PROBLEMAS PROPIOS DEL PRODUCTO ALMACENADO SEGURIDADES Y

Growth in developing Asia will likely slow slightly this year and in 2018 as controlled deceleration in PRC growth continues, slightly offsetting robust growth elsewhere—a strong effect as GDP in the PRC accounts for 58% of regional GDP (Figure 1.1.19).

Despite growth moderation since 2010, developing Asia will still be the world’s fastest-growing region and greatest contributor to global growth (Figure 1.1.20). Early in 2016, global economic uncertainty and meager expansion in the major industrial economies hampered export

1.1.13 Export growth by subregion

2015 2016 2017 2018 -40 -20 0 20 Developing

Asia CentralAsia East Asia South Asia SoutheastAsia The Pacific %

Source:Asian Development Outlook database.

1.1.14 Export growth, selected economies

-30 -15 0 15 30 Jan

2013 2014Jan 2015Jan 2016Jan 2017Jan % change, year on year, 3-month moving average

ASEAN-5 NIEs India

People’s Republic of China

NIEs = newly industrialized economies, ASEAN = Association of Southeast Asian Nations.

Note: NIEs comprises Hong Kong, China; Republic of Korea; Singapore; and Taipei,China. ASEAN-5 comprises Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam.

growth in economies with strong trade and financial links with the West, but this trend is reversing. Higher exports will help the newly industrialized economies, which have grown more slowly than the rest of developing Asia because of their advanced stage of development (Box 1.1.2). Economies in the region can attain higher growth trajectories in the future through continued structural reform to boost productivity, support for domestic demand, and, particularly in South Asia, a better investment climate.

East Asian growth is expected to slow to 5.8% in 2017 and further to 5.6% in 2018, mirroring growth moderation in the PRC. The PRC is likely to grow by 6.5% in 2017 and 6.2% in 2018. Recent monthly data show infrastructure and real estate investment still strong. The desire to keep the medium- term growth strategy on track will require stable financial markets and employment, so the government will strive to avoid deviating from a smooth minor deceleration.

Though on a lower trajectory, growth in the PRC will reflect strong domestic consumption, solid wage growth, urban job creation, and public infrastructure investment.

Downward pressure on PRC growth will continue to come from a declining working-age population, the ongoing shift toward consumption and services and away from investment and industry, and convergence with slower-growing high-income economies. However, structural reform to help ease growth in corporate and household debt can help offset these pressures, as discussed below. Despite continued monetary and fiscal support, growth in 2018 is expected to moderate to 6.2%.

South Asia’s expansion is forecast at 7.0% in 2017 with a faster recovery expected in India, and growth is forecast to rise

further to 7.2% in 2018 as expansion in the rest of the region also accelerates. In India, government reform and ongoing deleveraging by private corporations will support recovery in investment, and the slight rise in growth prospects for the advanced economies will boost exports this year and next. Growth in 2018 is expected to accelerate slightly to 7.6%. As India’s GDP is 80% of South Asian aggregate GDP, India’s improved outlook dominates the subregional forecast, masking some uncertainty in Afghanistan and Pakistan.

In Southeast Asia, growth is forecast at 4.8% in 2017 and 5.0% in 2017, with Malaysia and Viet Nam recovering from slow growth in agricultural output and, in particular, a surge in public and private investment. Thailand is continuing structural reform and will continue its public spending to boost productivity, which promises to lift growth slightly to 3.5% in 2017 and 3.6% in 2018. The Philippines is the only economy in Southeast Asia projected to see lower growth in 2017, as smaller remittances from the Gulf states and

lower demand from trading partners offsets a healthy rise in domestic consumption and investment.

1.1.15  Change in exports to the People’s Republic of China and others -60 -40 -20 0 20

VIE INO HKG THA PHI TAP KOR MAL SIN A B A B A B A B A B A B A B A B A B $ billion

Exports to PRC Exports to others

A = 2015, B = 2016, HKG = Hong Kong, China, INO = Indonesia,

KOR = Republic of Korea, MAL = Malaysia, PHI = Philippines, PRC = People’s Republic of China, SIN = Singapore, TAP = Taipei,China, THA = Thailand, VIE = Viet Nam.

Source: CEIC Data Company (accessed 13 March 2017).

1.1.16 Import growth by subregion

2015 2016 2017 2018 % -30 -20 -10 0 10 20 Developing

Asia Central Asia East Asia South Asia SoutheastAsia The Pacific

1.1.2 Has high-income Asia converged? Convergence occurs when poorer economies grow faster than richer ones, closing the income gap between them. As their incomes rise and the gap with the richest economies narrows, growth tends to slow. This is the case of the newly industrialized economies (NIEs) in Asia—the ROK, Singapore, Taipei,China, and Hong Kong, China— which experienced rapid growth in the 1960s and 1970s. Now, with average 2015 population-weighted per capita income at $28,824—which is 6.8 times greater than the $4,239 average in the rest of developing Asia—slower growth is the norm. Yet even at the slower growth pace, these economies continue to converge with the major industrial economies. The NIEs grew in the decade ending in 2016 at an average annual rate of 3.4%, which is 4 times growth in the major industrialized economies, but much less than the 7.8% average in the rest of developing Asia (box figure 1).

