Global Recession and Its Impact on the Asian Economy

Dr. Bernardo M. VillegasNovember 2008

Black Thursday 1929 Stock Market Crash Passive Federal Reserve System Ignorance of Keynesian Pump Priming Panic in the Banking Sector Unemployment Rate of 25% Complete Dominance of the US Economy

in the World World Financial Market Illiquid

Black Monday 2008 Real Estate Bubble Proactive Federal Reserve System US Government Pump Priming No Panic in the Banking Sector No Crash in the Stock Market Unemployment Rate Manageable Countervailing Power of Emerging

Markets Liquidity of Sovereign Funds Massive intervention of European

governments

Growth Rates of Major Economies

F – forecastsSource: World Economic Outlook, IMF, Oct 2008

Traditional Engines of Growth

0.0

1.0

2.0

3.0

4.0

2002

2003

2004

2005

2006

2007

2008

F

2009

F

US Euro Area Japan

World Growth (GDP Growth Rates)

F – forecastsSource: World Economic Outlook, IMF, Oct 2008

Traditional Engines of Growth

US 0.8 1.6 2.5 3.6 2.9 2.8 2.0 1.6 0.1Euro Area 1.9 0.9 0.8 2.1 1.6 2.8 2.6 1.3 0.2

Germany 1.2 … -0.2 1.2 0.8 3.0 2.5 1.8 0.2France 1.9 1.0 1.1 2.5 1.9 2.2 2.2 0.8 0.2Italy 1.8 0.5 … 1.5 0.6 1.8 1.5 -0.1 -0.2Spain 3.6 2.7 3.1 3.3 3.6 3.9 3.7 1.4 -0.2Netherlands 1.9 0.1 0.3 2.2 2.0 3.4 3.5 2.3 1.0

Japan 0.2 0.3 1.4 2.7 1.9 2.4 2.1 0.7 0.5United Kingdom 2.5 2.1 2.8 2.8 2.1 2.8 3.0 1.0 -0.1Canada 1.8 2.9 1.9 3.1 2.9 3.1 2.7 0.7 1.2Australia 2.1 4.2 3.0 3.9 2.8 2.7 4.2 2.5 2.2

2004 2005 2008F 2009F2006 20072002 20032001

Global Growth Slowdown

Financial meltdown in the U.S. High rates of inflation Tight credit despite lower interest rate High albeit moderating food and fuel

prices Slowdown in the EU and Japan The U.S. twin (fiscal and trade) deficits

continue to cause concern

Threats to World Growth

U.S. Economy:Still no end to financial turmoil

Huge losses in the financial sector Still uncertain results of U.S. government

bailouts of failing banks Previously robust private consumption

spending has been depressed by the slump in the housing market

Real GDP growth to fall from 2.0% in 2007 to 1.6% or lower in 2008

Euro Area Economy Activity in Western Europe gathered momentum in 2006.

GDP growth in the Euro area reached 2.8%, double its pace in 2005

Slowing of growth in 2008 to 1.3% from 2.6% in 2007 Falling housing investments Growth should remain relatively stronger in Germany

sustained by good export performance in the face of weaker consumer demand

The slowdown will reflect an uptick in unemployment in the Euro area, especially in Spain

Japanese Economy Political instability caused by successive

resignations of two Prime Ministers Despite a stronger than expected GDP

outturn in the first quarter of 2008, Japan’s economic outlook is weak for 2008 and 2009.

The yen weakened against the U.S. dollar in June but may strengthen if U.S. economy continues to be troubled by financial crisis.

Consumer prices will rise in 2008 Reserves may be used to help ailing banks in

the Asian region

World’s Largest Economies

Country GDP (2007) GDP Growth (%) Current Account/ Inflation (%) JoblessUS$B Year over year GDP 2007 (%) Year over year (%)

US 13,808 2.8 -5.3 4.9 6.1Eurozone 12,182 1.4 0.2 3.6* 7.5Japan 4382** -3.0 4.9 2.4 4.2Germany 3,321 3.1 7.6 2.9* 7.6China 2,280 10.1 11.3 4.7 4.0***Britain 2,804 1.5 -3.8 5.2 5.7France 2,594 0.9 -1.2 3.3* 7.6Italy 2,105 -0.1 -2.5 3.9* 6.8Canada 1436** 0.3 0.9 3.5 6.1Brazil 1,314 6.1 0.1 6.3 7.6Russia 1,290 7.5 5.9 15.0 5.3India 1,101 7.9 -1.4 11.5 n.a.South Korea 970 4.8 0.6 5.1 3.1Mexico 1,023 2.8 -0.6 5.5 4.25*Harmonized figures**Quarter on quarter annualized***Urban end 2007Sources: National Governments, IMF, World Bank

