Asian Development Outlook 2010 Update The Future of Growth in Asia

2. Asian Development Outlook 2010 UpdateThe Future of Growth in Asia Donghyun Park Principal Economist Economics and Research Department Asian Development Bank National Asset-Liability Management Conference Singapore 29 September 2010

3. Outline • Economic prospects • Fragile global recovery • Vibrant regional outlook • Special chapter:The future of growth in Asia

4. Key messages • Developing Asia is rebounding solidly with growth expected to reach 8.2% in 2010 • Growth momentum is slowing in major industrial economies and significant downside risks remain • Developing Asia must again focus on long-term growth • Structural policies are needed to promote productive capacity via 4 core elements – trade, human capital, infrastructure, and financial development

5. Economic prospects

6. Global conditions improved, but still fragile saar: seasonally adjusted annualized rate

7. Risks to the global outlook • Threat of another contraction • Continued weakness of the US housing market • Risk of insolvency and default in eurozone • Spikes in commodity prices

8. Developing Asia recovered with speed and vigor… Forecast

9. …due to a favorable mix of factors • Strong export recovery • Robust private demand • Sustained effects of stimulus policies SIN=Singapore; MAL=Malaysia; THA=Thailand; INO=Indonesia; PHI=Philippines; KOR=Republic of Korea; HKG=Hong Kong, China; IND=India; TAP=Taipei,China

10. But variations remain across subregions… f: forecast

11. …as well as across economies

12. Inflation remained stable Forecast

13. Yet uneven across subregions f: forecast

14. Current account surplus declining f: forecast

15. Strong rebound in capital flows Refers to aggregate data for the People’s Republic of China; Hong Kong, China; Indonesia; Republic of Korea; Philippines; Singapore; Taipei,China; and Thailand.

16. Exchange rates under appreciation pressure % change from Sep2008-Sep2010 1 % Depreciation % Appreciation Note: Based on monthly average of $ value of local currency as of 15 September 2010. 1 PRC=People's Republic of China.

17. Foreign exchange holdings rising ASEAN4=Indonesia, Malaysia, Philippines, and Thailand.

18. The future of growth in Asia

19. Sustaining growth in the medium- to long-term matters • Living standards in the region remain below those of the industrialized countries • No guarantee that developing Asia’s stellar growth record will carry over into the post-crisis period • The region’s long-term growth potential is not pre-defined

20. It’s time to improve Asia’s long-term productive capacity • Four core elements of Asia’s future growth • Trade • Human capital • Infrastructure • Financial development

21. Trade • Promotes exploitation of economies of scale and better resource allocation through specialization Central Asia=Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Southeast Asia=Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam. South Asia=Afghanistan, Bangladesh, India, Maldives, Pakistan, and Sri Lanka. Northeast Asia=Hong Kong, China; People’s Republic of China; Japan; Republic of Korea; Mongolia; and Taipei,China. The Pacific=Fiji Islands, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu. East Asia=Northeast and Southeast Asia.

22. Trade policy should: • Take full advantage of potentially large domestic consumption and intraregional trade • Expand the base of domestic production and diversify exports for Asia’s weaker economies

23. Human capital Educational Attainment (average years of schooling) • Improves labor productivity and facilitates technology adoption and innovation Primary Secondary Tertiary

24. Education reform agenda should: • Increase investment to improve enrollment (especially secondary and tertiary) and ensure quality education • Take account of how educational systems can produce outcomes that meet the standards and skill sets required by the labor market

25. Infrastructure • Provides key intermediate inputs for production and final consumption services to households SIN=Singapore; HKG=Hong Kong, China; TAP=Taipei,China; KOR=Republic of Korea; MAL=Malaysia; THA=Thailand; AZE=Azerbaijan; SRI=Sri Lanka; PRC=People’s Republic of China; KAZ=Kazakhstan; CAM=Cambodia; TAJ=Tajikistan; PAK=Pakistan; IND=India; INO=Indonesia; PHI=Philippines; VIE=Viet Nam; BAN=Bangladesh; NEP=Nepal; MON=Mongolia; JPN=Japan; USA=United States

26. Infrastructure investment should: • Address congestion, environmental degradation, and other costs associated with urban agglomeration • Close the wide urban-rural infrastructure divide

27. Financial development • Fosters efficient allocation of resources, speeds up accumulation of physical capital, and promotes dynamic efficiency PRC=People’s Republic of China; BAN=Bangladesh; IND=India; INO=Indonesia; PAK=Pakistan; PHI=Philippines; THA=Thailand; OECD=high-income economies of the Organisation for Economic Co-operation and Development

28. Financial reforms should: • Deepen and broaden financial systems • Safeguard financial stability through strong prudential regulation and bond market development • Increase accessibility of financial services

29. Asia’s Actual Growth and Future Growth Projections SOURCE: LEE AND HONG (2010)

30. Key messages • Developing Asia is rebounding solidly with growth expected to reach 8.2% in 2010 • Growth momentum is slowing in major industrial economies and significant downside risks remain • Developing Asia must again focus on long-term growth • Structural policies are needed to promote productive capacity via 4 core elements – trade, human capital, infrastructure, and financial development