FOSTERING GROWTH AND INCLUSION IN ASIAS CITIES ADB-2019-update.pdf - Asian Development Outlook 2019 Update Fostering Growth and Inclusion in Asia\u2019s

FOSTERING GROWTH AND INCLUSION IN ASIAS CITIES ADB-2019-update.pdf

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Unformatted text preview: Asian Development Outlook 2019 Update Fostering Growth and Inclusion in Asia’s Cities Growth in developing Asia remains robust despite expected moderation. A slowing trend continued in the first half of 2019 in most regional economies, especially the wealthier newly industrialized economies and the People’s Republic of China, as shrinking global trade and declining investment constrained growth. Inflation remains benign, but pressure is building slightly as food prices rise. Downside risks to the outlook have intensified. Trade tensions between the United States and the People’s Republic of China could escalate further or even spread beyond trade and these two economies, the world’s largest. The risk of deeper malaise in the global economy, and uncertainty over how policy makers around the world will respond to weaker global growth, may stoke volatility in global financial markets. Proliferating private debt in some Asian economies could pose another challenge to financial stability. ASIAN DEVELOPMENT OUTLOOK 2019 UPDATE Fostering Growth and Inclusion in Asia’s Cities Developing Asia is urbanizing rapidly. This Update highlights how urbanization can foster economic growth and inclusion in Asia’s cities. To enjoy the economic benefits of agglomeration, cities must function well as labor markets, which requires sound urban planning, efficient public transport, and affordable housing. As cities expand over municipal boundaries and become more connected with one another through flows of goods, services, and people, better planning coordination is needed at all levels of government. About the Asian Development Bank ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members —49 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. ASIAN DEVELOPMENT OUTLOOK 2019 UPDATE FOSTERING GROWTH AND INCLUSION IN ASIA’S CITIES SEPTEMBER 2019 ISBN 978-92-9261-560-4 ASIAN DEVELOPMENT BANK 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines ASIAN DEVELOPMENT BANK ASIAN DEVELOPMENT OUTLOOK 2019 UPDATE FOSTERING GROWTH AND INCLUSION IN ASIA’S CITIES SEPTEMBER 2019 ASIAN DEVELOPMENT BANK  Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2019 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 Some rights reserved. Published in 2019. ISBN 978-92-9261-752-3 (print), 978-92-9261-753-0 (electronic) ISSN 1655-4809 Publication Stock No. FLS190445-3 DOI: The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) . By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at . This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Corrigenda to ADB publications may be found at . Notes: In this publication, “$” refers to US dollars. ADB recognizes “China” as the People’s Republic of China and “Vietnam” as Viet Nam. Cover design by Anthony Victoria. Contents Foreword Acknowledgments Definitions Abbreviations ADO 2019 Update—Highlights Part 1 Asia girds for prolonged uncertainty 1.1Challenges to Asia’s growth 1.2Debt buildup and financial vulnerability: Evidence from emerging markets through trade and financial channels Annex: A worsening global environment Part 2 Fostering growth and inclusion in Asia’s cities 2.1Urbanization in developing Asia 2.2The city as a labor market 2.3Managing the urban system 2.4The promise of cities Part 3 Economic trends and prospects in developing Asia Central Asia East Asia South Asia Southeast Asia The Pacific Statistical appendix Foreword Growth in developing Asia remains robust but is now expected to moderate more than forecast in Asian Development Outlook 2019. This Update projects that the region will grow by 5.4% this year, or 0.3 percentage points below the April forecast, and that growth will edge up to 5.5% next year, or 0.1 points lower than earlier forecast. Excluding high-income newly industrialized economies, the region is expected to grow by 6.0% this year and next. Inflation should pick up slightly but remain subdued. Downward revisions to the regional growth outlook stem largely from escalating trade tensions, which have affected in particular the more open economies of East and Southeast Asia. Also dampening the growth outlook are deteriorating prospects in the advanced economies and declining investment in developing Asia. In Central Asia and the