Source: World Economic Forum
Fon Mathuros, Head of Media, World Economic Forum: Tel.: +41 (0)79 201 0211; Email: fmathuro@weforum.org
· Lessons learned from past crises have prepared region for emerging-market volatilities
· ASEAN’s youthful demographics and rapid access to technology are fuelling domestic consumption and intraregional investments
· Sound and prudent government policies, including investments in infrastructure and education, are reducing current account deficits and have supported the region’s economic growth.
· For more information about the World Economic Forum on ASEAN: http://wef.ch/asean18
Ha Noi, Viet Nam, 12 September 2018 – Government and business leaders at a World Economic Forum on ASEAN today said they remain optimistic about the region’s economic outlook despite threats of an escalation in the US-China trade war, rising interest rates and fear of emerging countries’ currency contagion.
Nazir Razak, Chairman, CIMB Group Holdings, Malaysia, said he is more concerned about the global economy at a time when US leadership has turned away from its traditional globalist stance and is reacting negatively to the rise of China. In contrast, ASEAN has transformed itself remarkably from “a zone of tensions and conflicts to one of peace and stability” and continues to enjoy tremendous economic growth.
Judy Hsu, Regional Chief Executive Officer, ASEAN and South Asia, Standard Chartered Bank, United Kingdom, and Sri Mulyani Indrawati, Minister of Finance of Indonesia, pointed to lessons learned from earlier regional crises that have prepared businesses and governments to manage the current bout of emerging-market volatilities triggered by problems in Turkey and Argentina. “Clients become well versed in managing these risks; they have access to hedging tools. Clients with dollar loans have locked in their interest rates,” Hsu observed.
Sound and prudent government policies, including investments in infrastructure and education, are reducing current account deficits and have supported the region’s economic growth. In addition, ASEAN’s youthful demographics – most of its more than 600 million population are young – and rapid access to technology are also fuelling domestic consumption and intraregional investments.
On the impact of a US-China trade war on ASEAN, Kevin Sneader, Global Managing Partner, McKinsey & Company, Hong Kong SAR, China, said that while there will be winners and losers, the outcome is unlikely to be dire. “This generalization is an example of ‘don’t let the facts stand in the way of a good headline’. The headline is trade war but the reality is there are lots of markets out there, and one of [the] opportunities is within ASEAN; intra-ASEAN trade is relatively modest and these markets can replace those that are hurt.”
Rising interest rates should also be seen as an opportunity for policy-makers and businesses to make the necessary adjustments and to watch reckless spending. “This is a good market discipline in signalling to policy-makers as well as players that you are not going to enjoy cheap money and you have to be very prudent,” said Indrawati.
Veerathai Santiprabhob, Governor of the Bank of Thailand, added that the US could have better coordinated its monetary and fiscal policies as its tax cuts have unleashed a new source of money supply, which has delayed the Fed’s attempts to normalize interest rates.
The meeting Co-Chairs are Anne-Birgitte Albrectsen, Chief Executive Officer, Plan International, United Kingdom; Sri Mulyani Indrawati, Minister of Finance of Indonesia; Kang Kyung-Wha, Minister of Foreign Affairs of the Republic of Korea; Nazir Razak, Chairman, CIMB Group Holdings, Malaysia; Nguyen Manh Hung, Acting Minister of Information and Communications of Viet Nam; and Kevin Sneader, Global Managing Partner, McKinsey & Company, Hong Kong SAR, China.
Notes to editors
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1. See Greenspan (2003), p. 1. Return to text
2. See Chetty and others (2014) and Chetty and others (2017). Return to text
3. In this talk, I will sidestep the issue of navigating by short-run versus long-run versions of the stars. The challenges that I will highlight are, in my view, made more difficult, and the case for a careful risk-management approach made stronger, by the need to consider both short-run and long-run versions of the stars. Return to text
4. The original Taylor rule (Taylor, 1993) uses output relative to potential in place of unemployment relative to its natural rate. Both forms are now known as Taylor rules. Return to text
5. I am using the CBO’s estimates to reflect a conventional view over that time span since the SEP longer-run values have only been reported since 2009. Return to text
6. See, for example, Burns (1979), Orphanides and Williams (2013), and the sources therein. Romer and Romer (2002) and Sargent (2002) debate additional factors that may have played a role. There is no dispute, however, that policymakers did misperceive the natural unemployment rate, and Orphanides and Williams show that misperception of the natural rate of unemployment alone would have been sufficient on its own to generate outcomes like the Great Inflation. Return to text
7. See the discussion in note 6. Return to text
8. Many central bankers have made this case; see, for example, Bernanke (2007) and Yellen (2015). Return to text
9. This account is drawn from several accounts of the period: Blinder and Yellen (2001), Blinder and Reis (2005), Meyer (1996), Meyer (2004), and the Federal Reserve’s Bluebook documents from June 1996 through December 1998 (Board of Governors, various years). Return to text
10. In the second half of 1998, a Russian debt default and other ongoing financial instability in Asia intervened, and the FOMC rapidly lowered the federal funds rate 3/4 percentage point. Return to text
11. By current data, over the eight quarters starting in 1996:Q3, core PCE (personal consumption expenditures) inflation fell from 1.8 percent to 1.3 percent. Return to text
12. During this period, FOMC participants submitted six-quarter forecasts each July as part of the Fed’s semiannual Monetary Policy Report to the Congress. Each July from 1996 through 1998, the FOMC forecast growth very close to or above the real-time estimates of potential growth. The forecast growth is well below current estimates of potential output growth. For the forecasts, see Board of Governors (1996, 1997, 1998). Return to text
13. For a more complete discussion of the greatly distilled account here, see the sources in note 9. Return to text
14. Kiley (2015) reviews the literature on this point. Return to text
15. The literature was reviewed by Walsh at the 2003 symposium; see Walsh (2003). Also from the same symposium, see, for example, Greenspan (2003), Feldstein (2003), Fischer (2003), and Yellen (2003). For a more recent perspective, see Wilkins (2017). Return to text
16. See Taylor and Williams (2011). Note that the robust rules literature does not suggest ignoring the general notion of labor market tightness or of resource utilization more generally. Indeed, robust rules often reflect tightness through the change in the unemployment rate. Instead, the issue is about how best to take account of labor market tightness when the best estimates of u* are very imprecise. See also Erceg and others (2018). Return to text
17. See Board of Governors (2018). Return to text
18. See Erceg and others (2018). Return to text
19. The paper illustrates that some standard intuitions do not hold up in all circumstances. When following a standard Taylor rule and facing a very flat Phillips curve, for example, it is not always good advice to lower the weight on the gap between unemployment and u* and to raise the weight on inflation in making policy. See Erceg and others (2018). Return to text
20. See Brainard (1967). Return to text
21. See Reifschneider and Williams (2000). Return to text
22. See Söderström (2002). Return to text
https://www.weforum.org/press/2018/09/government-and-business-leaders-remain-optimistic-about-asean-economic-outlook
