10/04/2015

Asian Development Outlook 2015:

Financing Asias Future Growth
Joseph E. Zveglich, Jr.
Director, Macroeconomic Research Division
Asian Development Bank

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.

10/04/2015

Key messages
Steady growth in developing Asia continues: 6.3% in 2015
and 2016
Growth underpinned by domestic Reform, commodity
price Reductions, and advanced economy Recovery
India expected to grow at 7.8%, faster than PRCs 7.2%
Low oil prices an opportunity for fiscal reforms
Financial development must support growth, inclusion,
and stability

Economic outlook

10/04/2015

Developing Asia extends its steady

growth
GDP growth (%)
10
8

10-year average: 7.6

5-year average: 7.1

6
9.3

7.3

6.2

6.5

6.3

6.3

6.3

2012

2013

2014

2015f

2016f

2
0
2010

2011

f: forecast

contributing the most to global growth

Percentage contributions to global GDP growth
40

Global cumulative GDP growth, 20092014 = 21.4%

31.2

20

11.8

7.9

9.6

ASEAN

US

1.8

1.6

Japan

Euro area

1.4

3.7

Japan

Euro area

0
PRC
40

31.9

India

Global GDP growth, 2015 = 3.6%

15.2

20

8.0

14.4

0
PRC

India

ASEAN

US

Asia accounts for about 60% of global growth;

still fastest-growing region
6

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Key growth drivers for Asia The 3 Rs

Reform at home
Reduction in
commodity prices
Recovery in
advanced economies

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

GDP growth (%)

2014
2015f
2016f

US

Euro
area

Japan

f: forecast
7

High overall growth masks

divergence across countries
12

2014

2015f

2016f

5-year ave.

10-year ave.

10
8
6
4
2
0
East Asia

South Asia Southeast Central Asia The Pacific

Asia

f: forecast
8

10/04/2015

PRC: Gradual moderation to a new normal

Consumption
Net exports

Percentage points,
year to date

Investment
Gross domestic product

9
6
3
0

-3
Q1
2012

Q2

Q3

Q4

Q1
2013

Q2

Q3

Q4

Q1
2014

Q2

Q3

Q4

India: Reforms begin to bear fruit

Federal budget indicators

Purchasing managers indexes

10

10/04/2015

ASEAN poised for a rebound

GDP growth, Southeast Asia (%)
8

2014

2015f

2016f

5-year ave.

10-year ave.

6
4
2
0
-2
INO THA PHI MAL SIN

VIE BRU CAM LAO MYA

f: forecast
INO=Indonesia; THA=Thailand; PHI=Philippines; MAL=Malaysia; SIN=Singapore; VIE=Viet Nam; BRU=Brunei Darussalam;
CAM=Cambodia; LAO=Lao PDR; MYA=Myanmar
11

Indonesia: Reforms to spur growth

Fiscal indicators

Consumer and business

confidence indexes

12

10/04/2015

Tumbling commodity prices

Commodity price indexes
2010=100

Futures

Brent crude

160
140
120
100
80
60
40

Food
Copper
Beverage
Natural gas

2010

2011

2012

2013

2014

2015

2016

Sources: World Bank Pinksheets; Bloomberg

13

ease inflation pressures

Inflation (%)
8
6
5-year average: 4.3
10-year average: 4.1

4
6.0
2

4.4

4.1

3.8

3.1

2.6

3.0

2012

2013

2014

2015f

2016f

0
2010

2011

f: forecast

14

10/04/2015

and widen current account surplus

Current account (% of GDP)
15
PRC

10
5

Developing Asia
Japan

European Union

-5

US

-10

f: forecast
15

Risks tilted to the downside

Slower-than-expected growth in PRC or India
Global consequences of Greek debt crisis and
deepening recession in the Russian Federation
Capital outflow due to impending increase in
US interest rates
Uptick in oil prices due to geopolitical factors

16

10/04/2015

Oil price drop a boon for global recovery

Lowered production and transport costs for
many industries
Helped keep consumer price inflation in check
But pass through lower for oil producers and
where prices are not market-determined

Lower inflation provided scope to reduce

interest rates to stimulate economic activity

17

and an opportunity for reform

Diesel pump prices ($/liter)
1.4

Hollow bars: Jun 2014

Filled bars: Jan 2015

1.2
1.0
0.8
0.6
0.4

JPN HKG SIN PRC TAJ VIE USA PHI IND SRI THA BAN KGZ AZE KAZ MAL INO
Reduce
subsidy?
Increase
tax?

