forecast as of Survey 2015)
Advanced economies
World
-6
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
3
2016 Outlook: North and Central Asia economies relative to Asia
Pacific Developing Countries -- Real GDP and Inflation
Real GDP growth
Latest
estimates
(Percentage)
Armenia
Azerbaijan
China
Georgia
India
Indonesia
Kazakhstan
Kyrgyzstan
Republic of Korea
Russian Federation
Tajikistan
Turkmenistan
Uzbekistan
North and Central Asia
North and Central Asia (excluding Russian Federation)
Developing ESCAP economies
Total ESCAP
2014
3.4
2.8
7.3
4.8
7.3
5.0
4.3
3.6
3.3
0.6
6.7
10.3
8.1
1.3
2015
2.8
2.0
6.9
2.7
7.4
4.8
1.2
3.5
2.6
–3.9
4.0
8.5
6.8
-2.9
2016
2.5
1.8
6.5
2.6
7.5
5.3
2.1
3.9
2.9
–0.5
4.5
8.9
7.0
0.1
5.1
5.3
3.5
3.0
4.5
3.2
3.4
4.9
3.6
Inflation
Survey
Year-end
Update
2015
2015 2016
2.8 2.5
2.0 1.8
6.9 6.5
2.7 2.6
7.4 7.5
4.8 5.3
1.3 2.1
4.3 3.9
2.6 2.9
-3.9 -0.5
4.0 4.5
8.5 8.9
6.8 7.0
-2.9 0.1
3.0
4.5
3.2
3.4
5.0
3.6
Latest
estimates
2014 2015 2016
3.0 3.5 3.3
1.5 4.0 3.2
2.0 1.5 2.2
3.1 4.9 5.1
6.0 5.0 5.5
6.4 6.4 5.3
6.7 6.6 8.8
7.5 6.6 6.0
1.3 0.7 1.6
7.8 15.5 10.0
6.1 5.6 5.0
6.0 7.0 6.0
8.4 9.7 9.2
7.5 14.1 9.6
5.6
4.2
3.7
6.4
4.2
3.0
7.1
4.1
3.0
Survey Yearend Update
2015
2015 2016
4.0 3.3
3.8 3.2
1.5 2.2
4.9 5.1
5.0 5.5
6.6 5.3
7.0 8.8
6.8 6.5
0.7 1.6
15.7 9.0
5.6 5.0
7.0 6.0
9.7 9.2
14.3 8.7
6.5
4.2
3.0
7.1
4.0
2.9
4
Domestic demand is not growing in a robust manner
• Consumption being affected in some economies due to rapid accumulation in
private debt and relatively high inflation
• Investment being affected by slow progress in reforms, a constrained private
sector and high economic uncertainty.
Contributions of private consumption to economic growth in
selected developing Asia-Pacific economies, 2012-2014
5
Contributions of fixed investment to economic growth in selected
developing Asia-Pacific economies, 2012-2014
5
2012
2013
2014
2012
2013
2014
4
3
Percentage points
Percentage points
4
2
1
3
2
1
0
0
-1
-1
Malaysia
Russian
Federation
Indonesia
Thailand
Malaysia
Russian
Federation
Indonesia
Thailand
5
Emerging developments in China have consequences for
global and regional economy
• China is rebalancing the economy towards domestic demand, a welcome development
– this has impacted (net) exports and investment though, which have declined
• Slower industrial production due to lower demand by advanced economies for Chinese
exports and less domestic demand due to higher capacities from previous activity
China slowdown in manufacturing and Industrial output,
2012-2015
China growth contributions, by expenditure, 2005-2014
15
11.5%
54
12
15.0%
53
3.1%
31.9%
42.5%
1.3%
43.7%
7
87.9%
52.1%
67.3%
41.6%
5
56.6%
3
42.5%
45.8%
44.8%
58.2%
48.1%
64.5%
57.1%
54.5%
48.1%
49.3%
50.7%
11
52
1.4%
46.2%
Percentage
9
10
51
9
50
8
49
1
-45.1%
-1
-13.5%
-8.6%
-2.6%
7
48
PMI (manufacturing) RHS
47
-3
Industrial production index
Net exports
Growth
2014
2013
2012
2011
2010
2009
2008
Investment
6
46
5
45
4
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Cosumption
2007
2006
-5
2005
Percentage
13
Percentage change
13
11
55
10.6%
China: Large Spillovers in the region
• Lower domestic demand by China is impacting regional trade.
