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World Economic and Financial Surveys

Regional Economic Outlook:
Asia and Pacific

October 2007

Ordering Information

Economic developments in Asia have been positive so far in 2007. Growth has been stronger (and in many cases more balanced) than expected across much of the region, again led by China and India, and inflation pressures remain largely contained. Moreover, Asia weathered the recent financial turbulence relatively well. The outlook is favorable, with growth expected to decline only modestly in 2008 as foreign demand for Asia’s exports slows. The main risk for the region is a sharper-than-expected global slowdown.

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Contents

Definitions
Executive Summary
I. Overview
  Recent Macroeconomic Developments
  Recent Financial Market Developments
  The Outlook and Risks
  Policy Implications
II. Ten Years After the Crisis: How Much Stronger Is Asia?
  Key Lessons from the Asian Crisis
  The Challenges Ahead
  Conclusions
III. Sterilized Intervention in Emerging Asia: Is It Effective?
  What Is Sterilized Intervention?
  Motives for Intervention, Channels for Effectiveness, and Evidence from the Literature
  Has Intervention Been Effective in Emerging Asia?
  Testing Effectiveness
  Conclusions
IV. The Evolution of Trade in Emerging Asia
  Evolving Asian Trade
  Explaining the Changing Pattern of Trade: The Role of Comparative Advantage
  The Rise in Intraregional Competition
  Summary and Implications
References
Boxes
1.1. Asian Electronics Exports: Recent Trends and the Outlook
1.2. "Other Investment" Flows in Asia: Why the Large Changes?
1.3. Sovereign Wealth Funds
1.4. Growth in the Asset Management Industry in Hong Kong SAR and Singapore
2.1. A Selection of Recent Asia Critiques
3.1. The Mechanics of Intervention
3.2. The Effectiveness of Intervention: Additional Tests
Tables
1.1. Asia: Current Account Balances
1.2. Asia: Official Reserves
1.3. Asia: Real GDP Growth
1.4. Asia: Real Export Growth
1.5. Asia: Investment Growth
1.6. Asia: Private Consumption Growth
1.7. Asia: Selected Fiscal Indicators
3.1. Cumulative Foreign Exchange Flows and Reserve Accumulation
3.2. Reserve Adequacy Ratios
3.3. Foreign Exchange Turnover
3.4. Sterilization Coefficient
3.5. Change in Reserves and Level of the Exchange Rate
3.6. Change in Reserves and Change in the Exchange Rate
3.7. Change in Reserves and Volatility of the Exchange Rate
4.1. Direction of Exports, 2006
4.2. Source of Imports, 2006
4.3. Direction of Exports in Asia, 2006
4.4. Source of Imports in Asia, 2006
4.5. Direction of Manufactured Goods Exports in Asia, 2005
Figures
1.1. Emerging Asia: GDP Growth
1.2. NIEs: Contributions to GDP Growth
1.3. ASEAN-5: Contributions to GDP Growth
1.4. Asia: Industrial Production
1.5. Emerging Asia: Retail Sales Volume
1.6. Emerging Asia: Exports of Goods
1.7. Asia: Electronics Exports
1.8. EEmerging Asia: Core CPI
1.9. Emerging Asia: Food CPI
1.10. Emerging Asia: Consumer and Producer Prices
1.11. Selected Asia: Nominal Effective Exchange Rates
1.12. NIEs: Nominal Effective Exchange Rates
1.13. ASEAN-5: Nominal Effective Exchange Rates
1.14. Emerging Asia: Net Equity Inflows
1.15. Sharpe Ratioss
1.16. Yen Trading Positions
1.17. Yen Carry Trade Return (Short JPY, Long Listed Currency) (July 19, 2007–August 17, 2007)
1.18. Yen Carry Trade Return (Short JPY, Long Listed Currency)
(August. 17, 2007–September. 28, 2007)
1.19. Credit Default Swaps: 5-Year Sovereign Spreads
1.20. EMBI Global Sovereign Spreads
1.21. Hedge Funds: Total Return
1.22. Private Sector Inflation Forecasts
2.1. Crisis-Affected Countries: Nominal Exchange Rates, 1994–97
2.2. Crisis-Affected Countries: Nominal Exchange Rates, 1999–2007
2.3. Crisis-Affected Countries: Corporate Debt-Equity Ratio
2.4. Selected Asia: Household Assets-Liabilities Ratio
2.5. Foreign Currency Loans
2.6. Nonperforming Loans Ratio
2.7. Emerging Asia: Corporate Governance Ratings
2.8. Emerging Asia: Governance Indicators
2.9. Emerging Asia Excluding India: Real GDP and Real Export Growth
2.10. Real GDP and Electronics Exports Growth
2.11. Credit to Private Sector
2.12. Real House Prices and Real Income, 1999–2007
2.13. Stock Market Indices
2.14. Price-Earnings Ratio
2.15. China: GDP Components
3.1. India: Intervention and Change in Reserves
3.2. Selected Asia: Foreign Exchange Intervention
4.1. Asia’s Share in World Trade Flows
4.2. Exposure to Exports
4.3. Trade among Industrial Asia, Emerging Asia, NAFTA, and EU-15
4.4. Trade among Industrial Asia, China, NIEs, and ASEAN-5
4.5. Intraregional Trade in Emerging Asia: China-Related vs. Other
4.6. Intra-Industry Trade Index by Region
4.7. Intermediate Goods among Manufactured Goods Trade Flows
4.8. Emerging Asia’s Exports by Level of Commodity Sophistication
4.9. Patterns of Exports to Emerging Asia
4.10. Patterns of Exports to Developed Economies
4.11. Competition between Economy A and B: Export Overlap Measure
4.12. Two-Dimensional Charts of Competition Measures: Competition from Other Subregions in Asia
4.13. Comparison of Unit Prices by Exporters
4.14. Developed Economies’ Share of Consumer Goods Exports from Emerging Asia
4.15. Breakdown of Exposure to Exports