Asia and Pacific
Consolidating the Recovery and Building Sustainable Growth: Asia and Pacific
October 2010
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World Economic and Financial Surveys
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One year after the deepest recession in recent history, Asia is leading the global recovery. The Regional Economic Outlook: Asia and Pacific discusses the near-term outlook for the region, as well as the medium-term policy challenges that countries face. As in many emerging and developing markets, Asia rebounded swiftly during 2009 and in the first quarter of 2010, and in the near term the region is expected to continue leading the global recovery. In the medium term, the global crisis has highlighted the importance for Asia of ensuring that private domestic demand becomes a more prominent engine of growth. |
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| Definitions | |||
| Executive Summary | |||
| I. | Moving to Sustainable Growth: Risks and Challenges | ||
| A. Recent Developments and Emerging Pressures | |||
| B. Economic Outlook | |||
| C. Risks | |||
| D. Policy Challenges | |||
| II. | Inflation Dynamics in Asia | ||
| A. Introduction | |||
| B. Explaining Inflation Dynamics in Asia | |||
| C. A Closer Look at Inflation Dynamics in China and India | |||
| D. Conclusions and Policy Implications | |||
| Appendix 2.1. Global VAR | |||
| Appendix 2.2. Structural VAR (SVAR) | |||
| III. | Investment and Rebalancing in Asia | ||
| A. Introduction | |||
| B. Investment Trends in Asia | |||
| C. What Drives Investment in Asia? | |||
| D. Policy Implications: How Can Asia Facilitate Rebalancing Through Investment? | |||
| E. Summary | |||
| Appendix 3.1. Firm-Level Analysis | |||
| IV. | Low-Income Countries and the Pacific Islands | ||
| A. Introduction | |||
| B. Postcrisis Fiscal Adjustment in Asian Low-Income Countries | |||
| C. Sri Lanka: At a Crossroads | |||
| D. Mongolia: A Remarkable Turnaround | |||
| E. Fiscal Challenges for Compact Countries—Marshall Islands, Micronesia, and Palau | |||
| References | |||
| Boxes | |||
| Chart | Data | 1.1 | Global Volatility and Forex Returns in East Asia |
| Chart | Data | 1.2 | The Yen’s Appreciation and Its Implications for Japan’s Outlook |
| Chart | Data | 1.3 | A Financial Conditions Index for Asia |
| Chart | Data | 1.4 | Are House Prices Rising Too Fast in China? |
| Chart | Data | 1.5 | Capital Flows and Domestic Demand in Emerging Asia |
| Chart | Data | 1.6 | Asia and Global Financial Reforms 21 |
| Chart | Data | 1.7 | Sovereign Spreads and the Risk of Contagion for Asia |
| Chart | Data | 1.8 | Fiscal Policy in Commodity-Exporting Countries |
| Chart | Data | 1.9 | Bank Funding and Liquidity Rules in Australia and New Zealand |
| Chart | Data | 2.1 | Persistence of Food Price Inflation |
| Tables | |||
| 1.1 | Asia: Real GDP Growth | ||
| 1.2 | Selected Asia: Medium-Term Fiscal Objectives | ||
| 2.1 | Selected Asia: Pass-Through from Output Gap to Core Inflation | ||
| 2.2 | China: NKPC—Baseline GMM Estimates with Nonfood Inflation | ||
| 2.3 | India: NKPC—Baseline GMM Estimates with Core Inflation | ||
| 2.4 | India: NKPC—Baseline GMM Estimates with Wholesale Price Inflation | ||
| 2.5 | India: NKPC—Open Economy GMM Estimates with Core Inflation | ||
| 3.1 | Determinants of Private Investment Spending | ||
| 3.2 | Effect of Infrastructure on Private Investment Spending | ||
| 3.3 | How Would an Improvement in Fundamentals Affect Investment in Asia? | ||
| 3.4 | NIEs and Japan: Changes in Fundamentals, 1990–97 versus 2000–07 by Firm | ||
| 3.A1 | Selected Financial Indicators for Firms | ||
