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Global Recession and

Its Impact on theAsian Economy

Dr. Bernardo M. VillegasNovember 2008

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Black Thursday 1929

Stock Market Crash

Passive Federal Reserve System

Ignorance of Keynesian Pump Priming

Panic in the Banking Sector

Unemployment Rate of 25%

Complete Dominance of the US Economy

in the World World Financial Market Illiquid

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Black Monday 2008

Real Estate Bubble Proactive Federal Reserve System US Government Pump Priming

No Panic in the Banking Sector No Crash in the Stock Market Unemployment Rate Manageable Countervailing Power of Emerging

Markets Liquidity of Sovereign Funds Massive intervention of European

governments

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Growth Rates of Major Economies

F forecasts

Source: World Economic Outlook, IMF, Oct 2008

Traditional Engines of Growth

0.0

1.0

2.0

3.0

4.0

2

002

2

003

2

004

2

005

2

006

2

007

20

08F

20

09F

US Euro Area Japan

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World Growth (GDP Growth Rates)

F forecastsSource: World Economic Outlook, IMF, Oct 2008

Traditional Engines of Growth

US 0.8 1.6 2.5 3.6 2.9 2.8 2.0 1.6 0.1Euro Area 1.9 0.9 0.8 2.1 1.6 2.8 2.6 1.3 0.2

Germany 1.2 -0.2 1.2 0.8 3.0 2.5 1.8 0.2

France 1.9 1.0 1.1 2.5 1.9 2.2 2.2 0.8 0.2Italy 1.8 0.5 1.5 0.6 1.8 1.5 -0.1 -0.2Spain 3.6 2.7 3.1 3.3 3.6 3.9 3.7 1.4 -0.2Netherlands 1.9 0.1 0.3 2.2 2.0 3.4 3.5 2.3 1.0

Japan 0.2 0.3 1.4 2.7 1.9 2.4 2.1 0.7 0.5United Kingdom 2.5 2.1 2.8 2.8 2.1 2.8 3.0 1.0 -0.1Canada 1.8 2.9 1.9 3.1 2.9 3.1 2.7 0.7 1.2

Australia 2.1 4.2 3.0 3.9 2.8 2.7 4.2 2.5 2.2

2004 2005 2008F 2009F2006 20072002 20032001

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Global Growth Slowdown

Financial meltdown in the U.S. High rates of inflation Tight credit despite lower interest rate High albeit moderating food and fuel

prices

Slowdown in the EU and Japan The U.S. twin (fiscal and trade) deficits

continue to cause concern

Threats to World Growth

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U.S. Economy:Still no end to financial turmoil

Huge losses in the financial sector

Still uncertain results of U.S. governmentbailouts of failing banks

Previously robust private consumptionspending has been depressed by the slump inthe housing market

Real GDP growth to fall from 2.0% in 2007 to1.6% or lower in 2008

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Euro Area Economy

Activity in Western Europe gathered momentum in 2006.GDP growth in the Euro area reached 2.8%, double itspace in 2005

Slowing of growth in 2008 to 1.3% from 2.6% in 2007

Falling housing investments Growth should remain relatively stronger in Germany

sustained by good export performance in the face ofweaker consumer demand

The slowdown will reflect an uptick in unemployment in

the Euro area, especially in Spain

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Japanese Economy

Political instability caused by successiveresignations of two Prime Ministers

Despite a stronger than expected GDP

outturn in the first quarter of 2008, Japanseconomic outlook is weak for 2008 and 2009.

The yen weakened against the U.S. dollar inJune but may strengthen if U.S. economy

continues to be troubled by financial crisis. Consumer prices will rise in 2008

Reserves may be used to help ailing banks inthe Asian region

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Worlds Largest Economies

Country GDP (2007) GDP Growth (%) Current Account/ Inflation (%) JoblessUS$B Year over year GDP 2007 (%) Year over year (%)

US 13,808 2.8 -5.3 4.9 6.1

Eurozone 12,182 1.4 0.2 3.6* 7.5

Japan 4382** -3.0 4.9 2.4 4.2

Germany 3,321 3.1 7.6 2.9* 7.6China 2,280 10.1 11.3 4.7 4.0***

Britain 2,804 1.5 -3.8 5.2 5.7

France 2,594 0.9 -1.2 3.3* 7.6

Italy 2,105 -0.1 -2.5 3.9* 6.8

Canada 1436** 0.3 0.9 3.5 6.1

Brazil 1,314 6.1 0.1 6.3 7.6

Russia 1,290 7.5 5.9 15.0 5.3India 1,101 7.9 -1.4 11.5 n.a.

