1. Asian Development Outlook 2009 Rebalancing Asia’s Growth Donghyun Park Senior Economist Economics and Research Department Asian Development Bank 31 March 2009

2. Outline 1.Economic prospects –Global recession –Impact on Asia –Regional outlook (2009 and 2010) 2.Rebalancing Asia’s growth

3. Key messages Growth to decelerate further in 2009 Inflationary pressures continue to ease Downside risks high from global economic uncertainty Governments adopt policy measures to counter crisis effects Rebalancing needed to support long- term growth and welfare

4. Developing Asia’s growth down this year

5. Inflationary pressures ease

6. Regional outlook

7. Global recession this year 2007 Actual 2008 Actual 2009 Projection 2010 Projection GDP growth (%) Industrial countries2.30.7-2.61.1 United States2.01.1-2.41.6 Eurozone2.60.8-2.60.5 Japan2.4-0.6-3.51.1 Inflation (G3 average) 2.23.2-0.31.2 World trade volume (% change) 7.56.2-3.51.9

8. US output dropped as domestic demand waned

9. Japan’s output clipped as exports plummet

10. Eurozone output declined as exports and consumption fell

11. Risks to the global outlook Ineffective financial crisis resolution Insufficient fiscal stimulus Emerging protectionism Volatile commodity prices Deflationary threat Socio-political instability

12. Asia’s subprime losses limited USJapanAsia Subprime losses ($ billion) 157.78.719.5 % of bank assets10.031.521.95 % of bank capital1.020.080.09 Notes: Asia includes Japan. Data as of May 2008.

13. Asia’s banking sectors solid …

14. … but there are concerns

15. Exports down … (y-o-y, 3-month moving average)

16. … but imports more so (y-o-y, 3-month moving average)

17. Unemployment on the rise

18. Retail sales slowing (y-o-y)

19. Regional growth to decelerate

20. Inflation eases

21. Current account to remain in surplus

22. Policy responses Cut policy rates and reserve requirements Increase foreign exchange swaps Hike deposit guarantees Cut taxes Target cash transfers Hike infrastructure spending Frontload disbursements

23. Policy rates cut

24. Fiscal stimulus packages announced EconomySize of package% of GDP China, People’s Rep. ofCNY4 trillion13.3 Hong Kong, ChinaHK$24.1 billion1.4 IndiaRs800 billion1.7 IndonesiaRp73.3 trillion1.5 Korea, Rep. ofW33 trillion3.2 MalaysiaRM67 billion9.0 PhilippinesP330 billion4.4 SingaporeS$20.5 billion8.0 Taipei,ChinaNT$605 billion4.8 ThailandB117 billion1.3

25. East Asia’s domestic demand unable to counter export slowdown PRC=China, People’s Republic of HKG=Hong Kong, China KOR=Korea, Republic of TAP=Taipei,China

26. South Asia less affected by global recession IND=India PAK=Pakistan BAN=Bangladesh SRI=Sri Lanka

27. Southeast Asia near stagnation SEA=Southeast Asia INO=Indonesia SIN=Singapore THA=Thailand MAL=Malaysia PHI=Philippines VIE=Viet Nam

28. Central Asia’s growth to slow further AZE=Azerbaijan GEO=Georgia KAZ=Kazakhstan UZB=Uzbekistan

29. Expansion in the Pacific to abate PNG=Papua New Guinea FIJ=Fiji Islands TIM=Timor-Leste, Dem. Rep. of SAM=Samoa

30. Rebalancing Asia’s growth Asia’s sharp slowdown underlines risk of excessive reliance on external demand Region’s current account surplus an integral part of global imbalances Need to rebalance growth toward domestic demand Mix of policies required to shore up domestic and regional demand

31. Global imbalances remain large

32. Policy options to rebalance growth Use fiscal and other policies to strengthen domestic consumption Enhance investment climate Promote small- and medium-sized enterprises and service industries Adopt financial development and exchange rate policies to promote better supply-demand balance

33. Policy options to rebalance growth Strengthen regional cooperation Encourage international dialogue to resolve global imbalances  Asia’s rebalancing will contribute to orderly unwinding of global imbalances  Developing Asia should rebalance for its own growth and welfare

34. Thank you Contact: Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org

35. Key messages Growth to decelerate further in 2009 Inflationary pressures continue to ease Downside risks high from global economic uncertainty Governments adopt policy measures to counter crisis effects Rebalancing needed to support long- term growth and welfare