1. Asia Economic Outlook and Implications for Cambodia Presentation at the Royal School of Administration Olaf Unteroberdoerster IMF Mission Chief for Cambodia Phnom Penh May 2, 2013

2. Outline and Summary 2 Global Setting Financial Imbalances: New Challenges for Emerging Asia and Cambodia Financial Imbalances: New Challenges for Emerging Asia and Cambodia Tail risks are receding, but still considerable Activity indicators stabilizing Robust domestic demand Strengthening external demand Inflation remains low Activity indicators stabilizing Robust domestic demand Strengthening external demand Inflation remains low Improved financial conditions Stronger capital inflows Financial imbalances building Improved financial conditions Stronger capital inflows Financial imbalances building Asia Outlook Common policy challenges: Need for rebuilding space Scope for macroprudential measures Common policy challenges: Need for rebuilding space Scope for macroprudential measures

3. Global tail risks are receding … 3 Global Setting Selected Europe: Sovereign CDS Spreads (CDS Spreads in basis points, 5-year senior debt) Advanced Economies: Stock Market Performance (Index; December 31, 2010 =100)

4. …but growth in G2 set to remain sluggish 4 Global Setting Advanced Economies: Manufacturing PMI (Seasonally adjusted; 50=neutral) Advanced Economies: Consumer Confidence Index (Standardized using historical average) 1

5. Growth in Asia slowed through 2012, and inflation moderated 5 Asia Outlook Asia: Changes in Real GDP at Market Prices (In percent) Asia: Headline Inflation 1 (Year-on-year percent change)

6. Near-term outlook: gradual growth pickup 6 Asia Outlook Indicator Model for Asia: Projected vs. Actual Real GDP Growth (In percent; q/q SAAR) Real GDP Growth in 2013 (WEO forecast; In percent)

7. …underpinned by robust domestic demand 7 Asia Outlook Asia: Contributions to Projected Growth (In percentage points; year over year)

8. 8 ASEAN Intraregional Exports by Category (In percent of total exports in each category) Internal demand dynamics are becoming more favorable Selected Asia: External Dependence (Value-added basis; average 2005-10)

9. Inflation should remain within central banks’ explicit/implicit targets 9 Asia Outlook Asia: Headline Consumer Price Inflation 1 (In percent; year over year)

10. Global risks have become more balanced, but considerable downside risks remain. 10 Risks Asia: Real GDP Growth (Central forecast and selected confidence intervals; in percent)

11. Financial stability risks amid renewed capital inflows and robust credit growth? 11 Risks Emerging Asia: Equity and Bond Funds—Weekly Net Flows during 2010 ‒ 13 1 (In billions of U.S. dollars) Asia: Change in Credit to GDP, 2012 1 (In percentage points)

12. Financial stability heatmap: moderate risk buildup in Asia 12 Risks Financial Stability Heatmap

13. Corporate balance sheets generally sound 13 Risks Selected Asia: Nonfinancial Sector Corporate Debt-to-Equity Ratio 1 (In percentage points; cap-weighted mean; 2011)

14. Banks’ buffers increasing, although below international comparators in some cases 14 Risks Selected Asia: Commercial Banks' Loss-Absorbing Buffers 1 (In percent of risk-weighted assets; asset-weighted mean)

15. Cambodia: Rapid credit growth increasingly fuelled by foreign funds 15 Risks Monetary Developments, 2008-12 (Contribution to broad money growth, in percent)

16. Cambodia: When is credit growth too fast? 16 Risks Credit to GDP Relative to Peers (In percent) Credit Gap (In percent)

17. Macroprudential and capital flow measures: Remain essential for financial stability… 17 Policy challenges Selected Asia: Use of Macroprudential and Capital Flow Management Measures, 2010-13 1

18. Cambodia: High dollarization and foreign inflows limit effectiveness of conventional tools 18 Policy challenges Effective Required Reserves (In percent) Dollarization (In percent)

19. There is a need for rebuilding monetary and fiscal policy space 19 Policy challenges Selected Asia: Policy Rates (In percent; as of December, 2012) Selected Asia: Cyclically Adjusted Fiscal Balance (In percent of GDP)

20. 20 Cambodia: Fiscal Trends (In Percent of GDP) Selected Asia: Tax Revenue (In Percent of GDP) Cambodia: Fiscal buffers also key for stability and medium-term growth Policy challenges

21. Median 10 th /90 th percentile 25 th /75 th percentile Indonesia 1983 Brazil 1961 Korea 1961 Mozambique 1996 1950–2011 (normalized to 100 at t = 0, the year before the start of a strong growth episode; median economy; years on x-axis) Cambodia 1996 Note: LICs exclude countries experiencing or recovering from a serious external or internal conflict at the start of their takeoffs. Cambodia: A longer-term growth lesson Policy challenges

22. 22 To wrap up… Near-term growth prospects for Asia have improved, although global recovery remains fragile and subdued Easy global and domestic financial conditions and prospect of continued capital inflows require vigilance in monitoring build-up of potential financial stability risks Macroprudential tools have a role to play along a move toward rebuilding monetary and fiscal policy space For Cambodia, strengthening the conventional monetary tools will also be important while fiscal buffers remain the anchor of macroeconomic stability

23. THANK YOU 23