GDP Growth RatesAsian Financial Crisis

Southeast Asia 1996 1997 1998 1999 2000 2001Indonesia 7.8 4.7 -13.1 0.8 4.9 3.3Malaysia 10.0 7.3 -7.4 6.1 8.3 0.4Philippines 5.8 5.2 -0.6 3.4 4.4 3.2Singapore 7.7 8.5 -0.1 6.9 10.3 -2.0Thailand 5.9 -1.4 -10.5 4.4 4.6 1.8Viet Nam 9.3 8.2 5.8 4.8 6.8 ...

1996 1997 1998 1999 2000 2001East Asia

China, People's Rep. of 9.6 8.8 7.8 7.1 8.0 7.3Hong Kong, China 4.5 5.0 -5.3 3.0 10.5 0.1Korea, Rep. of 6.7 5.0 -6.7 10.9 9.3 3.0Taipei,China 6.1 6.7 4.6 5.4 5.9 -1.9

OthersIndia 8.1 4.8 6.5 6.1 4.0 5.4

Source: ADB Key Indicators 2002

GDP Growth RatesAsia: The Most Dynamic Region

SOUTHEAST ASIA 2004 2005 2006 2007 2008F 2009FIndonesia 5.0 5.7 5.5 6.3 6.1 5.5 Malaysia 6.8 5.3 5.8 6.3 5.8 4.8 Philippines 6.4 5.0 5.4 7.2 4.4 3.8 Singapore 9.0 7.3 8.2 7.7 3.6 3.5 Thailand 6.3 4.5 5.1 4.8 4.7 4.5 Vietnam 7.8 8.4 8.2 8.5 6.3 5.5

Source: World Economic Outlook, Oct 2008 (IMF)

NORTHEAST ASIA 2004 2005 2006 2007 2008F 2009FChina 10.1 10.4 11.6 11.9 9.7 9.3 Hong Kong 8.5 7.1 7.0 6.4 4.1 3.5 Korea, Republic of 4.7 4.2 5.1 5.0 4.1 3.5 Taiwan 6.2 4.2 4.9 5.7 3.8 2.5

OTHERSIndia 7.9 9.1 9.8 9.3 7.9 6.9

Source: World Economic Outlook, Oct 2008 (IMF)

Emerging Engines of Growth BRICA

2007 2007 2007 2008F 2009F 2008F 2009FBrazil 191.6 1,314.2 180.1 5.2 3.5 5.7 5.1 Russia 141.6 1,291.0 445.2 7.0 5.5 14.0 12.0 India 1,123.3 1,171.0 249.6 7.9 6.9 7.9 6.7 China 1,320.0 3,280.1 1531.3 9.7 9.3 6.4 4.3 ASEAN 567.4* 1073.9* 368.8* 5.4 5.4 9.4 6.9 *2006 available dataSources: IMF World Economic Outlook (Oct 2008); World Bank Key Development Data & StatisticsADB Asian Development Outlook 2008 Update (September 2008); www.aseansec.org

Real GDP Growth InflationBRICA Population (in Millions)

GDP Value (in current

prices,US$B)

Foreign Exchange

Reserves (US$B)

Emerging Engines of Growth The Next Eleven

Population 2007 GDP 2007(in millions) (current US$ B)

Bangladesh 158.6 67.7Egypt 75.5 128.1Indonesia 225.6 432.8Iran 71.0 270.9Mexico 105.3 893.4Nigeria 148.0 165.7Pakistan 162.4 143.6Philippines 87.9 144.1South Korea 48.5 969.8Turkey 73.9 657.1Vietnam 85.1 71.2Source: World Bank Key Development Data and Statisticshttp://ddp-ext.worldbank.org/ext/ddpreports (Accessed October 13, 2008)

Country

Emerging Engines of Growth GDP % Change

US 2.8 2.0 1.6 0.1Euro Area 2.8 2.6 1.3 0.2Japan 2.4 2.1 0.7 0.5BRICA

Brazil 3.8 5.4 5.2 3.5Russia 7.4 8.1 7.0 5.5India 9.8 9.3 7.9 6.9China 11.6 11.9 9.7 9.3ASEAN 6.0 6.5 5.4 5.4

