Transcript

With Jerald Schiff, Senior Advisor; and Nigel Chalk, Division Chief, Asia and Pacific Department
Washington, D.C., November 24, 2008

MS. KAMATA: I am Yoshiko Kamata, Media Relations at the International Monetary Fund. Welcome to this conference call on the release of the Regional Economic Outlook for Asia and the Pacific. All of you have already seen, I guess, the report, the press release and the video clip, which are on our Media Briefing Center. The embargo will be lifted at 10:00 in the morning Washington time today, which is 1500 GMT.

Here with me is Mr. Jerald Schiff, Senior Adviser in the Asia and Pacific Department and the lead author of the report. Mr. Schiff is joined by Ms. Kalpana Kochhar, Deputy Director of the Asia and Pacific Department, and Mr. Nigel Chalk, the Division Chief in the department. Mr. Schiff will have brief opening remarks and then we'll be happy to take your questions.

MR. SCHIFF: Despite Asia's strong fundamentals, notably a substantial cushion in external reserves and robust corporate and banking sectors, the region is being buffeted by large external shocks. First, world demand for Asia's exports is waning, and forward-looking indicators point to a shaper decline ahead. Second, the financial environment has become extremely challenging. Global deleveraging is contributing to tighter financing conditions, capital outflows, depressed equity prices, a weakening of a number of regional currencies, and higher sovereign and bank spreads. In this context, we expect a substantial slowdown in Asia with growth slowing from 7-1/2 percent in 2007, to 6 percent this year, and 4.9 percent in 2009. With growth slowing and commodity prices stabilizing, inflation should moderate.

Risks to this outlook are unusually large and tilted squarely to the downside. In particular, a sharper-than-expected global slowdown and a more protracted period of financial turmoil could raise pressures on corporates and households in Asia, contributing to a rise in bad loans and risking an adverse cycle of tightening credit conditions and deteriorating growth. In this difficult environment, policymakers need to focus on ensuring financial stability and the functioning of credit markets while using macroeconomic policies to support growth.

Countries in the region have already taken a number of positive measures to stabilize financial conditions, but more may be needed including further provision of liquidity and perhaps public recapitalization of banks should this become necessary. With inflation having peaked in most countries, there is room for further monetary policy easing. Finally, progress in fiscal consolidation in recent years will allow many countries to put in place stimulus packages, and a number of countries have already moved in this direction. Thank you.

MS. KAMATA: Thank you, Jerry. We can now take your questions, please.

QUESTIONER: Thank you. The growth figures that you've just cited are for the entire Asia region, I presume. Can you single out China and what growth expectations you have for China and say how central China is generally to your projections for the fate of the region over the next year or so?

MR. CHALK: I'm Nigel Chalk, Division Chief for the China Division of the Fund. Maybe I'll talk about the China forecast specifically, and perhaps Jerry can talk a little bit about the impact on the region. For China, we see growth next year around 8-1/2. That incorporates what we expect to be their fiscal stimulus program, although the details of that are still evolving, and also the monetary loosening that they've done so far this year. That range of 8 to 9 is a similar range that the government also I think has in mind and we're fairly comfortable with that range.

MR. SCHIFF: Obviously the regional impact is very large. On one hand, to the extent that China's somewhat slowing growth this year reflects lower exports, that will affect the region substantially as China plays such a central role in the regional production process. We already can see in recent data that exports from the region to China have been slowing pretty sharply which suggests that the global slowdown is starting to affect the regional production process. On the flip side, to the extent that China's domestic demand can be strengthened and a policy stimulus can be effective, that will surely help support growth of the region to a great extent.

QUESTIONER: You cited some figures for the growth projection. I think you said 7.5 percent 2007, 6 percent in 2008, and I think 4.9 percent in 2009. Do those apply to the entire Asia region?

MR. SCHIFF: That's for the entire Asia region. For emerging Asia, the numbers would be 9.5 percent in 2007, 7.7 percent this year, and 6.5 percent in 2009.

QUESTIONER: I have actually two questions. The first one is about exports. You were projecting slower export growth this year and next. Does this mean that decoupling is no longer valid for emerging Southeast Asian nations like the Philippines? And number two, since export growth is slowing, what are the other sources of economic growth particularly for the Philippines?

MR. SCHIFF: With regard to decoupling, we never actually expected the region to decouple. Actually, if you look at the last Regional Economic Outlook, we treated that subject in some detail, so obviously with the entire global economy slowing, exports of the region will necessarily slow. And more to the point, in this particular situation we can see that it's not just trade linkages but also financial-sector linkages that are causing delinking to be even less of a plausible expectation.

About the components of growth, I don't have the figures for the Philippines in front of me, but for the region as a whole, net exports will have a slightly negative impact on growth, so basically all of the growth will be coming from domestic demand. Domestic demand will be supported to some extent by lower oil prices which represents an important turnaround from the past several years, and also in many countries by policy stimulus. But still I think it's an open question as to how strong domestic demand can be when exports are declining, and that certainly represents an important risk to our projections.

QUESTIONER: Good morning. You mentioned China's stimulus plan, and the IMF has previously said that global stimulus equal to about 2 percent of world GDP will be justified. Given that there is some debate about how much of China's stimulus package is really new spending, do you think Asia needs to consider more stimulus, and if so, which country should take the lead? Is it just China or do we need more from other countries?

MR. CHALK: I'll speak to the China issue. I think China definitely has room for more stimulus and the government has announced this initial stimulus package, and potentially they can announce another one later on. We'll see more clarity in that early next year when they announce the budget for next year which will be around March. But there has already been discussion within China about further stimulus including some measures to stimulate private consumption and I think they've definitely got the room for that and, should the downside scenario that we image evolve, then that's something they definitely should look at. In general our preference would be that stimulus should come through the fiscal side rather than from the monetary side.

QUESTIONER: Other countries in Asia?

MR. SCHIFF: I think that there are a number of countries in Asia where fiscal stimulus is feasible and probably desirable. Several countries have already announced fiscal stimulus packages, for example, Korea, and many countries in the region have pretty low deficits and debt, although there are some exceptions, and so especially if growth slows more than we are now anticipating, there would be quite a bit of scope for more fiscal stimulus in the region.

QUESTIONER: I just had a question specifically about Japan. Some people have said that although obviously they have a very significant debt, that there's more room for fiscal stimulus there than has yet been used up. Do you have any views on that?

MR. SCHIFF: We think that the fiscal measures they've already announced are appropriate and should help limit the downside risks to growth. Their scope for further fiscal stimulus is obviously limited by their very large debt burden, but should growth deteriorate, there could be some scope for some modest fiscal easing in Japan beyond what's already been announced, but obviously there are pretty tight limits on what they can do.

QUESTIONER: Just to clarify, in the report I noticed that it says global growth is projected to decline from 3.8 percent in 2008 to 2.2 in 2009, and that's actually different than the forecast that was given in the Global Growth Update earlier this month which was 3.7 in 2008. So I was wondering if you could just clarify. Is that a rounding error or are you guys actually revising your global growth forecast?

MR. SCHIFF: No, that's just an error and not a rounding error. The correct number should be 3.7.

MS. KAMATA: Thank you very much for joining this conference call this morning.