1. ECONOMIC OUTLOOK & CHALLENGES FOR ASEAN MOHAMED ARIFF

2. GDP growth (%)20112012 ADO 2011UpdateADO 2011Update Major industrial economies 2.11.32.12.0 United States2.81.62.62.2 Japan1.5-0.51.82.8 Eurozone1.61.71.61.3 Sluggish growth in major industrial economies

3. Steady growth expected in developing Asia

4. Southeast Asia pales somewhat

5. Domestic demand plays an important role

6. Intraregional trade is on the rise Exports to developing Asia

7. Mounting inflationary pressures Inflation rates, latest month 2010 average: 4.4% 2009 average: 1.2%

8. Rising commodity prices

9. Inflation higher than previously forecast, but deceleration in 2012?

10. Some cases of negative real interest rates

11. Capital inflows are recovering

12. Relatively low levels of sovereign debt, but caution is in order Gross government debt, 2010

13. High reserves, a good insurance? Import cover, 2010

14. Asian Development Bank 14

15. 15

16. 16

17. 17

18. 18

19. Two competing forces:  Lure of ASEAN’s strong fundamentals  Reduction in investors’ risk appetite due to uncertainty in the global environment Policy makers need to prepare for more volatile capital flows Greater volatility is expected

20. Sovereign debt burden Sedated US economy The Eurozone at the brink of a recession Economic stagnation in Japan Deceleration of growth in China and India No immunity for East Asia The world economy to cave in? Can China save the world economy? Risks to the global economy

21. The global economy settling in at a new equilibrium after rebalancing The US to regain its clout as economic powerhouse, albeit on a subdued level, as it will save more and spend less Intra-regional trade to gain greater prominence for ASEAN in the face of slower extra-regional export growth Domestic and regional demand to be the main driver of economic growth for ASEAN Post-2015 Scenario

22. Rebalance growth Make growth more inclusive Seek resilience through market integration Strengthen monetary cooperation Go for greater fiscal coordination Pursue open regionalism Stay competitive in the global arena Risks to economic growth warrant regional solutions

23. GCI 2010/11 GCI 2011/12 Rank Score Rank Score Singapore 3 5.48 2 5.63 Malaysia 26 4.88 21 5.08 Brunei 28 4.75 28 4.78 Thailand 38 4.51 39 4.52 Indonesia 44 4.43 46 4.38 Vietnam 59 4.27 65 4.24 Philippines 85 3.96 75 4.08 Cambodia 109 3.63 97 3.85 Source: The Global Competitiveness Report Global Competitiveness: ASEAN

24. 2009 2010 2011 Cambodia -0.90 4.66 4.40 Indonesia 2.26 2.83 5.37 Malaysia -3.78 4.96 3.31 Myanmar 6.36 8.54 3.83 Philippines -1.66 4.73 2.29 Singapore -2.40 9.16 2.76 Thailand -4.12 6.87 2.69 Vietnam 2.49 3.94 3.98 Source: Malaysia Productivity Corporation (MPC) ASEAN: Labor Productivity Growth (%)

25. 2006 2007 2008 2009 Cambodia 11.55 4.26 1.03 -3.99 Indonesia 1.29 0.52 0.90 -0.36 Malaysia 2.33 2.58 1.64 -4.93 Philippines 2.46 3.33 0.99 -2.45 Singapore 0.37 3.01 -6.50 -3.66 Thailand 1.55 1.40 -1.16 -5.47 Vietnam 0.38 0.21 -1.86 -2.28 Source: Malaysia Productivity Corporation (MPC) ASEAN Total Factor Productivity Growth (%)

26. Key Messages The global economy to experience slower growth, as the US and EU economies rebalance. Inflation to decelerate To adjust to the sluggish global economy, ASEAN must accelerate structural reforms To be globally competitive, ASEAN must close rank and act as a single entity ASEAN must take advantage of its youthful population while preparing for demographic transitions over the medium term

27. THANK YOU Ff