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International Monetary Fund. Asia and Pacific Dept

Abstract

The main findings of the analysis in this chapter are as follows:

International Monetary Fund. Asia and Pacific Dept

Abstract

The global economy entered 2013 with receding tail risks as the U.S. fiscal cliff and an escalation of the euro area crisis had been averted. In the United States, activity, balance sheets, house prices, and credit were improving while major emerging economies were also seeing strengthening activity. In the euro area, however, economic prospects remain fragile, with weak activity extending to core countries. Meanwhile, financial conditions are ameliorating across the board, with equity prices rising to multiyear highs, volatilities declining, and credit spreads compressing (Figure 1.1). While downside risks remain significant, risks are now more balanced than they were at the time of the October 2012 Asia and Pacific Regional Economic Outlook Update (IMF, 2012d).

International Monetary Fund. Asia and Pacific Dept

Abstract

Asia has achieved remarkable economic success over the past five decades. Hundreds of millions of people have been lifted out of poverty, and successive waves of economies have made the transition to middle-income and even advanced-economy status. And whereas the region used to be almost entirely dependent on foreign know-how, several of its economies are now on the cutting edge of technological advance. Even more striking, all of this has happened within just a couple of generations, the product of a winning mix of integration with the global economy via trade and foreign direct investment (FDI), high savings rates, large investments in human and physical capital, and sound macroeconomic policies.

Mr. Ranil M Salgado

Abstract

The Asia-Pacific region continues to be the world leader in growth, and recent data point to a pickup in momentum. Growth is projected to reach 5.5 percent in 2017 and 5.4 percent in 2018. Accommodative policies will underpin domestic demand, offsetting tighter global financial conditions. Despite volatile capital flows, Asian financial markets have been resilient, reflecting strong fundamentals. However, the near-term outlook is clouded with significant uncertainty, and risks, on balance, remain slanted to the downside. On the upside, growth momentum remains strong, particularly in advanced economies and in Asia. Additional policy stimulus, especially U.S. fiscal policy, could provide further support. On the downside, the continued tightening of global financial conditions and economic uncertainty could trigger volatility in capital flows. A possible shift toward protectionism in major trading partners also represents a substantial risk to the region. Asia is particularly vulnerable to a decline in global trade because the region has a high trade openness ratio, with significant participation in global supply chains. A bumpier-than-expected transition in China would also have large spillovers. Medium-term growth faces secular headwinds, including population aging and slow productivity catchup. Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old. In other words, parts of Asia risk “growing old before becoming rich.” Another challenge for the region is how to raise productivity growth—productivity convergence with the United States and other advanced economies has stalled—when external factors, including further trade integration, might not be as supportive as they were in the past. On policies, monetary policy should generally remain accommodative, though policy rates should be raised if inflationary pressures pick up, and macroprudential settings should be tightened in some countries to slow credit growth. Fiscal policy should support and complement structural reforms and external rebalancing, where needed and fiscal space is available; countries with closed output gaps should start rebuilding fiscal space. To sustain long-term growth, structural reforms are needed to deal with challenges from the demographic transition and to boost productivity.

International Monetary Fund. Asia and Pacific Dept

Abstract

The COVID-19 pandemic plunged the world into a sharp recession in the first half of 2020. Service sector activity, which relies on person-to-person contact, took a big hit. Manufacturing also weakened substantially, and global trade plummeted. Global growth is projected at –4.4 percent in 2020, 0.6 percentage points above the June 2020 World Economic Outlook Update forecast. The upgrade reflects a better second quarter outturn in major countries that eased lockdowns earlier than expected. The recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.2 percent, 0.3 percentage point lower than projected in June 2020, reflecting the persistence of social distancing into 2021.

International Monetary Fund. Asia and Pacific Dept

Abstract

The global expansion that began two years ago appears to have peaked and become less synchronized across economies. While economic activity moderated in advanced economies during the first half of 2018 compared to 2017, it remained steady in most emerging economies (Figure 1). Growth was lower than expected in the euro area, Japan, and the United Kingdom. Meanwhile, in the United States, domestic demand continued to be buoyant, underpinned by low unemployment and a historically large, temporary fiscal expansion. Among emerging market economies, growth remained strong in emerging Asia but weakened in Argentina, Brazil, and Turkey. Several downside risks highlighted in the April 2018 World Economic Outlook (WEO) have increased or partially materialized, such as rising trade tensions and capital outflows from emerging economies with weaker fundamentals. With this more mixed global growth picture, there are already signs that trade is slowing.

Mr. Ranil M Salgado

Abstract

In past decades, Asia has benefited significantly from demographic trends, along with strong policies. Many parts of Asia, particularly East Asia, reaped a “demographic dividend” as the number of workers grew faster than the number of dependents, providing a strong tailwind for growth. This dividend is about to end for many Asian economies. This can have important implications for labor markets, investment and saving decisions, and public budgets.

International Monetary Fund. Asia and Pacific Dept

Abstract

In the aftermath of the global financial crisis, corporate leverage in emerging Asia has risen and may represent a “fault line.” This fault line is hidden beneath the surface but has the potential to amplify shocks as global liquidity conditions tighten, interest rates rise, and growth slows (Figure 2.1). While the outlook for the region remains solid (Chapter 1), household indebtedness has risen across the region (Box 2.1) as has corporate leverage in the major emerging economies (Figure 2.2). This could weigh on growth as interest rates rise and firms and households enter a deleveraging cycle, cutting both investment and consumption to strengthen their balance sheets. In a worst-case scenario, corporate and household defaults could rise, with adverse effects on bank balance sheets, the availability and price of credit, and growth. Unlike in Emerging Asia, corporate leverage ratios have remained broadly stable or have declined in advanced Asia (Figure 2.2).

International Monetary Fund. Asia and Pacific Dept

Abstract

Sustained rapid growth, macroeconomic stability, and improvements in living standards are some of the remarkable achievements of Asian economies over the past decade. Nevertheless, important challenges remain, as countries strive to maintain robust long-term growth, reduce income inequality, and fight poverty. Against this background, this chapter assesses whether fiscal policy has contributed to lower output volatility in Asia in the last decade and discusses how it can help address the critical challenges ahead.