– Most affected are commodity-exporters (e.g. Indonesia) and manufacturing
exporters (e.g. Singapore, Republic of Korea, Taiwan Province of China)
• In 2015 this impacted both the equity and currency markets in China as well
as the region; as seen again in January 2016
Growth of exports to China for selected Asia-Pacific economies,
2012-2015
Equity market performance for China and selected economies,
2015-2016
160
140
Thailand
China
150
India
110
-20
100
-40
90
2012
2013
2014
Armenia
Azerbaijan
Georgia
Russian Federation
Turkmenistan
Uzbekistan
2015
Kazakstan
80
01-Jan-16
-60
01-Nov-15
0
01-Sep-15
20
Singapore
120
01-Jul-15
40
Korea
130
01-May-15
60
Indonesia
01-Mar-15
80
140
01-Jan-15
100
Index January 2015 = 100
Year-on-year percentage change
120
7
Moderate recovery in advanced economies also affecting the
region given its export-led growth orientation
Monthly export growth for selected North and Central Asian
economies, 2010-2015
130
30
-20
-70
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
– Global trade in 2015 is expected to
show slowest expansion since 2009
80
• …and indirectly through re-exports
from China.
– China has seen consecutive months
of export contraction over second
half of 2015
– This translates into less demand for
products from the region for
processing and onward export by
China
Armenia
Azerbaijan
Kazakhstan
Russian Federation
Monthly export growth for selected AP economies, 2010-2015
70
60
50
40
30
20
10
0
-10
-20
-30
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
• Apart from slowing demand in China,
slow recovery in advanced
economies is affecting exporting
economies in region directly …
Indonesia
Republic of Korea
Thailand
Singapore
8
Impact of high dependence on commodities in NCA economies
Fuel exports and export growth, 2015
100
• Many economies in the NCA region
are dependent on revenues from
natural commodities.
• Commodity-exporting economies have
had to contend with significant
declines in export revenues.
• Poor economic performance and
falling oil prices have eroded fiscal
revenues.
80
60
40
20
0
-20
-40
-60
Azerbaijan Kazakhstan
Russian
Federation
Tajikistan
Armenia
Georgia
Export growth, YoY% change (same period)
• Weak resource sector has impacted
investment.
100 000
100
80 000
80
60 000
60
40
40 000
20
20 000
0
2012
2013
2014
2015
Total FDI - Oil exporting countries
Total FDI - Oil importing countries
Average crude oil price
Millions of USD at current prices
FDI and Oil Price
USD/barrel
• With lower oil prices, FDI may decline
further.
• Low investment will constrain growth
and prevent progress towards
diversification.
Fuel exports (% of merchandise exports), Latest available data
High concentration of commodity exports in NCA economies
Product and Market Concentration of Exports
Complexity of Exports
1.25
140
1.00
Russian
Federatopm
Georgia
Kazakhstan
Uzbekistan
Asia-Pacific
Dev. Asia
Pacific
Azerbaijan
Turkmenistan
Armenia
Kyrgyzstan
60
40
Tajikistan
20
0.50
0.25
0.00
-0.25
-0.50
-0.75
-1.00
0
0
1000
2000
3000
Number of export products
4000
Asia-Pacific
Developed Asia-Pacific
Developing Asia-Pacific
NCA
2013
2011
2009
2007
2005
2003
2001
1999
1997
-1.25
1995
Number of export markets
100
80
0.75
Complexity Index (Global average = 0)
120
Progress in trade facilitation…room for improvement
Average bilateral trade cost, 1996-2012
300
250
200
LDCs
150
Asia-Pacific
East Asia-3
100
NCA-4
International supply chain connectivity
index, 2006 and 2015
50
45
40
35
30
25
20
15
10
5
0
4545
36
36
32
27
35
35
31
28
20
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
23
19
13
50
Based on trade-weighted average of bilateral trade costs with developed
economies. East-Asia-3 includes the three largest economies in East-Asia: China,
Japan and Republic of Korea. NCA-4 includes the four largest economies in North
and Central Asia: Georgia, Kazakhstan, Kyrgyzstan and Russian Federation
28
24
2006
2015
22
14
21
1618
12
Towards “Next Generation” Trade Facilitation in Asia-Pacific
Implementation of Trade Facilitation as a step-by-step process…
WTO TFA Full Compliance
(Minimum implementation score
associated with)
unnext.unescap.org/UNTFSurvey2015.asp
Little Diversification in FDI Structure in NCA economies
Investment heavily focused in natural-resourcesrelated industries – diversification ongoing.
