PURSUING SHARED PROSPERITY IN AN ERA OF TURBULENCE AND HIGH COMMODITY PRICES ECONOMIC AND SOCIAL...

PURSUING SHARED PROSPERITYIN AN ERA OF TURBULENCE AND HIGH COMMODITY PRICES

2


Key messages

• Asia-Pacific growth to slow in 2012 amidst global turbulence:• Spillovers of the euro zone turmoil• Global oil price hikes • Excess liquidity and volatile capital flows• Key long-term challenge: high & volatile commodity prices

• To steer inclusive development the Asia-Pacific region should:• Undertake actions to stimulate & rebalance growth• Promote regional cooperation to share risks & opportunities• Play an active role in building development-friendly global economic

environment & governance• Implement long-term structural reforms to cope with high commodity prices

3

2012: Growth decelerates but Asia-Pacific is growth pole

• Growth is forecast to moderate to 6.5% in 2012 from 7% in 2011, with downward pressures from subdued developed economies

• The extent of slowdown varies across subregions

• Inflation likely to soften to 4.8% in 2012 from 6.1% in 2011

• Despite the slowdown, the region remains an anchor of stability and growth pole for the world economy• Developing Asia-Pacific accounts for a

quarter of trade in Africa


0 2 4 6 8Percentage

20122011

Asia-Pacific

Africa

Middle East

Latin America

GDP growth

-5

0

5

10

15

2006 2007 2008 2009 2010 2011 2012

Perc

enta

ge

Asian-Pacific developing economies

World developed economies

4

GDP growth in selected economies


(Percentage)

2010 2011 2012 2010 2011 2012Australia 2.5 2.0 3.5 Nepal 4.0 3.5 4.5Bangladesh 6.1 6.7 6.6 Pakistan 3.8 2.4 4.0Bhutan 11.8 5.4 9.8 Papua New Guinea 7.1 8.9 7.8Cambodia 6.0 6.9 6.7 Philippines 7.6 3.7 4.8China 10.4 9.2 8.6 Republic of Korea 6.1 3.6 3.5Fiji -0.2 2.1 2.3 Russian Federation 4.0 4.3 3.8India 8.4 6.9 7.5 Samoa 0.2 2.1 2.5Indonesia 6.1 6.5 6.5 Singapore 14.8 4.9 3.0Iran (Islamic Rep. of) 3.2 4.0 3.0 Sri Lanka 8.0 8.3 7.2Japan 3.9 -0.7 2.1 Thailand 7.8 0.1 5.8Kazakhstan 7.0 7.5 6.2 Turkey 9.0 8.5 3.2Malaysia 7.2 5.1 4.5 Uzbekistan 8.5 8.3 8.0Mongolia 6.4 17.3 16.0 Viet Nam 6.8 5.9 5.8Myanmar 5.3 5.5 6.2

5

Inflation in selected economies


(Percentage)

2010 2011 2012 2010 2011 2012Australia 2.8 3.4 3.3 Nepal 9.6 9.6 8.0Bangladesh 7.3 8.8 11.0 Pakistan 11.7 13.9 12.0Bhutan 6.1 8.3 7.5 Papua New Guinea 6.0 8.7 7.6Cambodia 4.0 5.5 5.4 Philippines 3.8 4.8 3.7China 3.3 5.4 4.0 Republic of Korea 2.9 4.0 3.3Fiji 5.4 8.7 4.0 Russian Federation 6.9 8.4 5.0India 10.4 8.4 6.5 Samoa -0.2 2.9 5.0Indonesia 5.1 5.4 5.6 Singapore 2.8 5.2 3.3Iran (Islamic Rep. of) 12.4 23.0 12.5 Sri Lanka 5.9 6.7 6.0Japan -0.7 -0.3 0.5 Thailand 3.3 3.8 3.8Kazakhstan 7.1 8.3 5.5 Turkey 8.6 6.5 9.3Malaysia 1.7 3.2 2.6 Uzbekistan 9.4 13.5 12.5Mongolia 10.1 9.2 9.2 Viet Nam 8.9 18.7 9.8Myanmar 7.7 4.2 6.2

6

Key downside risks

• Euro zone crisis would cut growth by at least 1.3 percentage points and export value by $390 billion from the baseline• 14 million fewer people could escape poverty

by 2013• LDCs and LLDCs suffer the most

• Oil price surges could lift inflation by 1.3 percentage points with a greater impact on poorer groups. • Fuel price subsidy bill can be $15 billion higher


• Loose monetary policies in developed economies heighten the risk of asset market bubbles, exchange rate appreciation and inflationary pressures

• The imposition of trade restrictive measures would impact exports• On the upside, weak demand from advanced economies is cushioned by robust

intraregional trade and investment

GDP growth in Asia-Pacific

4

6

8

10

12

2007

2008

2009

2010

2011

2012

f

2013

f

Baseline scenarioOil price surge scenario

7

Policy challenge I

Managing the growth and inflation balance

• Asia-Pacific generally has room for fiscal and monetary policy responses

• The concern with enactment of stimulus measures is their impact on inflation

• Policymakers need to find their preferred inflation-growth nexus


Discount rates in Asia-Pacific

5

6

7

8

9

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Per

cent

age

MeanMedian

Government debt

0

20

40

60

80

2000 2004 2008 2012f 2016f

Per

cent

age

of G

DP

South / South-WestSouth-EastEast / North-EastNorth / CentralPacific Islands

8

Policy challenge II

Coping with capital flows

• Extreme capital inflows, mainly driven by debt investment

• Still striving to arrive at the appropriate financial market policies

• Overall stringency of measures help prevent extraordinarily high surges in inflows

