Front Matter

Front Matter

International Monetary Fund. Asia and Pacific Dept
Published Date:
April 2014
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    ©2014 International Monetary Fund

    April 2014

    Cataloging-in-Publication Data

    Regional economic outlook. Asia and Pacific. – Washington, D.C. : International Monetary Fund, 2005-

    v. ; cm. – (World economic and financial surveys, 0258-7440)

    Once a year.

    Began in 2005.

    Some issues have also thematic titles.

    1. Economic forecasting – Asia – Periodicals. 2. Economic forecasting – Pacific Area – Periodicals. 3. Asia – Economic conditions – 1945- – Periodicals. 4. Pacific Area – Economic conditions – Periodicals. 5. Economic development – Asia – Periodicals. 6. Economic development – Pacific Area – Periodicals. I. Title: Asia and Pacific. II. International Monetary Fund. III. Series: World economic and financial surveys.


    ISBN: 978-1-48431-657-3 (paper)

    ISBN: 978-1-47554-216-5 (web PDF)

    Publication orders may be placed online, by fax, or through the mail:

    International Monetary Fund, Publication Services

    P.O. Box 92780, Washington, D.C. 20090, U.S.A.

    Tel.: (202) 623-7430 Fax: (202) 623-7201




    In this Regional Economic Outlook: Asia and Pacific, the following groupings are employed:

    • “ASEAN” refers to Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, unless otherwise specified.

    • “East Asia” refers to China, Hong Kong SAR, the Republic of Korea, and Taiwan Province of China.

    • “Emerging Asia” refers to China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

    • “Industrial Asia” refers to Australia, Japan, and New Zealand.

    • “South Asia” refers to Bangladesh, India, and Sri Lanka.

    • “Asia” refers to ASEAN, East Asia, Industrial Asia, and South Asia.

    • “EU” refers to the European Union.

    • “G-7” refers to Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.

    • “G-20” refers to Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, the Republic of Korea, Mexico, the Russian Federation, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States.

    The following abbreviations are used:


    advanced economies


    ASEAN Economic Community


    Association of Southeast Asian Nations


    business cycle synchronization


    countercyclical capital requirements


    credit default swap


    capital flow measure


    consumer price index




    foreign direct investment


    Framework for Economic and Social Reforms


    fiscal year


    gross domestic product


    global financial crisis


    Global Integrated Monetary and Fiscal model


    interest coverage ratio


    information technology


    low-income countries




    middle-income economies


    macroprudential policies


    Organization for Economic Cooperation and Development


    Pacific Island countries


    Staff-monitored program


    vector autoregression


    Chicago Board Options Exchange Market Volatility Index


    World Economic Outlook

    The following conventions are used:

    • In tables, a blank cell indicates “not applicable,” ellipsis points (. . .) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

    • In figures and tables, shaded areas show IMF projections.

    • An en dash (–) between years or months (for example, 2007–08 or January–June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2007/08) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2009).

    • An em dash (—) indicates the figure is zero or less than half the final digit shown.

    • “Billion” means a thousand million; “trillion” means a thousand billion.

    • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

    As used in this report, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

    This Regional Economic Outlook: Asia and Pacific was prepared by a team coordinated by Romain Duval of the IMF’s Asia and Pacific Department, under the overall direction of Changyong Rhee and Nigel Chalk. Contributors include Nasha Ananchotikul, Rahul Anand, Elif Arbatli, Dennis Botman, Kevin Cheng, Mali Chivakul, Matteo F. Ghilardi, Roberto Guimarães-Filho, Joong Shik Kang, Yitae Kim, Yuko Kinoshita, Kum Hwa Oh, Shanaka Peiris, Richa Saraf, Jongsoon Shin, Yiqun Wu, Zoltan Zakab, Longmei Zhang, and Edda Zoli. Shi Piao, Sidra Rehman, and Dulani Seneviratne provided research assistance. Socorro Santayana provided production assistance. Joanne Johnson of the IMF’s Communications Department edited the volume and coordinated its publication and release, with the assistance of Heidi Grauel. This report is based on data available as of April 4 and includes comments from other departments and some Executive Directors.

    Executive Summary

    Asia is well positioned to meet the challenges ahead provided it stays the course on reforms. The region has strengthened its resilience to global risks and will continue as a source of global economic dynamism. Recent actions taken to address vulnerabilities are starting to bear fruit. However, with the risk of further bouts of volatility ahead, policy complacency will be penalized. Asia’s reform momentum must therefore be nurtured so as to secure the region’s position as the global growth leader.