Pacific, however, increased public spending should support growth higher than forecast in April. Downside risks to the region’s prospects have intensified. The trade conflict may yet intensify, possibly moving beyond tariffs. Evidence already shows it reshaping trade patterns, supply chains, and foreign investment. This Update also notes a buildup over the past decade of debt in the region, both public and private, that could erode financial stability and render economies more vulnerable to shocks. Taking a longer view, this Update examines the growing importance of cities in developing Asia. It highlights rapid urbanization in the region and its potential to deliver sustained income and job growth. To function well as labor markets and fulfill their promise, cities need to upgrade their transport systems, plan urban expansion better, and enlarge the supply of adequate and affordable homes. Crucially, cities need to ensure that they are environmentally sustainable. ADB is ready to work with public and private stakeholders alike to harness the potential of cities toward advancing regional development goals. TAKEHIKO NAKAO President Asian Development Bank Acknowledgments Asian Development Outlook 2019 Update was prepared by staff of Asian Development Bank (ADB) regional departments and resident missions under the guidance of the Economic Research and Regional Cooperation Department (ERCD). Representatives of these departments met regularly as the Regional Economic Outlook Task Force to coordinate and develop consistent forecasts for the region. Economists in ERCD, led by Abdul Abiad, director of the Macroeconomics Research Division, coordinated the production of the publication, assisted by Edith Laviña. Technical and research support was provided by Shiela CamingueRomance, Cindy Castillejos-Petalcorin, Nedelyn Magtibay-Ramos, Rhea Manguiat Molato, Pilipinas Quising, Dennis Sorino, Priscille Villanueva, and Mai Lin Villaruel. Additional research support was provided by Ann Jillian Adona, Emmanuel Alano, Rosa Mia Lasam Arao, Zemma Ardarniel, Kristina Baris, Donald Jay Bertulfo, Janine Elora Lazatin, Jesson Pagaduan, Reizle Jade Platitas, Rene Cris Rivera, and Michael Timbang. Support from Mahinthan J. Mariasingham on the use of the ADB Multi-Region Input-Output Database is much appreciated. Economic editorial advisors Robert Boumphrey, Joshua Greene, Henry Ma, Srinivasa Madhur, Richard Niebuhr, and Reza Vaez-Zadeh made substantive contributions to country chapters and the regional outlook. A team of economists prepared the theme chapter, led by Rana Hasan, director of the Economic Analysis and Operational Support Division of ERCD. In addition to contributors named in the byline and authors of background papers, the theme chapter benefited from valuable feedback and inputs from Abdul Abiad, Lara Arjan, Bruce Dunn, Hideaki Iwasaki, Robert Guild, James Leather, Thiam Hee Ng, Thomas Panella, Stefan Rau, Norio Saito, Sonia Sandhu, Manoj Sharma, Ramola Naik Singru, Lei Lei Song, Robert Valkovic, Joris van Etten, and Jian Zhuang. Support and guidance from Yasuyuki Sawada, Joseph E. Zveglich, Jr., and Edimon Ginting throughout production is gratefully acknowledged. Renard Teipelke provided editorial advice on the theme chapter. Infographics were created by Rhommell Rico, and map illustrations by Abraham Villanueva and Angel Villarez. Authors who contributed sections are bylined in each chapter. Subregional coordinators were Kenji Takamiya, Lilia Aleksanyan, and Fatima Catacutan for Central Asia, Akiko Terada-Hagiwara for East Asia, Lei Lei Song for South Asia, Thiam Hee Ng and Dulce Zara for Southeast Asia, and Rommel Rabanal and Cara Tinio for the Pacific. Peter Fredenburg advised on ADB style and English usage. Alvin Tubio handled typesetting and graphics generation, assisted by Heili Ann Bravo, Elenita Pura, and Priscille Villanueva. Art direction for the cover was by Anthony Victoria. Critical support for printing and publishing the report came from the Printing Services Unit of the ADB Office of Administrative Services and the publications and web teams of the ADB Department of Communications. Fermirelyn Cruz, Angel Love Alcantara Roque, and Rhia Bautista-Piamonte provided administrative and secretarial support. The Department of Communications, led by Vicky Tan and Karen Lane, planned and coordinated the dissemination of Asian Development Outlook 2019 Update. Definitions The economies discussed in Asian Development Outlook 2019 Update are classified by major analytic or