South Korea 970 4.8 0.6 5.1 3.1

Mexico 1,023 2.8 -0.6 5.5 4.25

*Harmonized figures

**Quarter on quarter annualized

***Urban end 2007

Sources: National Governments, IMF, World Bank

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GDP Growth Rates

Asian Financial Crisis

Southeast Asia 1996 1997 1998 1999 2000 2001

Indonesia 7.8 4.7 -13.1 0.8 4.9 3.3

Malaysia 10.0 7.3 -7.4 6.1 8.3 0.4

Philippines 5.8 5.2 -0.6 3.4 4.4 3.2

Singapore 7.7 8.5 -0.1 6.9 10.3 -2.0

Thailand 5.9 -1.4 -10.5 4.4 4.6 1.8

Viet Nam 9.3 8.2 5.8 4.8 6.8 ...

1996 1997 1998 1999 2000 2001

East Asia

China, People's Rep. of 9.6 8.8 7.8 7.1 8.0 7.3

Hong Kong, China 4.5 5.0 -5.3 3.0 10.5 0.1

Korea, Rep. of 6.7 5.0 -6.7 10.9 9.3 3.0

Taipei,China 6.1 6.7 4.6 5.4 5.9 -1.9

Others

India 8.1 4.8 6.5 6.1 4.0 5.4

Source: ADB Key Indicators 2002

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GDP Growth Rates

Asia: The Most Dynamic Region

SOUTHEAST ASIA 2004 2005 2006 2007 2008F 2009FIndonesia 5.0 5.7 5.5 6.3 6.1 5.5Malaysia 6.8 5.3 5.8 6.3 5.8 4.8

Philippines 6.4 5.0 5.4 7.2 4.4 3.8

Singapore 9.0 7.3 8.2 7.7 3.6 3.5

Thailand 6.3 4.5 5.1 4.8 4.7 4.5Vietnam 7.8 8.4 8.2 8.5 6.3 5.5

Source: World Economic Outlook, Oct 2008 (IMF)

NORTHEAST ASIA 2004 2005 2006 2007 2008F 2009F

China 10.1 10.4 11.6 11.9 9.7 9.3Hong Kong 8.5 7.1 7.0 6.4 4.1 3.5Korea, Republic of 4.7 4.2 5.1 5.0 4.1 3.5Taiwan 6.2 4.2 4.9 5.7 3.8 2.5

OTHERS

India 7.9 9.1 9.8 9.3 7.9 6.9Source: World Economic Outlook, Oct 2008 (IMF)

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Emerging Engines of Growth

BRICA

2007 2007 2007 2008F 2009F 2008F 2009F

Brazil 191.6 1,314.2 180.1 5.2 3.5 5.7 5.1

Russia 141.6 1,291.0 445.2 7.0 5.5 14.0 12.0

India 1,123.3 1,171.0 249.6 7.9 6.9 7.9 6.7

China 1,320.0 3,280.1 1531.3 9.7 9.3 6.4 4.3

ASEAN 567.4* 1073.9* 368.8* 5.4 5.4 9.4 6.9

*2006 available data

Sources: IMF World Economic Outlook (Oct 2008); World Bank Key Development Data & Statistics

ADB Asian Development Outlook 2008 Update (September 2008); www.aseansec.org

Real GDP Growth InflationBRICAPopulation

(in Millions)

GDP Value

(in current

prices,US$B)

Foreign

Exchange

Reserves (US$B)

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Emerging Engines of Growth

The Next ElevenPopulation 2007 GDP 2007(in millions) (current US$ B)

Bangladesh 158.6 67.7Egypt 75.5 128.1

Indonesia 225.6 432.8Iran 71.0 270.9Mexico 105.3 893.4Nigeria 148.0 165.7Pakistan 162.4 143.6

Philippines 87.9 144.1South Korea 48.5 969.8Turkey 73.9 657.1Vietnam 85.1 71.2Source: World Bank Key Development Data and Statistics

http://ddp-ext.worldbank.org/ext/ddpreports (Accessed October 13, 2008)

Country

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Emerging Engines of GrowthGDP % Change

US 2.8 2.0 1.6 0.1Euro Area 2.8 2.6 1.3 0.2Japan 2.4 2.1 0.7 0.5BRICA

Brazil 3.8 5.4 5.2 3.5Russia 7.4 8.1 7.0 5.5India 9.8 9.3 7.9 6.9

China 11.6 11.9 9.7 9.3ASEAN 6.0 6.5 5.4 5.4

2008F 2009F2006 2007

US, EU, JAPAN AND BRICA

Bangladesh 6.5 6.3 7.0 5.6Egypt 6.8 7.1 7.2 6.0

Indonesia 5.5 6.3 6.1 5.5Iran 5.8 6.4 5.5 5.0Mexico 4.9 3.2 2.1 1.8Nigeria 6.2 5.9 6.2 8.1Pakistan 6.9 6.4 5.8 3.5Philippines 5.4 7.2 4.4 3.8South Korea 5.1 5.0 4.1 3.5Turkey 6.9 4.6 3.5 3.0