    Growth in Asia is projected to remain steady at 5.4 percent in 2014 and 5.5 percent in 2015. External demand is set to pick up alongside the recovery in advanced economies, and domestic demand should remain solid across most of the region. With the expected upcoming tightening of global liquidity, Asia will face higher interest rates and potential bouts of capital flow and asset price volatility. Nevertheless, despite some tightening, financial conditions should remain supportive, underpinned by still-accommodative monetary policies, strong credit growth, and exchange rates that remain weaker than they were a year ago.

    External risks remain. A sudden or sharper-than-anticipated tightening of global financial conditions remains a key downside risk. Economies with weaker fundamentals would be the most affected, similar to what happened a year ago when market participants abruptly revised their expectations of U.S. Federal Reserve tapering. Since then, though, policymakers in Asia have taken policy actions to address vulnerabilities and we now see those actions starting to bear fruit. As an indicator of this improving resilience, India, Indonesia, and other Asian emerging markets were able to better weather the bout of global financial volatility in January.

    Asia also faces several risks originating from within the region. A sharper-than-envisaged slowdown in China—due to financial sector vulnerabilities and the temporary cost of reforms along the transition toward a more sustainable growth path—would have significant adverse regional spillovers. In Japan, there is a possibility that Abenomics-related measures could prove less effective in boosting growth than envisaged unless strongly supported by structural reforms. Domestic and global political tensions could also create trade disruptions and weaken investment and growth across the region. In some frontier economies, high credit growth has led to rising external and domestic vulnerabilities.

    Domestic vulnerabilities could magnify some of these risks. For the bulk of Asia, financial stability risks appear contained and bank balance sheets have scope to absorb negative shocks. However, as global interest rates and term premiums move higher, vulnerabilities stemming from pockets of high corporate and household leverage could become more salient. If economic conditions become less hospitable, corporate defaults may occur and investment by highly leveraged firms could take a hit. However, with the size of debt owed by distressed firms being relatively small as a share of GDP, corporate sector risks do not appear systemic (see Chapter 2).

    Growing regional integration is propelling Asia’s growth but could also amplify the impact of global and regional shocks. Events over the past year have been a reminder of Asia’s exposure to policy decisions in advanced economies. As highlighted in Chapter 3, trade and financial channels are a growing source of interconnectedness causing greater output co-movement across the region.

    Intraregional business cycle synchronization has grown, and Asia is twice as exposed as other regions to growth shocks originating from China. Financial integration in Asia lags well behind trade integration, but it is still capable of exacerbating cycles during negative global events. Insofar as trade and financial integration continue to grow, policymakers need to seek out ways to maximize the growth benefits while preparing to manage the vulnerabilities arising from the expanding channels for spillovers.

    In order to cope with risks from financial interconnectedness, Asian policymakers have been active in deploying macroprudential policies (see Chapter 4). These tools are neither a silver bullet nor a substitute for warranted macroeconomic policy adjustment, but they have served the region well. Some of these macroprudential measures, particularly those related to restraining housing market excesses, are found to have had a measurable effect in lowering credit growth, slowing house price inflation, and dampening leverage. Macroprudential tools should continue to be used as a complement to mitigate the effects of volatile capital flows—particularly if they were to decisively turn around—and potentially disruptive movements in asset prices.

    How can other policies help Asia strengthen its resilience to risks and retain its growth leadership? For much of the region, a continuation of recent macroeconomic policies appears to be the right recipe. This would involve a gradual fiscal consolidation while, with inflation pressures staying muted across most of Asia, maintaining monetary policies at their current supportive stance and normalizing gradually as economic slack diminishes and risks recede. However, economies where inflation outturns are high and above their central bank’s comfort zones may need to hike rates in the coming months to ensure that inflation is firmly on a downward path. Any volatility in capital flows should be met with exchange rate adjustment and sparing use of foreign exchange intervention.

    Finally, there is also ample scope for structural reforms in Asia. The agenda varies, involving, inter alia, regulatory reforms and higher infrastructure investment in India, ASEAN, and frontier Asia; financial system liberalization and measures to rebalance growth away from investment in China; labor and product market reforms in Japan; and tax and spending reforms in many economies. These reforms are critical not only to sustain Asia’s growth leadership over the medium term, but also, in some cases, to maintain investor confidence and secure financial stability in the near term.

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