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Contents Definitions vii Executive Summary ix 1. Building on Asia’s Strengths during Turbulent Times 1 Recent Developments and Near-Term Outlook 1 Risks to the Outlook: Downside Risks are Looming Large 16 Policy Recommendations 22 2. Navigating the Transition: Trade and Financial Spillovers from China 47 Introduction and Main Findings 47 Channels of Spillovers from China’s Growth Slowdown 49 Trade Spillovers from China’s Rebalancing 50 China’s Financial Spillovers to Regional Markets 55 Policy Implications 59 Annexes 70 3. China’s Evolving Trade with Advanced Upstream Economies and Commodity Exporters 77 Introduction and Main Findings 77 Conclusion 88 Annex 98 4. Sharing the Growth Dividend: Analysis of Inequality in Asia 103 Introduction and Main Findings 103 Recent Trends and Developments 104 Drivers of Income Inequality 110 Conclusions and Policy Implications 114 Annex 123 References 127 Boxes 1.1 Housing Sector Developments in Australia and New Zealand: Diverging Tales 27 1.2 Household Debt in Korea: The Role of Structural Factors and Rising House Prices 29 1.3 U.S. Monetary Policy Uncertainty: What Have Been Its Effects on Asian Currencies? 31 1.4 Japan’s Sluggish Wages: Causes and Remedies 34 1.5 Paris Agreement on Climate Change and Asia-Pacific Countries 36 1.6 Cyclone Winston in Fiji 38 1.7 Rise in Services Trade: Looking Beyond Cross-Border Services 39 2.1 Regional Consequences of a Growth Slowdown in China 64 2.2 China’s Import Slowdown 66 2.3 China Opening Up: The Evolution of Financial Linkages 68 3.1 The Evolution of China’s Labor-Intensive Exports 90 3.2 Food Consumption Patterns in China 94 3.3 The Contribution of China’s Growth Transition to Commodity Price Declines 96 4.1 Understanding Rising Inequality in China and India 117 4.2 What Explains Declining Inequality in Malaysia, the Philippines, and Thailand? 119 4.3 Labor Share and Income Inequality 121 Tables 1.1 Asia: Real GDP 43 1.2 Asia: General Government Balances 44 1.3 Asia: Current Account Balance 45 1.4 Asia: Consumer Prices 46 3.1 World Consumption of Selected Major Commodities, 2011–15 89 Figures 1.1 United States: Financial Conditions 1 1.2 Global Commodity Prices 2 1.3 Market Volatility 2 1.4 Asia: Cumulative Portfolio Flows 3 1.5 Asia: Equity Prices and Price-to-Earnings (PE) Ratios 3 1.6 Asia: Ten-Year Sovereign Bond Yields: Change since End-June 2015 4 1.7 Sovereign Credit Default Swap Spreads 4 1.8 Selected Asia: Exchange Rates 4 1.9 Selected Asia: Foreign Exchange Reserve Accumulation 5 1.10 Selected Asia: Real Private Sector Credit Growth 5 1.11 Asia: Nonfinancial Corporate Sector Debt Issuance 5 1.12 Consolidated Foreign Claims 6 1.13 Asia: Financial Stability Heat Map 7 1.14 Ratio of Regulatory Tier 1 Capital to Risk-Weighted Assets 8 1.15 Return on Assets 8 1.16 Ratio of Nonperforming Loans to Total Gross Loans 8 1.17 Asia: Changes in Real GDP at Market Prices 8 1.18 Selected Asia: Exports to Major Destinations 9 1.19 Selected Asia: Retail Sales Volumes 9 1.20 Asia: Headline Inflation and Expectations 10 1.21 Selected Asia: Core Inflation 10 1.22 Asia: Current Account Balances 10 1.23 Selected Asia: Contributions to Projected Growth 12 1.24 Indicator Model for Asia: Projected versus Actual Real GDP Growth 13 1.25 Gordon Equity Price Model for Asia: Projected versus Actual Real GDP Growth 13 1.26 Asia: Output Gap versus Credit Gap 16 1.27 Selected Asia: Real Policy Rates 17 1.28 Estimated Central Bank Reaction Functions 17 1.29 Selected Asia: Cyclically Adjusted Fiscal Balance 17 1.30 China: Economic Activity Indicators 18 1.31 China: Daily Exchange Rate 19 1.32 China: Three-Month Implied Currency Volatility and Risk Reversal 19 1.33 United States: Interest Rates 20 1.34 Japan: Equity Prices and Exchange Rate 21 1.35 Low-Income Economies: Current Account and Fiscal Balances 22 1.36 Natural Disaster Risks: World Risk Index, 2014, Top 16 22 1.37 Asia: Resistance Index 24 1.38 Asia: Exchange Market Pressure Index (EMPI) 24 2.1 China’s Role in the Global Economy 48 2.2 Recent Developments in Global Trade and Asian Financial Markets 48 2.3 Channels of Spillovers from a Slowdown in China 49 2.4 Share of Domestic Value Added Exported from China’s Final Demand 51 2.5 A Tale of Two Exporters to China, 1995–2011 52 2.6 Change in Value-Added Exports to China after China’s Rebalancing 53 2.7 Estimated Impact of China Rebalancing on Partner-Country Growth Transmitted Through the Trade Channel 54 2.8 Impact of Historical Rebalancing on GDP Growth 55 2.9 Impact on GDP Growth Over the Medium Term: By Region 56 2.10 Asian Market Correlations with China, Japan, and the United States 57 2.11 Asia: Business Cycle Synchronization with China 58 2.12 Regional Equity and