Y
Y

AZE=Azerbaijan; BAN=Bangladesh; HKG=Hong Kong, China; IND=India; INO=Indonesia; JPN=Japan; KAZ=Kazakhstan; KGZ=Kyrgyz Republic; MAL=Malaysia;
PHI=Philippines; PRC=China, Peoples Rep. of; SIN=Singapore; SRI=Sri Lanka; TAJ=Tajikistan; THA=Thailand; USA=United States; VIE=Viet Nam

18

10/04/2015

Financing Asias future growth

19

Asias financial systems

still lag advanced economies
Financial structure around the
world (% of GDP), 2011

Pension and mutual fund assets

(% of GDP), 2013

400
350
300
250
200
150
100
50
0

Australia
United States
United Kingdom
Brazil
Mexico
Korea, Rep. of
India
PRC
Pakistan

143

Bonds
Stock market
Banking system
46

84
110
OECD

39
46
42

71
60

Latin Dev. Asia

America

Source: ADB estimates based on data from Beck et al. (2000, 2009)
and Cihak et al. (2012).

Pension fund
Mutual fund

100 200 300

Sources: OECD (2015), Pension funds' assets (indicator). doi:

10.1787/d66f4f9f-en (accessed on 13 February 2015); Worldwide
Mutual Fund Assets, available:
http://www.ici.org/research/stats/worldwide

20

10

10/04/2015

resulting in high cost of capital

40
Hollow bars: lending rate, 2011
Filled bars: deposit rate, 2011

30
20
10
0

ARM=Armenia; AZE=Azerbaijan; BAN=Bangladesh; BHU=Bhutan; BRU=Brunei Darussalam; FIJ=Fiji; HKG=Hong Kong, China;
INO=Indonesia; KGZ=Kyrgyz Rep.; KOR=Korea, Rep. of; MAL=Malaysia; MLD=Maldives; MON=Mongolia; MYA=Myanmar;
OECD=Organisation for Economic Co-operation and Development; PHI=Philippines; PNG=Papua New Guinea; PRC=China, Peoples
Rep. of; SAM=Samoa; SIN=Singapore; SOL=Solomon Islands; SRI=Sri Lanka; TAJ=Tajikistan; THA=Thailand; TON=Tonga; VIE=Viet Nam
Source: IMF, International Financial Statistics.

21

Financial deepening associated with

higher investment and faster growth
Developing Asia
Latin America
Bank loans to GDP (%),
Dec. 2013/Mar. 2014
200
150

MAL

100

VIE
BRA
COL
PHI
ARG

50
0

PRC

KOR
THA

10

CHL
INO
SRI
VEN
MEX
PER

IND

20
30
40
Investment to GDP (%), 2000-2013

50

22

11

10/04/2015

but may not be inclusive

Log Gini in market income
0.15

0.10

0.05

0.00

-0.05

y=0.008x2 0.045x + 0.063

(0.002)***

-0.10

(0.013)*** (0.021)***
5

Log private credit to GDP

23

Scope to make finance more inclusive

Formal account penetration rate
(% of adults with account at a
formal financial institution)
100
90
80
70
60
50
40
30
20
10
0

60

% of enterprises with credit

line/loan

50
40
30

93

54
41

20
53
28
HIC

EE

LAC

27

24

33

10
17

Dev. MENA SSA

Asia

19

14

0
LAC

EE

Dev.
Asia

SSA

MENA

EE=Emerging Europe; HIC=high-income countries; LAC=Latin America & Caribbean; MENA=Middle East & North Africa; SSA=SubSaharan Africa
Sources: Ayyagari and Beck (forthcoming) based on data from Demirg-Kunt and Klapper (2013); World Bank Enterprise
Surveys, 20062014.
24

12

10/04/2015

which can help reduce inequality

Gini index of inequality in equivalized
household disposable income

Correlation between income inequality and financial inclusion

60
50
40
30
20

y = -0.3635x + 39.264
(0.1696)

(1.8424)

10
0
0

10

15

20

25

30

Loan from a financial institution in the past year, income, bottom 40%
(% age 15+), 2011
25

Financial instability disrupts

growth and hurts the poor
15

Pre-AFC growth, 19901996

10

25

Post-GFC unemployment, 20082013

20

5
15
0
-5

10

-10

-15

Post-AFC growth, 1998

Korea, Indonesia Thailand Malaysia
Rep. of
AFC=Asian financial crisis; GFC=global financial crisis

Pre-GFC unemployment, 20002007

0
Spain

Greece

Ireland

Portugal
26

13

10/04/2015

so ensuring stability must be part

of the financial development agenda
Risks demand vigilant monitoring of financial
stability
Bank regulation is first line of defense against
financial shocks
Macroprudential policies have potential for
shoring up regional financial stability
FDI and diverse foreign funding
can mitigate external financial shocks
27

Key messages
Steady growth in developing Asia continues: 6.3% in 2015
and 2016
Growth underpinned by domestic Reform, commodity
price Reductions, and advanced economy Recovery
India expected to grow at 7.8%, faster than PRCs 7.2%
Low oil prices an opportunity for fiscal reforms
Financial development must support growth, inclusion,
and stability

28

14