2008F 2009F2006 2007

US, EU, JAPAN AND BRICA

Bangladesh 6.5 6.3 7.0 5.6Egypt 6.8 7.1 7.2 6.0Indonesia 5.5 6.3 6.1 5.5Iran 5.8 6.4 5.5 5.0Mexico 4.9 3.2 2.1 1.8Nigeria 6.2 5.9 6.2 8.1Pakistan 6.9 6.4 5.8 3.5Philippines 5.4 7.2 4.4 3.8South Korea 5.1 5.0 4.1 3.5Turkey 6.9 4.6 3.5 3.0Vietnam 8.2 8.5 6.3 5.5

2009F

THE NEXT ELEVEN

2006 2007 2008F

F-forecastsSources: World Economic Outlook, Oct 2008 (IMF)aseansec.org

Overheating economy: possible credit and stock market bubble

Inflation rate reached 6.5% in October 2007, the highest monthly inflation in 11 years

Efforts to cool down economy may result in hard landing

Underdeveloped banking sector Undervalued currency Uncontrolled local officials Shortage of local entrepreneurs and managers High rates of poverty Stricter regulations in IT

Threats in ChinaBRICA

Opportunities in China• GDP growth of 8% or over for the last two decades

• Domestic market of some 250-300 million high-income consumers

• High rate of investment at 50% of GDP

• Foreign direct investments (FDIs) of US$60 billion or more yearly

• Surging raw material demand

• Greater integration of China and other Asian countries (e.g. ASEAN + China)

• Demand for middle managers

BRICA

ASEANGDP Growth Rates and Per Capita Income

BRICA

Country 2007 2008F 2009F 2006 2007Indonesia 6.3 6.2 6.2 1,640.0 1,919.6 Malaysia 6.3 5.6 5.3 5,890.5 6,880.2 Philippines 7.2 4.5 4.7 1,355.7 1,652.8 Singapore 7.7 4.2 4.6 29,499.6 35,206.1 Thailand 4.8 5.0 5.0 3,293.9 3,740.1 Vietnam 8.5 6.5 6.0 724.4 836.7 Source: ADB, Asian Development Outlook 2008 Update (September 2008); aseansec.org

GDP Growth Rates GDP per Capita, at Current Prices (in US$)

Domestic Markets

Source: ADB Key Indicators 2007

60+15-600-14

567642984.2Vietnam5211662365.2Thailand471368194.5Singapore696593587.0Philippines647613226.6Malaysia

5686428222.1Indonesia

566.3Southeast Asia

AgeDependency

Ratio

Age Distribution(as % of total population)

Mid-Year Population 2006

(in millions)60+15-600-14

567642984.2Vietnam5211662365.2Thailand471368194.5Singapore696593587.0Philippines647613226.6Malaysia

5686428222.1Indonesia

566.3Southeast Asia

AgeDependency

Ratio

Age Distribution(as % of total population)

Mid-Year Population 2006

(in millions)

BRICA

Savings and Capital Formation

Source: ADB Key Indicators 2007

31.529.5Thailand35.630.2Vietnam

18.850.5Singapore14.318.3Philippines

20.743.0Malaysia24.628.7Indonesia

Gross Capital Formation (% of GDP)

2006

Gross Domestic savings

(% of GDP)2006Country

31.529.5Thailand35.630.2Vietnam

18.850.5Singapore14.318.3Philippines

20.743.0Malaysia24.628.7Indonesia

Gross Capital Formation (% of GDP)

2006

Gross Domestic savings

(% of GDP)2006Country

BRICA

Asian Economic Trends 2008-2010

Domestic markets as engines of growth: double track strategy China as engine of growth of the Asia Pacific region The predominance of China in manufacturing Growth in intra-regional trade: increased complementarity Continuing battle against mass poverty in the big economies Outsourcing of manufacturing and services to Asia Outsourcing is intra-company as well as inter-country Focus on agricultural productivity in Southeast Asia The emergence of SMEs and microenterprises The “entrepreneurial challenge” to centrally planned economies The challenge of innovations and productivity

Consumer Trends in Asia

Non-income consumption factors Expanding middle class Diversity of consumer tastes and lifestyles “Mallification” of Asian cities Demographic gift stage in South and Southeast Asia Rapid aging in Northeast Asia and Singapore Widespread use of English The telecom revolution Spread of university education

Selected Sunrise Industries in Asia Agribusiness Mining Triple Ts: Transport, Telecom, and Tourism Infrastructures Automobiles Consumer durables IT-enabled and IT services Logistics and retailing Health care and medical tourism Education Construction and real estate Four Fs: Food, Fashion, Furniture, Fun

Global Recession and Its Impact on the Asian Economy

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