Despite the different growth rates, spillover from the slowdown in external demand from the PRC and the major industrial economies affected the NIEs as much as it did the rest of developing Asia because of their high dependence on exports. The NIEs were well equipped to weather these shocks, however, with their healthy fiscal positions and well-regulated financial systems. Indeed, all the NIEs provided fiscal stimulus to some extent in 2015 and 2016 as growth slowed (box figure 2).

Going forward, lower potential growth rates in the NIEs relative to the rest of developing Asia will reflect reduced labor supply because of changing demographic factors such as aging populations and higher dependency ratios, and their response by shifting production toward high technology. The NIEs are expected to grow by 2.3% in 2017

and 2.5% in 2018 as the rest of developing Asia grows by 6.3% and then 6.2%.

Hong Kong, China depends heavily on services in its role as a trading and financial hub. This makes it vulnerable to volatility in global financial markets, unexpected changes in demand from the PRC, and US interest rate hikes that are higher than expected, especially as it would have to raise its own interest rates to avoid putting too much stress on its exchange rate link to the US dollar.

The ROK has seen growth weakened considerably over the past 3 years by lower external demand, as exports make up more than half of GDP. Uncertainty brought on by political troubles dampened consumer demand in 2016 and will do the same in the first part of 2017. The ROK faces a number of structural challenges, including an impending decline in its working–age population, a limited social safety net for its stage of development, a need for corporate restructuring, and high household debt.

Singapore’s average growth in the past 3 years has slowed partly from structural factors such as restrictions on foreign worker inflows but also slow trade growth and soft manufacturing as low oil prices hit its refining industry. Economic support is expected from increased fiscal outlays to improve public services and investment incentives for high-tech manufacturing.

Taipei,China has also struggled with lower trade growth and shifting demographics. The authorities have expanded infrastructure spending through an ambitious new industrial strategy. The plan is to develop a program of investment in high technology.

In sum, with inflation below 2.5%, the short-term outlook for the NIEs is robust.

1  Average growth and per capita income, newly industrialized economies vs rest of developing Asia

Republic of -4 0 4 8 12 16 -1 0 1 2 3 4 5 Log of per capita income

10-year average GDP growth, %

Singapore Hong Kong, China Republic of Korea

Taipei,China

Sources: World Bank. World Development Indicators online database; Haver Analytics (both accessed 27 March 2017); Asian Development Outlook database.

2 Growth in newly industrialized economies

0 1 2 3 4 5

NIEs HKG KOR TAP SIN % 2015 2016 2017 2018 10-year average

HKG = Hong Kong, China, KOR = Republic of Korea, NIEs = newly industrialized economies, TAP = Taipei,China, SIN = Singapore.

Central Asia will reverse its growth slowdown and accelerate expansion in the next 2 years with recovering oil prices and higher export demand following currency depreciation in 2015 in Azerbaijan and Kazakhstan. Growth is expected to quicken to 3.1% in 2017 and 3.5% in 2018.

The Pacifi c is seen improving its aggregate growth rate to 2.9% in 2017 and further to 3.3% in 2018, mostly on account of the economic recovery in Papua New Guinea, the subregion’s largest economy. Fiji and Vanuatu are recovering from natural disasters in 2015.

Growth in the NIEs will slow marginally in line with deceleration in the PRC, to 2.2% in 2017 and then rising to 2.5% in 2018. Growth is expected to rise in particular in Singapore and Taipei,China as government investment in infrastructure and higher growth in manufacturing and electronics boosts these economies. However, growth in Hong Kong, China will be a modest 2.0% in 2017 as services are not expected to recover quickly and the economy is very susceptible to changes in monetary policy and the value of the US dollar—and, for that matter, to any fi nancial developments in the US. In the ROK, the political uncertainty that suppressed domestic demand in 2016 is expected to dispel somewhat by mid-2017, and export-led growth should resume in 2018.

Regional infl ation is projected to accelerate from 2.5% last year to 3.0% this year and 3.2% in 2018 because of rising global commodity prices and consumer demand. In the PRC, strong credit and household income growth will, along with the fi scal stimulus from infrastructure spending, underpin growth in domestic demand. Infl ation in the PRC will thus accelerate at a similar pace, from 2.0% last year to 2.4% this year and 2.8% in 2018. South Asia in particular will see demand prod infl ation from 4.6% last year to 5.2% this year, rising a bit further to 5.4% in 2018. A few commodity exporters in Central Asia will continue to experience

infl ation approaching 10% as the eff ects of earlier currency depreciation pass through from imports to consumer prices. A rise in the Pacifi c will be led by higher infl ation in Papua New Guinea, resulting from higher growth and the expected return of gold and copper mines to full production capacity.