| 3.A2 | Investment Equations, Full Sample (1991–2008) | ||
| 3.A3 | Asia: Investment Equations, Sub-Sample Analysis | ||
| 4.1 | Asian LICs: Planned and Ongoing Fiscal Reforms | ||
| Figures | |||
| Chart | Data | 1.1 | Selected Asia: Contributions to GDP Growth |
| Chart | Data | 1.2 | Export-Oriented Asia: Real GDP |
| Chart | Data | 1.3 | China: Urban Real Fixed Asset Investment |
| Chart | Data | 1.4 | Asia: Merchandise Exports |
| Chart | Data | 1.5 | Asia: Industrial Production |
| Chart | Data | 1.6 | Selected Asia: Manufacturing Inventories and Shipments |
| Chart | Data | 1.7 | United States: Electronics Inventories-to-Sales Ratio |
| Chart | Data | 1.8 | Asia: Direction of Exports |
| Chart | Data | 1.9 | Asia: Retail Sales Volume |
| Chart | Data | 1.10 | Asia: Net Capital Inflows |
| Chart | Data | 1.11 | Selected Emerging Asia: Net Foreign Investment in Equity Markets |
| Chart | Data | 1.12 | Emerging Asia: Foreign Currency Bond Issuance and Foreign Holdings of Government Bonds |
| Chart | Data | 1.13 | Asia: Stock Markets |
| Chart | Data | 1.14 | Selected Asia: Real Effective Exchange Rate |
| Chart | Data | 1.15 | Asia: Real Policy Rates |
| Chart | Data | 1.16 | Asia: Credit to Private Sector |
| Chart | Data | 1.17 | Selected Asia: Bank Spreads |
| Chart | Data | 1.18 | Asia: Contributions to Change in Financial Conditions Index (FCI) since 2009:Q4 |
| Chart | Data | 1.19 | Asia: Estimated Output Gap Closure Dates |
| Chart | Data | 1.20 | Asia: Headline Consumer Prices |
| Chart | Data | 1.21 | Selected Asia: Property Prices |
| Chart | Data | 1.22 | Asia: Fiscal Impulse |
| Chart | Data | 1.23 | Asia: Cyclically Adjusted General Government Balance |
| Chart | Data | 1.24 | Selected Asia: Unemployment Rate |
| Chart | Data | 1.25 | Selected Asia: Real Wage/Earnings |
| Chart | Data | 1.26 | Selected Export-Oriented Emerging Asia: Link Between Exports and Employment |
| Chart | Data | 1.27 | Emerging Asia: Contribution to Recovery of Private Investment (2009:Q1–2010:Q1) |
| Chart | Data | 1.28 | Asia: Real Cost of Equity |
| Chart | Data | 1.29 | Selected Asia: Manufacturing Capacity Utilization |
| Chart | Data | 1.30 | Commercial Banks’ Loan-to-Deposit Ratio |
| Chart | Data | 1.31 | China and India: Contributions to Growth |
| Chart | Data | 1.32 | NIEs and ASEAN-5: Contributions to Growth |
| Chart | Data | 1.33 | Industrial Asia: Contributions to Growth |
| Chart | Data | 1.34 | Asia: Consumer Prices |
| Chart | Data | 1.35 | Asia: Current Account Balance |
| Chart | 1.36 | Asia: GDP Growth | |
| Chart | Data | 1.37 | Selected Asia: Share of Non-Asian Final Demand in Asian Value Added |
| Chart | Data | 1.38 | Selected Asia: Impact of 1 Percentage Point Decline in G-2 Final Demand on GDP Growth |
| Chart | Data | 1.39 | Outstanding Cross-Border Claims of Asian Banks, 2009 |
| Chart | Data | 1.40 | Outstanding Claims of BIS Reporting Banks on Asia, 2009 |
| Chart | Data | 1.41 | Foreign Currency Refinancing Need for Nonfinancial Private Corporations |
| Chart | Data | 1.42 | Asia: Local Currency Refinancing Need for Nonfinancial Private Corporations |
| Chart | Data | 1.43 | Gross Public Debt, 2009 |
| Chart | Data | 1.44 | Emerging Asia: Stock Market Movements and Global Risk Aversion |
| Chart | Data | 1.45 | Asia: Monetary Tightening since 2009:Q3 |
| Chart | Data | 1.46 | Emerging Asia: Excess Liquidity |
| Chart | Data | 1.47 | Asia: Policy Rates and Estimated Taylor-Rule Rates |
| Chart | Data | 1.48 | Asia: Household Debt, 2009 |
| Chart | Data | 1.49 | Emerging Asia (excl. China): Exchange Market Pressure Index |
| Chart | Data | 1.50 | Asia: Projected General Government Gross Debt (2010–15) |