Foreign Exchange Markets during China-Related Shocks 59 2.13 Event Study: Stock Market Movements Due to Shocks from China 60 2.14 Event Study: Stock Market Movements Due to Shocks from China, by Trade Links with China 60 2.15 Event Study: Exchange Rate Movements Due to Shocks from China 60 2.16 Event Study: Exchange Rate Movements Due to Shocks from china, by Trade Links with China 60 2.17 Equity Market Spillover 61 2.18 Determinants of Market Sensitivity to China and Japan 61 2.19 Contribution to Explained Variance in Market Sensitivities to China 61 2.20 Scenario Analysis: Transmission of Shocks 62 2.21 Asian Market Sensitivity to China under Different Scenarios 62 3.1 Import Intensity of GDP Components, 2011 78 3.2 Consumption Imports 78 3.3 China: Consumption Imports 79 3.4 Real Commodity Import Growth 79 3.5 Domestic Value Added in Exports 80 3.6 Processing Trade 80 3.7 Import Intensity 81 3.8 Exports of LCD Screens and Transistors 81 3.9 Trade Balance with China by Technology Sophistication 82 3.10 Trade Balance with China by End-Use Category 82 3.11 China: Commodity Consumption and Production 85 3.12 China: Deviations of Actual Consumption from Counterfactual 86 3.13 Commodity Production in China: Deviation of Actual from Counterfactual 86 3.14 China: Contribution to Changes in Net Commodity Imports, 2011–15 87 3.15 Commodity Exports to China from Latin America and Asia and China’s Import Volumes from Latin America and Asia 88 4.1 World and Asia: Income Inequality 105 4.2 World and Asia: Population Weighted Income Inequality 105 4.3 Regional Comparison: Income Inequality Level 105 4.4 Regional Comparison: Income Inequality Trend 105 4.5 Asia: GDP per Capita and Net Gini Index 106 4.6 Selected Asia: Net Gini Index 106 4.7 Asia: Top 10 Income Share 107 4.8 Selected Asia: Growth of Income Share by Decile 107 4.9 Asia: Growth in Mean Income/Consumption by Decile 107 4.10 Poverty in Asia 108 4.11 Decomposition of Changes in Headcount Ratio 108 4.12 The Middle Class in Asia 108 4.13 Education by Wealth Quintile 109 4.14 Health by Wealth Quintile 109 4.15 Financial Services by Income Share in 2014 110 4.16 Nonregular Employment by Type in 2013 110 4.17 Nonagricultural Informal Employment 110 4.18 Advanced versus Emerging Market and Developing Economies 111 4.19 Asia: Financial Deepening 112 4.20 Population with Bank Accounts in 2014 113 4.21 Asia: Fiscal Policy 113 4.22 Composition of Social Spending 113 4.23 Pension Receipt Rate 114 4.24 Asia: Skill Premium 114 4.25 Regional Comparison: Return to Schooling Rate 115

Asia remains the most dynamic part of the global economy but is facing severe headwinds from a still weak global recovery, slowing global trade, and the short-term impact of China’s growth transition. Still, the region is well positioned to meet the challenges ahead, provided it strengthens its reform efforts. To strengthen its resilience to global risks and remain a source of dynamism, policymakers in the region should push ahead with structural reforms to raise productivity and create fiscal space while supporting demand as needed. Growth in the Asia-Pacific economies is expected to decelerate slightly to about 5¼ percent during 2016–17, partly reflecting the sluggish global recovery. As external demand remains relatively subdued and global financial conditions have started to tighten, domestic demand is expected to be a major driver of activity across most of the region. Domestic demand, particularly consumption, will continue to be propelled by robust labor market conditions, lower commodity prices, and disposable income growth, along with, in some economies, macroeconomic stimulus. Downside risks continue to dominate the economic landscape. Slower-than-expected global growth and tighter global financial conditions combined with high leverage in the region could have an adverse effect on regional growth. In particular, the turning of the credit and financial cycles amid high debt poses a significant risk to growth in Asia, especially because debt levels have increased markedly over the past decade across most of the major economies in the region, including China and Japan. Moreover, although China’s economic transition toward more sustainable growth is critical over the medium term for both China and the global economy, adverse spillovers could emerge in the near term. Chapter 2 assesses potential spillovers from China’s rebalancing on regional economies and financial markets. Overall, the region has become more sensitive to the Chinese economy. While China’s rebalancing will have medium-term growth benefits, there are likely to be adverse short-term effects, though the impact will be relatively more positive for economies more exposed to China’s consumption demand. Financial