geographic group. For the purposes of this publication, the following apply: • Association of Southeast Asian Nations comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam. • Developing Asia comprises the 45 members of the Asian Development Bank listed below. • Newly industrialized economies comprise Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China. • Central Asia comprises Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. • East Asia comprises Hong Kong, China; Mongolia; the People’s Republic of China; the Republic of Korea; and Taipei,China. • South Asia comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. • Southeast Asia comprises Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam. • The Pacific comprises the Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, the Marshall Islands, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, TimorLeste, Tonga, Tuvalu, and Vanuatu. Unless otherwise specified, the symbol “$” and the word “dollar” refer to US dollars. Asian Development Outlook 2019 Update is generally based on data available up to 2 September 2019. Abbreviations ADB ADO ASEAN CMAX DMC FAR FDI FSM FY GDP GFC GRUMP GST IMF IT LAC Lao PDR Libor LNG LPR LVC M1 M2 M3 mbd MLF NBFC NFRK NGO NIE NPL NTL OECD OPEC PIR PMI PNG PRC PRD Q Asian Development Bank Asian Development Outlook Association of Southeast Asian Nations ratio proxy for stress in foreign exchange markets Asian Development Bank developing member country floor area ratio foreign direct investment Federated States of Micronesia fiscal year gross domestic product global financial crisis of 2008–2009 Global Rural–Urban Mapping Project goods and services tax International Monetary Fund information technology Latin America and the Caribbean Lao People’s Democratic Republic London interbank offered rate liquefied natural gas loan prime rate land value capture money that includes cash and checking accounts broad money that adds highly liquid accounts to M1 broad money that adds time accounts to M2 million barrels per day medium-term lending facility nonbank financial corporation National Fund of the Republic of Kazakhstan nongovernment organization newly industrialized economy nonperforming loan nighttime light satellite imagery Organisation for Economic Co-operation and Development Organization of the Petroleum Exporting Countries price-to-income ratio purchasing managers’ index Papua New Guinea People’s Republic of China Pearl River Delta quarter R&D RMI ROK SEZ SMEs SOE TOD UN US VAT WTO research and development Republic of the Marshall Islands Republic of Korea special economic zones small and medium-sized enterprises state-owned enterprise transit-oriented development United Nations United States of America value-added tax World Trade Organization ADO 2019 Update—Highlights Growth in developing Asia is moderating but remains robust. As global trade slows and investment weakens, regional growth forecasts are trimmed from Asian Development Outlook 2019 by 0.3 percentage points for 2019 and by 0.1 points for 2020. Expansion in the region is projected to slow from 5.9% in 2018 to 5.4% this year, recovering somewhat to 5.5% next year. Excluding highincome newly industrialized economies, regional growth is expected to slow from 6.4% last year to 6.0% this year and next. Inflation remains benign in the region, but pressure is building slightly as food prices rise. Inflation across developing Asia is forecast at 2.7% this year and next, or 0.2 percentage points up from April forecasts. Risks tilt to the downside. The trade conflict between the United States and the People’s Republic of China could escalate further or even spread beyond trade and the two economies. The risk of deeper malaise in the global economy, and uncertainty over how policy makers around the world will respond to weaker global growth, may stoke volatility in global financial markets. Proliferating private debt in some regional economies could pose another challenge to financial stability. Developing Asia is urbanizing rapidly, promising job creation and economic growth. However, cities must function well as labor markets if they are to enjoy the economic benefits of agglomeration. This requires sound urban planning, efficient public transport, and affordable housing. As cities expand over municipal boundaries and become more connected with one another through flows of goods, services, and people, better planning coordination is needed at all levels of government. Yasuyuki Sawada Chief Economist Asian Development