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2018/FDM1/007 Session 2.3

Regional Economic Outlook and Development Challenges in Asia and the Pacific - Presentation

Purpose: Information

Submitted by: Asian Development Bank

Finance and Central Bank Deputies’ Meeting

Port Moresby, Papua New Guinea15-16 March 2018

Regional Economic Outlook and Development Challenges in Asia and the Pacific

Juzhong ZhuangDeputy Chief Economist and Deputy Director General

Economic Research and Regional Cooperation Department

Asian Development Bank

APEC Finance and Central Bank Deputies’ Meeting

15 March 2018 | Port Moresby, Papua New Guinea

Key messages

▪ APEC economic outlook remains stable amid

strengthening global economic recovery and trade growth,

but there are a few downside risks

▪ Technology development and e-commerce can help unlock

the growth potential and promote inclusiveness

▪ Needs to improve ICT and logistics/delivery infrastructure while

pursuing legal, regulatory and institutional reforms

▪ Asia continues to face large infrastructure gap and public-

private partnership can help fill this gap

2

Regional Outlook and Risks

3

APEC growth accelerated in 2017 and projected to remain solid in 2018…

4

Note: Based on seasonally adjusted annualized rates.

Source: ADB. Asian Development Outlook 2017

Supplement. Manila.

GDP Growth—G2 (%)

f=forecast.

Source: Asian Development Outlook Supplement

December 2017, ADB: World Economic Outlook

Database October 2017, IMF: and national sources.

1.9

2.4

2.2

-1.5

0.0

1.5

3.0

2010 2012 2014 2016 2018

Euro area US G2 average

3.4 3.43.0

3.6 3.4

6.46.1 5.9

6.25.8

0

2

4

6

8

2014 2015 2016 2017e 2018f

APEC Developing APEC-Asia

GDP Growth (%)

5

Monthly Trade Value Growth (%, y-o-y, 3-month moving average)

…benefiting from a synchronized recovery in trade growth

-20

-15

-10

-5

0

5

10

15

20

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan

-15

Apr-

15

Jul-15

Oct-

15

Jan-1

6

Apr-

16

Jul-16

Oct-

16

Jan-1

7

Apr-

17

Jul-17

Oct-

17

Dec-1

7

Developing APEC-Asia Developing APEC-Americas Advanced APEC

y-o-y = year-on-year. 3MA = 3-month moving average

Note: No data available for Papua New Guinea. Actual data for Brunei Darussalam are only available until October 2017. Trade values for the

months of November and December 2017 were estimated average growth rate during the preceding three years with available data.

Source: ADB calculations using data from CEIC (accessed February 2018).

Yet large variations across APEC economies

* = actual 2017 figures, e = estimate, f = forecast, NIEs = newly industrialized economies, PRC = People’s Republic of China.

Note: Developing APEC-Asia based on ADB’s definition.

Source: Asian Development Outlook Supplement December 2017, ADB: World Economic Outlook Database October 2017, IMF: and national

sources.

GDP Growth Rates (y-o-y,%)

Economy 2017e 2018f Economy 2017e 2018f

Advanced APEC Developing APEC─Asia

Australia 2.3 3.3 NIEs 3.2* 2.9

Canada 3.0 2.1

Japan 1.6* 1.2 Brunei Darussalam 0.2 1.0

New Zealand 3.5 3.0 PRC 6.9* 6.4

Russian Federation 1.8 1.6 Indonesia 5.1* 5.3

US 2.3* 2.4 Malaysia 5.9* 5.3

Developing APEC─Americas Papua New Guinea 2.5 2.8

Chile 1.4 2.5 Philippines 6.7* 6.8

Mexico 2.1 1.9 Thailand 3.9* 3.8

Peru 2.7 3.8 Viet Nam 6.7 6.7

A few downside risks to the outlook

7

▪Monetary policy divergence between

advanced and developing economies

▪ Inward-looking trade policies

▪High private sector debt and leverage in

emerging economies

The Digital Connectivity and E-Commerce

Asia and the Pacific is the largest and fast growing e-commerce market

9Source: Euromonitor International.