| Chart | Data | 1.51 | Equity and Debt Portfolio Inflows |
| Chart | Data | 1.52 | Global Imbalances |
| Chart | Data | 2.1 | Asia (excl. Japan): Headline Consumer Price Index |
| Chart | Data | 2.2 | Asia (excl. Japan): Core Consumer Price Index |
| Chart | Data | 2.3 | Emerging Asia: Food and Energy Weights in Consumer Price Index Baskets |
| Chart | Data | 2.4 | Asia (excl. Japan): Headline Inflation and Global Commodity Price Inflation |
| Chart | Data | 2.5 | United States and Emerging Asia: Oil Demand |
| Chart | Data | 2.6 | Emerging Asia: Metal and Soy Demand |
| Chart | Data | 2.7 | Selected Asia: Contribution of Supply Shocks to Inflation Variation |
| Chart | Data | 2.8 | Selected Asia: Contribution of Commodity Price Shocks to Inflation Variation and Oil Intensity |
| Chart | Data | 2.9 | Selected Asia: Contribution of Aggregate Demand Shocks to Inflation Variation |
| Chart | Data | 2.10 | Asia (excl. Japan): Year-on-Year Inflation and Output Gap |
| Chart | Data | 2.11 | Change in the Relative Contribution of Shocks Between 1986–99 and 2000–10 |
| Chart | Data | 2.12 | Selected Asia: Relative Contributions of Domestic, Regional, and Global Factors to Inflation Variation |
| Chart | Data | 2.13 | Selected Asia: Contribution of Domestic Demand Shocks to Inflation and Opennes |
| Chart | Data | 2.14 | Contribution of Regional Demand Factor to Fuel and Food Price Inflation |
| Chart | Data | 2.15 | China: Consumer Price Inflation |
| Chart | Data | 2.16 | India: Headline Inflation (WPI) and Inflation Volatility |
| Chart | Data | 2.17 | China: Impact of Foreign Output Gap |
| Chart | Data | 2.18 | China: Impact of Monetary Policy |
| Chart | Data | 2.19 | China: Variance Decomposition of Inflation |
| Chart | Data | 2.20 | India: Inflation and Output Gap |
| Chart | Data | 2.21 | India: Actual and Simulated Inflation |
| Chart | Data | 3.1 | Asia: Gross Fixed Capital Formation (GFCF) and Gross Saving |
| Chart | Data | 3.2 | Export-Oriented Asia: Contribution to Change in Average Share of GFCF in GDP |
| Chart | Data | 3.3 | Selected Asia: Change in Investment by Type |
| Chart | Data | 3.4 | Phone Connections |
| Chart | Data | 3.5 | Electricity Generation |
| Chart | Data | 3.6 | Firm-Level Investment Rate, 2000–07 |
| Chart | Data | 3.7 | Composition of Investment by Sector |
| Chart | Data | 3.8 | NIEs: Firm-Level Investment Rate, by Size and by Sector |
| Chart | Data | 3.9 | Export-Oriented Asia: GFCF—Change in Share versus Change in Relative Prices |
| Chart | Data | 3.10 | Corporate Sector Leverage: 2000–08 |
| Chart | Data | 3.11 | Uncertainty: 2000–08 |
| Chart | Data | 3.12 | Effective Corporate Tax Rates in OECD |
| Chart | Data | 3.13 | Selected Asia: Size of the Corporate Bond Market, 2009 |
| Chart | Data | 3.14 | Selected Advanced Economies: Venture Capital Investment |
| Chart | Data | 4.1 | Asia: Changes in Fiscal Balance Relative to Precrisis Level |
| Chart | Data | 4.2 | Asian LICs: Expenditure versus Revenue |
| Chart | Data | 4.3 | Asian LICs: Public Debt |
| Chart | Data | 4.4 | Sri Lanka: Gross Official Reserves |
| Chart | Data | 4.5 | Sri Lanka: Inflation and GDP Growth |
| Chart | Data | 4.6 | Mongolia: Real GDP |
| Chart | Data | 4.7 | Mongolia: Mineral Exports |
| Chart | Data | 4.8 | Compact Countries: Share of Grants in Overall Revenue, FY2008 |
| Chart | Data | 4.9 | Compact Countries: Fiscal Balance, FY2008 |
| Chart | Data | 4.10 | Pacific Island Economies: Public Wage Expenditure, 2007 |
| Chart | Data | 4.11 | Pacific Island Economies: Tax Revenue, 2007 |
| Chart | Data | 4.12 | Compact Trust Fund Balance |
