Welcome remarks at the Launch of the IMF’s Asia Pacific Regional Economic Outlook

Speeches

03 May 2016

Welcome remarks at the Launch of the IMF’s Asia Pacific Regional Economic Outlook

Howard Lee, Senior Executive Director, Hong Kong Monetary Authority

  1. Good afternoon ladies and gentlemen.  Welcome you all to the launch of the latest issue of the IMF’s Asia and Pacific Regional Economic Outlook (REO).  We are very pleased to have Dr. Changyong Rhee, Director of the Asia and Pacific Department of the IMF, and his colleagues here today.  They will share with us their views on the region’s economic development and prospect, the key challenges, and what can be done to raise growth and manage vulnerabilities. 
  2. The theme of this issue of the REO is “Building on Asia’s Strengths During Turbulent Times”.  While the focus is on the Asian region, the subject actually has global significance, given the increasing weight of Asia in the global economy and growth.
  3. In the past few years, Asian economies have demonstrated remarkable resilience against shocks, including some big ones originating from the advanced economies.  There have been no major dislocations affecting financial stability even though some setbacks of economic activities were seen.  Credits should go to the efforts of the various economies in enhancing their policy frameworks after the Asian financial crisis, resulting in stronger external positions, higher foreign exchange reserves, and fewer currency and maturity mismatches in foreign liabilities than in the late 1990s.
  4. Having said that, we are far from being out of the woods yet given the new risks and headwinds on multiple fronts emerging in the last few years.  A prime example is the threat of a disorderly pullback of capital flows from the region.
  5. Since 2009, Asia has accumulated large scale capital inflows of around US$1.68 trillion.  Up to end-2015, about 30% of this cumulative capital inflows to the region had exited, and we witnessed the sharp sell-offs and intensified capital outflow pressure early this year.  While market sentiments have stabilised somewhat, there is always the risk of another round of rotation of capital away from this region.
  6. The next episode of outflows could be even more pronounced and damaging, given the financial imbalances built up over the past years.  I am saying this because while the region has become a key driver of post-crisis global growth, this has come at the price of a dramatic rise in debt, fuelled by easy global liquidity.  Leverage has gone up significantly through different forms of borrowings, from bank loans to shadow banking, from corporate bond issuance to household debts.  As we have witnessed in the advanced economies, a disorderly deleveraging process could weigh heavily on the economy, and may even risk the financial system.
  7. At the same time, the biggest economy in the region - the Mainland China - is now facing a major challenge to evolve into a more consumption- and service-oriented growth model.  The transition would benefit both the Mainland China and other countries, especially for those economies with a competitive edge in export of services and high value-added consumer products.  But in the process it would bring challenges to businesses of the “old economy” both domestically and in China’s trading partners.  I am sure it is of great interest to the world as to how Mainland China would manage this process.
  8. Faced with these challenges, Asian economies have important tasks ahead in reducing vulnerabilities and safeguarding growth.  There are a lot of balancing acts to do, and the calibration has to be nimble and responsive to changing external and domestic conditions.
  9. Take the conduct of monetary policy as an example.  We central banks have to try to reduce excessive credits and at the same time support growth and employment.  And while we may need to maintain an accommodative monetary policy to spur domestic economy, we also need to safeguard against abrupt capital outflows at the same time.  The close linkages of the global financial markets and their heavy reliance on the massive quantitative easing of the advanced economies are making policy calibration even more challenging.  Just last Thursday we saw the jitteries in global financial markets following the policy meetings of the US Fed and the Bank of Japan.  Such market volatilities could have spillover effect on the real economy and may even trigger off instability in those economies with unaddressed vulnerabilities.
  10. Although I have talked about a lot of challenges, and I am sure IMF colleagues are going to tell us even more, I agree with the title of the REO that Asia also has many strengths.  We have to be vigilant but we do not need to despair.
  11. For example, the Mainland China’s growth has slowed down, but a growth rate of 6.5 to 7.0% still offers a lot of opportunities in the region.  Its Belt and Road strategy is designed to bring more development and growth potential to Asia and beyond in the years to come.  And while the US being the global growth engine is still slow in recovery, there are increasing signs that it is on a firm track.
  12. Ladies and gentlemen, I think we all agree that there are many challenges ahead.  But with the benefit of IMF’s assessment of the prospects and risks, as well as advice on policy response, regional economies would be in a good position to further address their weaknesses and consolidate their strengths so as to pursue sustainable growth in the future.  I am sure everyone is looking forward to the presentation by IMF and the dialogue during the panel session, and I wish you all very fruitful discussions later this afternoon.
  13. Thank you.
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