| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 Asia Economy

Finfacts changes from 2015


How to use our RSS feed

Follow Finfacts on Twitter

Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.


Finfacts is Ireland's leading business information site and you are in its business news section.


Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Global Cost of Living

Irish Tax - Income/Corporate




Content Management by interactivetools.com.

Asia Economy Last Updated: May 13, 2015 - 7:46 AM

Asia accounts for 40% of global output, two-thirds of global growth
By Michael Hennigan, Finfacts founder and editor
May 12, 2015 - 8:10 AM

Email this article
 Printer friendly page

Asia accounts for 40% of global output and two-thirds of global growth. Growth in the region including the Pacific area will continue to outperform the rest of the world, and is expected to remain steady at 5.6% in 2015, easing slightly to 5.5% in 2016, according to the IMF’s Regional Economic Outlook for Asia and the Pacific.

Growth will be driven by domestic demand, underpinned by healthy labour markets, low interest rates, and the recent fall in oil prices. The global recovery, while moderate and uneven, will continue to support Asia’s exports, say the report’s authors.

Regional mix

Performance across the region is expected to be mixed (see table below). China’s economy is slowing to a more sustainable pace — 6.8% GDP growth in 2015, and 6.3% in 2016, while growth in Japan is picking up to 1.0% this year, and 1.2% next year.

India’s growth rate is expected to rise to 7.5% this year and next, making it one of the fastest growing economies in the world. Within the Association of Southeast Asian Nations (ASEAN), while Malaysia is expected to slow, the Philippines should see growth increase. Overall, lower commodity prices are a net positive for Asia, although several commodity exporters (Australia, Indonesia, Malaysia, and New Zealand) will be adversely impacted.

Asia will remain the global growth leader, even though potential growth — the economy’s speed limit— is likely to slow (Chart 1 above). While Asia accounts for nearly 40% of global output, it contributes nearly two-thirds of global growth. Asia’s leading role in world growth is set to continue over the medium term despite slowing potential growth, which reflects weaker productivity gains, the effects of aging, and infrastructure bottlenecks.

Risks tilted to the downside

The Fund says the outlook could be vulnerable to adverse events. This reflects the potential for slower-than-currently-expected growth in China and Japan, which could spill over to the rest of the region — and the global economy —through trade and financial channels.

Debt levels — including foreign currency-denominated debt — have increased rapidly in recent years, and Asia is now more vulnerable to financial market shocks, and persistent US dollar strength, which would raise the cost of servicing debt, and could curtail demand.

The economists say that the large swings in the value of the major reserve currencies could create an uncomfortable trade-off between financial stability and competitiveness. On the other hand, lower energy prices could provide a further boost to Asia’s growth if more of the savings on oil import bills is spent.

Policies to boost resilience and growth

The report says most Asian policymakers have in place broadly appropriate interest rate and fiscal policy settings, although the risk of renewed financial volatility may warrant a somewhat tighter monetary policy stance in some countries. Maintaining flexible fiscal and monetary policies to effectively manage aggregate demand will remain important in the future.

The economists observed that lower oil prices have provided an opportunity to undertake further fiscal reforms aimed at lowering energy subsidies, and measures have been taken in a number of countries, including Malaysia, India, and Indonesia.

Financial and macroprudential policies should continue to address financial sector risks. This will be particularly important to increase resilience to shocks, and to contain the buildup of systemic risk associated with shifting financial conditions, and volatile capital flows.

As global financial conditions adjust to diverging monetary policies in advanced economies, flexible exchange rates should remain a shock absorber. While exchange rates should also be allowed to adjust to balance of payments flows, foreign exchange intervention should remain in the toolkit to address disorderly market conditions.

The IMF’s Regional Economic Outlook calls for a strong push for structural reforms across most, if not all, economies in the region. The report notes that in addition to boosting productive capacity, structural reforms can help rebalance growth toward consumption, which remains a priority for some major Asian economies, including China and Korea.

In economies where aggregate demand is relatively weaker such as Korea and Thailand, combining structural reforms with temporary macroeconomic stimulus would mitigate the risk of deflation. Critical areas include reforms to state-owned enterprises, and financial liberalization in China, initiatives to raise services productivity, and labour force participation in Japan, and measures to address supply-bottlenecks—including by expanding essential infrastructure, and deregulating key sectors—in India, ASEAN, frontier economies, and small states.