•
–
Geological exploration activities by foreign investors
accounted for more than half of FDI stock.
Azerbaijan
–
•
•
Foreign MNEs increased their investment in energy
and natural-resources-related projects. However, after
a period of growth, this has come to a standstill.
Recently leading international car manufacturers have
established production facilities, prompted also by the
country’s industrial assembly policy.
Kazakhstan
–
•
2011
Russian Federation
–
•
FDI inflows in North and Central Asia, million USD
Investments in the oil and gas industry accounted for
three quarters of the total.
FDI in Kyrgyzstan and Tajikistan dominated by China
Russia is the largest investor in Uzbekistan but ROK and
Singapore have created most jobs
Given current structure - Sustainability of FDI is a
concern.
North and Central Asia
Armenia
2012
2013
2014
77 965 71 547 87 884 40 998
515
489
370
383
Azerbaijan
1 465
2 005
2 632
4 430
Georgia
1 048
911
949
1 279
13 973 13 337 10 221
9 562
Kazakhstan
Kyrgyzstan
Russian Federation
Tajikistan
694
293
626
211
55 084 50 588 69 219 20 958
160
232
105
261
Turkmenistan
3 391
3 130
3 076
3 164
Uzbekistan
1 635
563
686
751
Slower economic activity coupled with lower commodity
prices driving inflation downwards
19
4
-1
2010
2011
2012
2013
2014
2015
2016
East and North-East Asia
Pacific island developing economies
South-East Asia
230
120
210
110
190
100
170
90
150
80
130
70
110
90
All commodity price index (LHS)
Average crude price (RHS)
60
70
50
50
40
Average crude price (USD per Barrel)
Oil and commodity price trends, 2009-2015
All commodity price Index (2005 = 100)
• E.g. higher imported inflation in
North and Central Asia
2009
Developing Asia-Pacific economies
North and Central Asia
South and South-West Asia
• E.g. lower imported inflation in
South-East Asia and East & North
East Asia
• For commodity-exporters, there is
higher exchange rate depreciation
due to low commodity prices.
9
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
• For most commodity-importers,
exchange rate impact is less
pronounced due to lower
commodity prices
14
Percentage
• An important factor behind inflation
dynamics is the effect of commodity
imports/exports on exchange rates
Inflation for developing Asia-Pacific region, 2009-2016
Currency depreciation has accelerated:
US MP normalization, decline in oil price and Chinese growth concerns
General outflow of portfolio capital
100
100
90
80
80
60
70
40
60
50
20
40
0
Crude oil price, USD/Barrel (RHS)
Armenia
Azerbaijan
Georgia
Kyrgyzstan
Tajikistan
Kazakhstan
Russian Federation
2016
2018
• Oil price decline in NCA region has
gone hand-in-hand with currency
depreciation.
• However, competitive devaluations
are not beneficial.