Vietnam 8.2 8.5 6.3 5.5

2009F

THE NEXT ELEVEN

2006 2007 2008F

F-forecastsSources: World Economic Outlook, Oct 2008 (IMF)aseansec.org

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Overheating economy: possible credit and stock marketbubble

Inflation rate reached 6.5% in October 2007, thehighest monthly inflation in 11 years

Efforts to cool down economy may result in hardlanding

Underdeveloped banking sector Undervalued currency Uncontrolled local officials Shortage of local entrepreneurs and managers High rates of poverty Stricter regulations in IT

Threats in China

BRICA

http://images.google.com.ph/imgres?imgurl=http://i184.photobucket.com/albums/x80/mshea_bucket/China%2520II/DSCF4291.jpg&imgrefurl=http://www.tsingtao-nights.com/2007_11_01_archive.html&h=758&w=1010&sz=91&hl=tl&start=25&usg=__6oiKxGDJ4rW5R4jZuDxpLdpyhtQ=&tbnid=hqQ1B9TTv8DZsM:&tbnh=113&tbnw=150&prev=/images%3Fq%3DChina%2Bthreat%26start%3D20%26gbv%3D2%26ndsp%3D20%26hl%3Dtl%26sa%3DN

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Opportunities in China

GDP growth of 8% or over for the last two decades

Domestic market of some 250-300 million high-incomeconsumers

High rate of investment at 50% of GDP Foreign direct investments (FDIs) of US$60 billion or more

yearly

Surging raw material demand

Greater integration of China and other Asian countries (e.g.ASEAN + China)

Demand for middle managers

BRICA

http://images.google.com.ph/imgres?imgurl=http://i184.photobucket.com/albums/x80/mshea_bucket/China%2520II/DSCF4291.jpg&imgrefurl=http://www.tsingtao-nights.com/2007_11_01_archive.html&h=758&w=1010&sz=91&hl=tl&start=25&usg=__6oiKxGDJ4rW5R4jZuDxpLdpyhtQ=&tbnid=hqQ1B9TTv8DZsM:&tbnh=113&tbnw=150&prev=/images%3Fq%3DChina%2Bthreat%26start%3D20%26gbv%3D2%26ndsp%3D20%26hl%3Dtl%26sa%3DN

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ASEAN

GDP Growth Rates and Per Capita Income

BRICA

Country 2007 2008F 2009F 2006 2007 Indonesia 6.3 6.2 6.2 1,640.0 1,919.6

Malaysia 6.3 5.6 5.3 5,890.5 6,880.2

Philippines 7.2 4.5 4.7 1,355.7 1,652.8

Singapore 7.7 4.2 4.6 29,499.6 35,206.1Thailand 4.8 5.0 5.0 3,293.9 3,740.1

Vietnam 8.5 6.5 6.0 724.4 836.7Source: ADB, Asian Development Outlook 2008 Update (September 2008); aseansec.org

GDP Growth RatesGDP per Capita, at Current

Prices (in US$)

http://images.google.com.ph/imgres?imgurl=http://weblog.leidenuniv.nl/media/blogs/76039/1948/logo-asean.gif&imgrefurl=http://invisiblecollege.weblog.leidenuniv.nl/2007/11/25/political-economy-of-myanmar-burma-part-&h=741&w=739&sz=63&hl=tl&start=1&usg=__6PH27pgrjo3VRE3Y-G2qrOj8voU=&tbnid=uVdu__lZRhxp7M:&tbnh=141&tbnw=141&prev=/images%3Fq%3DASEAN%26gbv%3D2%26hl%3Dtl

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Domestic Markets

Source: ADB Key Indicators 2007

60+15-600-14

567642984.2Vietnam

5211662365.2Thailand

471368194.5Singapore

696593587.0Philippines

647613226.6Malaysia

5686428222.1Indonesia

566.3Southeast Asia

AgeDependency

Ratio

Age Distribution(as % of total population)

Mid-YearPopulation 2006

(in millions)60+15-600-14

567642984.2Vietnam

5211662365.2Thailand

471368194.5Singapore

696593587.0Philippines

647613226.6Malaysia

5686428222.1Indonesia

566.3Southeast Asia

AgeDependency

Ratio

Age Distribution(as % of total population)

Mid-YearPopulation 2006

(in millions)

BRICA

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Savings and Capital Formation

Source:ADB Key Indicators 2007

31.529.5Thailand35.630.2Vietnam

18.850.5Singapore

14.318.3Philippines

20.743.0Malaysia24.628.7Indonesia

Gross Capital

Formation

(% of GDP)