Bank xAsian Development Outlook 2019 Update Asia girds for prolonged uncertainty  Regional growth remains robust but is expected to moderate. GDP expansion in the region, though still strong, is projected to slow from 5.9% in 2018 to 5.4% this year, then edge back up to 5.5% next year. Revisions to April forecasts in Asian Development Outlook 2019 (ADO 2019) are 0.3 percentage points lower for this year and 0.1 points lower for next year. The revisions reflect gloomier prospects for international trade—in part because of re-escalation in the trade conflict between the United States and the People’s Republic of China (PRC)—and evidence of slowing growth in the advanced economies and the PRC, as well as in India and the larger economies in East and Southeast Asia. Excluding newly industrialized economies, growth in developing Asia is forecast to slow from 6.4% in 2018 to 6.0% this year and next. » A slowing trend for growth continued in the first half of 2019. After slowing from 6.2% in 2017 to 5.9% in 2018, growth decelerated further to 5.4% in the first half of 2019 in the economies of developing Asia that release quarterly GDP data. Exports and investment faltered in many economies across the region, leaving private consumption as the main support for continued growth. » Trade shrank as growth in the advanced economies moderated further. Worsening uncertainty is driving down aggregate growth in the advanced economies, which is forecast to moderate from 2.2% in 2018 to 1.7% in 2019 and 1.4% in 2020—in both years 0.2 percentage points lower than envisaged in ADO 2019. The euro area and the US will grow somewhat slower than previously projected. Japan surprised on the upside in the first half of 2019 but not enough to prop up demand for regional exports. » Declining investment growth in developing Asia could impair future growth prospects. Along with the weakening trend in trade, the region suffered slower growth in domestic investment. The contribution of investment to GDP growth fell in the first quarter of 2019 and is expected to continue declining throughout this year. And while foreign direct investment (FDI) inflows by non-residents continue, developing Asia is investing more abroad, leading to net FDI outflows for the region. Slower domestic investment, if sustained, means less new productive capacity going forward which has implications for regional growth prospects.  The growth outlook varies across the subregions of developing Asia. Because of the trade slowdown, compounded by a sharp downswing in the electronics cycle, growth forecasts for the PRC and the more open economies in East and Southeast Asia are downgraded. Growth in South Asia is now seen moderating this year as India’s economy slows primarily for domestic reasons, such as the pre-election decline in investment and tighter credit conditions. In Central Asia and the Pacific, by contrast, growth prospects improve as public spending continues to stimulate the economy in Kazakhstan and Uzbekistan and as Papua New Guinea recovers from an earthquake in February 2018. Highlights  xi  Regional inflation is picking up slightly but remains benign. Headline inflation will edge up from 2.4% in 2018 to 2.7% in 2019 and 2020—both forecasts upward adjustments by 0.2 percentage points from ADO 2019. The revisions come mainly from a buildup of inflationary pressure due to the rise of food prices in the region, particularly in the PRC.  The regional current account surplus is rising. Slower imports are offsetting weakness in exports in many developing Asian economies. The merchandise trade surplus in the PRC rose in the first half of this year as imports fell more substantially than exports, raising the country’s current account surplus. As a result, developing Asia’s combined current account surplus is now forecast to increase to 1.1% of regional GDP in 2019, or 0.7 percentage points higher than projected in ADO 2019, before resuming its narrowing trend to 0.7% in 2020.  The escalating and broadening trade conflict may damage supply chains. Negotiations broke down in the middle of 2019, prompting a new round of tariff escalations, threats, and nontariff constraints on technology transfer and investment. Bilateral trade data from the first half of 2019 show a decline in trade between the PRC and the US, as well as evidence of trade redirection from the PRC toward other economies in developing Asia. Foreign investment patterns are shifting in tandem with trade...
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