120
01/2013
03/2013
05/2013
07/2013
09/2013
11/2013
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
Countries have allowed currency
weakness due to concerns about
export prospects
110
Index January 2013 = 100
• While initial US rate impact in
December 2015 was factored in,
uncertainty regarding path of increase
is contributing to financial market
volatility
• Weaker economic data from China and
managed depreciation of the Renminbi
is a growing concern, as seen again in
January 2016
Exchange rate indices in selected Asia-Pacific
economies, 2013-2015
Note: A declining trend represents depreciation and vice versa
15
Monetary policy constrained by capital outflow concerns
• Most economies have lowered
policy rates recently, with the
exception of some Central
Asian economies
2012-2015
18
16
14
12
Per cent
• Despite subdued growth and
inflation outlook, risk of
capital outflow and financial
stability considerations
further hampers monetary
easing
Policy rates in selected developing Asia
10
8
6
• Countries more at risk of
excessive outflow are those
with weak macroeconomic
fundamentals and substantial
commodity dependence
4
2
0
Armenia
Azerbaijan
Georgia
Kazakhstan
Kyrgyzstan
Russian Federation
Tajikistan
Domestic financing costs in the region may rise due
to increase in US interest rate
• US federal funds rate expected to
gradually rise in 2016 and could
reverse part of the flow of foreign
funds invested in the region
– Impact on equity and debt market
and cross-border bank loans, and
pressure on exchange rates
• Whether domestic interest rates will
increase accordingly depends on
country-specific factors, such as...
– Exchange rate regime, external debt,
asset prices, effectiveness of macroprudential measures, etc.
Asia-Pacific policy rate and United States federal funds rate,
2012-2015
Rapid increases in private debt call for vigilance
• Household debt in Malaysia,
Thailand on a par with OECD
levels, while China holds more
corporate debt than the US
Household, corporate and sovereign debt in 2014, % of GDP
– Exposure to real estate sector and
concentration in low income
households and low profit firms
• Risks for financial stability and
economic growth prospects
– Pressure on debt servicing
capacity if financing costs rise
when income growth is slowing
Debt service ratios (DSR) for the private non-financial sector
Indebtedness in NCA has also increased
Household debt, % of GDP
25
• Levels of household debt have
increased in NCA region.
2013
2014
20
% of GDP
– Weak economic outlook may
encourage households and
businesses to deleverage.
2012
15
10
5
0
Kyrgyzstan
• Non-performing loan ratios have
increased in many economies.
Azerbaijan
Armenia
Russian
Federation
Georgia
Non-performing loans ratio
35
2013
2014
2015
30
25
% of total loans
– Impact of currency depreciation
may further affect financial sector.
Kazakhstan
20
15
10
5
0
Georgia
Kyrgyzstan
Armenia
Azerbaijan
Tajikistan
Russian Kazakhstan
Federation
Fiscal policy can play a proactive role,
though some economies face constraints
Fiscal balance, regional average, 2001-2016
•
…to stabilize the economy
– More countercyclical and
expansionary policy can be adopted
•
… and support inclusive, longterm growth
– Spending on education, health and
infrastructure is low or uneven
•
1
0
-1
-2
-3
-4
Mean, unweighted
Median
Fiscal space contingent on tax
and other reforms
– But there are no mechanical and
universally accepted thresholds
20
Medium term economic challenge is to strengthen productivity and
make economic growth more inclusive
• Despite tremendous progress,
development has not been inclusive
in the region.
Labour income share in Asia and the Pacific from 1991 to
2011 (in per cent of output)
54%
52%
50%
• Higher economic growth has not
created enough decent jobs, and
higher labour productivity has not
translated into commensurate
increases in real wages.
• With growth of total factor
productivity having declined in recent
years, greater effort is needed to
strengthen productivity and ensure
that its benefits are passed on to the
labour force.
48%
46%
44%
42%
40%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Average for AP
Annual percentage growth rate of total factor productivity
and labour productivity, 1991-2013
Five takeaways
1. A “new normal” of slower economic growth continues amidst weak
global trade and China’s slow growth; AP economies will need to
look more towards domestic and regional demand.
2. Fiscal policy can tackle cyclical and long-term challenges, and
relieve pressure on monetary policy, provided tax revenues are
strengthened.
3. Economies in NCA need to diversify and reduce dependence on
commodities.
4. Rapid increases in private debt call for vigilance, especially as
financing costs are likely to increase in the region.
5. Productivity growth should be accelerated and its benefits
adequately shared with the labour force.
6. With the adoption of 2030 Agenda for Sustainable Development, it
is not just about economic growth anymore ---- we live in the era of
sustainable development.
2
2
Thank you
www.unescap.org
twitter.com/unescap
facebook.com/unescap
youtube.com/unescap