spillovers from China to regional markets—in particular equity and foreign exchange markets—have risen since the global financial crisis and are stronger for those economies with stronger trade linkages. Chapter 3 examines how China’s rebalancing has affected advanced economies that are upstream in production or value chains, and commodity exporters. It offers evidence that the former have lost market shares for some products, as China has onshored the production of previously imported intermediate goods and started exporting them. Commodity consumption growth has also slowed with China’s rebalancing, but only some exporters have seen their export volume growth decline substantially. Many exporters have been more affected by global commodity price declines, only part of which can be attributed to China’s rebalancing. The region faces other important downside risks, including natural disasters and trade disruptions. While Abenomics has been supportive, durable gains in growth in Japan have so far not materialized. A further growth slowdown there could lead to an overreliance on expansionary monetary policy. More broadly, domestic political and international geopolitical tensions could cause significant trade disruptions, leading to a generalized slowdown. Finally, natural disasters are a major perennial risk to most Asian and Pacific economies. Because of their poorer infrastructure and their geographical susceptibility to natural disasters and climate change, low-income, frontier, and developing economies as well as Pacific island countries are particularly at risk. On the upside, regional and multilateral trade agreements could provide a boost to trade and growth. Further progress on these agreements, including, for example, broadening of the Trans-Pacific Partnership, could benefit many economies in the region. What is the role of policies in helping Asia to address its challenges and maintain its leadership in the global economy? Harnessing Asia’s potential will require supporting demand, cushioning the blow from external shocks, and implementing a wide-ranging policy agenda. Structural reforms, aided by macroeconomic policies, should support economic transitions and bolster potential growth. While gradual fiscal consolidation is desirable for most economies, in order to rebuild policy space, it should generally be undertaken together with adjustments to the composition of spending to allow, where needed, for further infrastructure and social spending. Monetary policy should remain focused on supporting demand and addressing near-term risks, including from large exchange rate depreciations and deflationary shocks. Recent bouts of financial volatility underscore the need for flexible and proactive monetary and exchange rate policies. Effective communication of policy goals can also play a role in bolstering confidence and lowering market volatility. Policies to manage risks associated with high leverage and financial volatility will play an important role, including exchange rate flexibility, targeted macroprudential policies, and, in some cases, capital flow measures. Pushing ahead with structural reforms will be critical to ensure that Asia remains the global growth leader. Structural reforms are needed to help rebalance demand and supply, reduce vulnerabilities, and increase economic efficiency and potential growth. In a number of economies, reforms can also help address climate change and improve the environment, particularly in large countries that rely heavily on fossil fuels. Past reforms have shown themselves to have been highly effective, including by fostering economic and trade diversification and facilitating Asia’s entry into global markets, but a new wave of high-impact reforms is needed, ranging from state-owned enterprise reform in China to labor and product market reforms in Japan and reforms to remove bottlenecks in India and elsewhere in the region. Reforms will also be needed to foster more inclusive growth, including by reducing income inequality, which in contrast to other regions has risen in most of Asia. Chapter 4 finds that, unlike in the past, fast growing Asian economies have been unable to replicate the “growth with equity” miracle. The chapter argues that it is imperative to address inequality of opportunities, in particular to broaden access to education and health and promote financial and gender inclusion. In this connection, fiscal policy is an important tool to address rising inequality, including by expanding and broadening the coverage of social spending and improving tax progressivity.

Library	Materyal Türü	Demirbaş	Yer Numarası	Durumu / Lokasyon / İade Tarihi
Ekonomi Kütüphanesi	Kitap	EKOBKN0007965	330.950 REG 2016	Merkez Kütüphane Genel Koleksiyon