2006

Gross Domestic

savings

(% of GDP)

2006Country

31.529.5Thailand35.630.2Vietnam

18.850.5Singapore

14.318.3Philippines

20.743.0Malaysia24.628.7Indonesia

Gross Capital

Formation

(% of GDP)

2006

Gross Domestic

savings

(% of GDP)

2006Country

BRICA

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Asian Economic Trends 2008-2010

Domestic markets as engines of growth: double track strategy China as engine of growth of the Asia Pacific region The predominance of China in manufacturing Growth in intra-regional trade: increased complementarity Continuing battle against mass poverty in the big economies Outsourcing of manufacturing and services to Asia Outsourcing is intra-company as well as inter-country Focus on agricultural productivity in Southeast Asia The emergence of SMEs and microenterprises The entrepreneurial challenge to centrally planned economies The challenge of innovations and productivity

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Consumer Trends in Asia

Non-income consumption factors

Expanding middle class

Diversity of consumer tastes and lifestyles

Mallification of Asian cities Demographic gift stage in South and Southeast Asia

Rapid aging in Northeast Asia and Singapore

Widespread use of English

The telecom revolution Spread of university education

http://images.google.com.ph/imgres?imgurl=http://www.thailandoutlook.com/NR/rdonlyres/7374C2ED-A462-4AC6-BABD-41D0E6BCC126/0/telecomweb.jpg&imgrefurl=http://www.thailandoutlook.com/thailandoutlook1/about%2Bthailand/telecom/&h=355&w=350&sz=14&hl=tl&start=4&usg=__Q6AmJuN-6b699bn7LeRvqLBnMVI=&tbnid=LLnbdOrPehVmFM:&tbnh=121&tbnw=119&prev=/images%3Fq%3Dtelecommunication%2Basia%26gbv%3D2%26hl%3Dtlhttp://images.google.com.ph/imgres?imgurl=http://images.forbestraveler.com/media/photos/inspirations/2007/04/Asian-Malls-06-g.jpg&imgrefurl=http://interwebbiz.blogspot.com/&h=280&w=425&sz=48&hl=tl&start=2&usg=__tkUbvZoPD-HS0la1f6g4d8OA7qk=&tbnid=FfyKzRa73f5VdM:&tbnh=83&tbnw=126&prev=/images%3Fq%3DAsian%2Bmalls%26gbv%3D2%26hl%3Dtl

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Selected Sunrise Industries in Asia

Agribusiness

Mining

Triple Ts: Transport, Telecom, and Tourism

Infrastructures

Automobiles

Consumer durables

IT-enabled and IT services

Logistics and retailing

Health care and medical tourism

Education

Construction and real estate

Four Fs: Food, Fashion, Furniture, Fun

http://images.google.com.ph/imgres?imgurl=http://www.femalenetwork.com/images/articles/articleImage/Style/phil_fashion_week_08_1.jpg&imgrefurl=http://www.femalenetwork.com/style/philippine-fashion-week-2008-part-1-from-luxe-to-street/&h=304&w=400&sz=26&hl=tl&start=24&usg=__aYGUkCJ4SEpRilv-hGG3E2USjXg=&tbnid=tU_ZXQEBqu3G_M:&tbnh=94&tbnw=124&prev=/images%3Fq%3Dfashion%2BPhilippines%26start%3D20%26gbv%3D2%26ndsp%3D20%26hl%3Dtl%26sa%3DNhttp://images.google.com.ph/imgres?imgurl=http://www.vdtnl.com/cms/vdt/img/fotomap/saab/saab6.jpg&imgrefurl=http://www.vdtnl.com/cms/vdt/index.php%3F%26lang%3Den&h=300&w=400&sz=14&hl=tl&start=56&usg=__FxmpQ8pT9Y37u-2P91a39YayPvc=&tbnid=UsgjxWs32q_BlM:&tbnh=93&tbnw=124&prev=/images%3Fq%3Dautomotive%2Bproducts%26start%3D40%26gbv%3D2%26ndsp%3D20%26hl%3Dtl%26sa%3DNhttp://images.google.com.ph/imgres?imgurl=http://www.okayausa.com/images/pic/iron_steel.jpg&imgrefurl=http://www.okayausa.com/product/&h=329&w=300&sz=18&hl=tl&start=2&usg=__2aZarv3COVX13LTKQgp1J3w2DfU=&tbnid=CfjIY3olsLIKDM:&tbnh=119&tbnw=109&prev=/images%3Fq%3Diron%2Band%2Bsteel%26gbv%3D2%26hl%3Dtl

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Global Recession and

Its Impact on theAsian Economy

Thank you.