• Capital account management measures must be designed to deal with of a “new normal” of short-term capital inflows


Gross inflows during sudden surges (% of GDP)

0

10

20

30

1981-1995

1996-2000

2001-2005

2006-2010

9

Policy challenge III

Addressing jobless recovery

• Insufficient job creation in the formal sector in developing countries

• High youth unemployment: the young are over 3 times more likely to be unemployed

• Over 1 billion workers are in vulnerable employment

• Employment policies should improve productivity and working conditions and increase youth employment opportunities


Average growth ratein Asia-Pacific

0

3

6

9

2000-2008 2009-2011Pe

rcen

tGDP growthEmployment growth

10

Policy challenge IV

Rising income and social inequalities

• Growth helped reducing poverty but income inequality on the rise

• Gini index rose worryingly from 32 to 38 in the past decades

• Social development has been significantly constrained by the levels of inequality

• Ensuring equal opportunities to those who have been left behind


Gini inequality index

0

10

20

30

40

50

Deve

lopi

ng A

P

East

/Nor

th-E

ast

North

/Cen

tral

Sout

h-Ea

st

Sout

h/So

uth-

Wes

t

1990s 2000s

11

Policy challenge V

Dealing with disaster risks

• Damages and losses in Asia-Pacific are at least $267 billion in 2011• Large spillovers to other economies in

regional production networks

• Need to invest more in disaster risk reduction

• Government to take a leading role in disaster prevention and management, and in better utilizing regional cooperation frameworks


Thailand's manufacturing production index

-100

-80

-60

-40

-20

0

20

40

60

Jan-

11

Feb-

11

Mar

-11

Apr-1

1

May

-11

Jun-

11

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Per

cent

age

chan

ge (y

-o-y

)

Manufacturing production indexElectrical component productionAutomotive production

x

Japan's manufacturing production index

-10

-5

0

5

10

15

20

Oct-11 Nov-11 Dec-11 Jan-12

Year

-on-

year

cha

nge

(%) Manufacturing production index

Electrical component productionAutomotive production

12

Policy challenge VI

Rebalancing towards better-quality growth• The medium-term need for the region continues to be to redirect its

growth drivers from extra-regional demand to intra-regional and domestic demand

• Policies should be designed to:• Increase the inclusiveness of growth

• Broadening social protection and providing quality public service delivery

• Foster the development of the agricultural sector• Sustainable, knowledge-intensive “green revolution”

• Support the “green economy” • Public-private finance and low-cost access to technology

• Exploit the potential of regional economic integration • A pan- Asia-Pacific integrated market and enhanced physical

connectivity


13

Policy challenge VII

Development-friendly global economicenvironment and governance

• The region has to make the international community aware of the need to undertake reforms to:• Revive growth and employment• Avoid excessive liquidity creation• Moderate the volatility of oil and food prices• Build a more development-friendly int’l financial architecture

• The United Nations should play a leading role in facilitating broad-based consultations on global issues, e.g. an outlet for non-G20 countries to communicate their views


14

Long-term challenge Living with high commodity prices

• Rising trend since 2000, punctuated by the global economic crisis• Prices have increased from 1.8% to

17.4% per year

• The commodity boom can be seen in the context of the rise of emerging economies, including in Asia-Pacific


0%

20%

40%

60%

80%

1820 1847 1877 1907 1937 1967 1997

Developed economies

Share of World's GDP

Asia-Pacific

0

50

100

150

200

250

1960 1970 1980 1990 2000 20100

200

400

600

800

1000

1200

1400Metals & MineralsBeveragesFoodRaw MaterialsEnergy (right axis)

Commodity prices indicesreal 2005 US dollar terms (1960=100)

15

How price shifts have changed incentives towards increasing modernization

• Catching-up countries stay where they are• Commodity-boom countries fall back• Aspiring countries have fewer chances to move up


0%

20%

40%

60%

80%

100%

Shar

e of

cou

ntrie

s w

ithin

eac

h ca

tego

ry

diversify towrads more complex productsproduce more of the samespecialize in fewer and less complex products

1991- 2001-2000 2010

Catching-up countries

Commodity-boom countries

Aspiring countries

1991- 2001-2000 2010

1991- 2001-2000 2010

16

Policy options

Adapting to an era of high commodity prices

• Catching-up countries: • Diversify economic structure• Create productive employment opportunities • Increase domestic consumption

• Commodity-boom countries: • Shield import-competing and non-resource export sectors from

deindustrialization• Use resource flows to smooth the ups and downs in revenue • Enhance human capital to foster technical progress in resource sector

• Aspiring countries: • Reduce reliance on few labour-intensive manufactures by participating

in regional supply chains

• Strengthen social protection and boost agricultural productivity to cope with high food prices


17

Towards shared prosperity

• The region continues to face a challenging external economic climate

• Fortunately, most countries are in a favourable position to undertake a wide range of policy actions to stimulate and rebalance growth

• Enhanced regional cooperation will enable national policies to have greater influence both at the regional and international level

• An inclusive development path boosts new growth drivers by addressing the wide gaps in income and social progress


Thank you

Economic and Social Survey of Asia and the Pacific 2012 is downloadable on: www.unescap.org/Survey2012/

PURSUING SHARED PROSPERITY IN AN ERA OF TURBULENCE AND HIGH COMMODITY PRICES ECONOMIC AND SOCIAL...

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