0

1020

3040

5060

7080

90

0

200

400

600

800

1000

1200

Asia andthe Pacific

EasternEurope

WesternEurope

LatinAmerica

MiddleEast and

Africa

NorthAmerica

%

$ b

illio

n

2017 market size (left) 2021 forecasted market size (left) Growth rate (right)

Comparison of Internet Retailing Market Size, 2017-2021 (forecast)

It is also the largest as % of GDP

10Source: E-commerce Foundation.

1.3

1.6

2.0

2.4

3.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2011 2012 2013 2014 2015

0.7

0.8

2.6

3.1

4.5

0.0 2.0 4.0 6.0

Middle East and North Africa

Latin America

Europe

North America

Asia andthe Pacific

Global E-commerce

(% of GDP)

E-commerce as % of regional

GDP, 2015

11

To unlock the potential of digital trade and e-commerce,

it is imperative to take on the following measures:

Institute legal,

regulatory and

institutional reforms

Intensify regional

efforts to modernize

and harmonize

regulations.

Enhance affordability

of and access to ICT

E-commerce boosts efficiency, enhances market access for

businesses and consumers, and generates spillover effects

Improve logistics and

delivery infrastructure

Broaden the e-

payment availability

and options

12

ICT connectivity is expanding, but large variations persist across Asia

Mobile Cellular and Fixed Broadband Subscriptions (per 100 people) and Internet Users

(% of population) in Asia and the Pacific

Note: For fixed broadband subscriptions, 2002 reported the required (earliest year) data for the largest number of constituent countries in each subregion.

Source: World Bank. World Development Indicators. http://www.data.worldbank.org (accessed February 2018).

0

20

40

60

80

100

120

140

160

2000 2005 2010 2016

a. Mobile cellular subscriptions

0

5

10

15

20

25

30

2002 2005 2010 2016

b. Fixed broadband subscriptions

0

10

20

30

40

50

60

70

2000 2005 2010 2016

c. Internet users

Sustaining Development through

Infrastructure Investment

13

0.0

0.4

0.8

1.2

Energy Transportation ICT Water

$ trillion in 2015 prices

$0.15

[9%] $0.05

[3%]

Asia’s infrastructure needs are large

14

ICT = Information and Communication Technology. Values inside the brackets denote % of total.

Source: ADB estimates based on national sources; World Bank. Private Participation in Infrastructure Database; and World Bank. World

Development Indicators.

$1.7 trillion annual investment needed through 2030

$0.98

[56%]

$0.60

[32%]

5.2

5.7

7.8

8.8

9.1

0 2 4 6 8 10

East Asia

Southeast Asia

Central Asia

South Asia

The Pacific

Infrastructure investment needs (% of GDP, 2016-2030)

Public-private partnership can help fill the infrastructure gap

15

PPP committed investments by

sector, 1991–2015 ($700 billion)

PPPs in Asia rose fourfold in

25 years

0.0

0.3

0.5

0.8

1.0

1991-1995 1996-2000 2001-2005 2006-2010 2011-2015

‘000 number of projects

Central Asia East Asia

The Pacific South Asia

Southeast Asia

Energy54%

ICT11%

Transport30%

Water and

sewerage5%

ICT = Information and Communication Technology

Source: ADB estimates based on national sources; World Bank. Private Participation in Infrastructure Database; and World Bank. World

Development Indicators.

Factors for PPP project success

• Project design

• Solicited proposals with competitive bidding more likely to survive than unsolicited

• Green field projects more likely to survive than brown field

• Risk allocation between government and private partners matters

• Institutional arrangements

• Dedicated PPP unit makes PPP more likely to survive

• Macroeconomic environment

• Macroeconomic performance

• Fiscal balance

• Socioeconomic stability

• Law and order

• Degree of corruption

16

Key messages

▪ APEC economic outlook remains stable amid

strengthening global economic recovery and trade growth,

but there are a few downside risks

▪ Technology development and e-commerce can help

unlock the growth potential and promote inclusiveness

▪ Needs to improve ICT and logistics/delivery infrastructure while

pursuing legal, regulatory and institutional reforms

▪ Asia continues to face large infrastructure gap and public-

private partnership can help fill this gap

17

Thank you!

18