The role of trade and finance in Asia

The Regional Economic Outlook also discusses, in two background studies, the role of global value chains (GVCs) in trade, and intra-regional financial integration in Asia.

The expansion of GVCs has been pronounced in Asia, especially emerging Asia. In addition, emerging Asian economies have moved more upstream (i.e. providing intermediate inputs to other countries), rather than downstream (i.e.  processing inputs from more upstream countries), and have captured a growing share of GVCS-related value added.

The rise of GVCs has altered the responsiveness of trade volumes to exchange rate changes. Using a new measure that adjusts for participation in global value chains, the study suggests that both exports and imports in the global value chain react positively to a real depreciation, with upstreamness (downstreamness) tending to amplify (dampen) the impact.

Limited cross-border financial transactions

The financial integration study finds that around 20-30% of cross-border portfolio investment and bank claims are intraregional, much lower than the intra-regional trade share in total trade.

Home bias — the tendency to invest more in the home country rather than abroad — is particularly strong in Asia, thus limiting cross-border financial transactions within, and outside the region.

The analysis shows that financial integration increases with the size, and sophistication of financial systems and the extent of trade integration. But, restrictions on foreign asset holdings, barriers to foreign bank entry, and differences in regulatory and institutional quality hinder financial integration.

The economists say that promoting financial market development, and trade linkages, including through greater harmonization of regulation, will foster financial integration within the region, potentially enhancing the intermediation of Asia’s large saving pool.

Related Articles

© Copyright 2015 by Finfacts.ie

Top of Page

Asia Economy
Latest Headlines
IMF defers renminbi reserve decision; Devaluations losing firepower
Japan's trade deficit widens and GDP falls despite 33% yen devaluation
China's exports slide in July; Fx reserves dip $42.5bn in month
Chinese manufacturing PMI falls for 5th straight month in July; Japan at 5-month high
China's overseas investments to surge; Ireland got €99m of €46bn invested in EU in 2000-2014
China to overtake US economy in 2026; Income per capita will be 50% of US in 2050
Manufacturing activity in China and Japan contracted in June
China's manufacturing contracted for third straight month in May; Japan in slight rise
Asia accounts for 40% of global output, two-thirds of global growth
China's exports unexpectedly fell in April 2015 after March dip
China's growth in 2015 at slowest since early 2009
China's 2015 foreign trade continues to slide
Singapore remains world’s top location for business on 50th anniversary of independence
China's manufacturing activity fell to a 11-month low in March
China in surprise rate cut to boost sagging economy
Chinese Lunar New Year: Year of the Wood Goat begins this week
China’s manufacturing shrunk in January; Regional rise except Indonesia
Profits of Chinese industrial businesses plunged in 2014
China's growth in 2014 fell to a 24-year low
Services activity in China, Japan and India in moderate rises in December
China’s manufacturing industry remains competitive despite rising wages
China revises 2013 GDP up 3.4% to 56.5% of US economy size
China's manufacturing contracts in December; Japan's grows
China's imports slide in November; Emerging markets slow
Manufacturing PMI stalled in China in November; Fell in Korea, Indonesia , grew in India
China's manufacturing output contracted in November; Japan's accelerated
Ireland not among top 67 destinations for Chinese outbound FDI in 2014
Japan fell into recession in third quarter of 2014
Services slowed in China, contracted in Japan and stagnated in India in October
Manufacturing in South Korea/ Indonesia contracted in October; India in slight rise
Two Chinese manufacturing reports show trading near stagnation levels
Bank of Japan raises money printing target; Spending and wages plunge
China's manufacturing stagnates, Japan in moderate growth
China’s economy in third quarter grew at slowest pace in five years
Chinese exports jump in September; "Sadness will return soon"
World Bank cuts growth forecasts for developing East Asia including China
Japanese business confidence slightly improves; Manufacturing sector weak
Developing Asia remains fastest-growing region in world in 2014
Chinese manufacturing PMI rose slightly in September
Japan reports 26th straight monthly trade deficit; Public debt tops ¥1,000tn