presentation to international conference of commercial

economics@

Economic outlook for AsiaEconomic outlook for AsiaEconomic outlook for Asia

Presentation to

International Conference of Commercial Bank Economists

Presentation toPresentation to

International Conference of International Conference of Commercial Bank EconomistsCommercial Bank Economists

Madrid, Spain4th July 2007

Madrid, SpainMadrid, Spain44thth July 2007July 2007

Saul EslakeChief EconomistANZ

Saul EslakeSaul EslakeChief EconomistChief EconomistANZANZ

www.anz/com/go/economicswww.anz/com/go/economicswww.anz/com/go/economics

economics@2

Asia’s share of the world’s population has peaked but its share of the global economy is still risingAsiaAsia’’s share of the worlds share of the world’’s population has peaked s population has peaked but its share of the global economy is still risingbut its share of the global economy is still rising

Share of global population

Share of global GDP

Share of global GDP growth

10

20

30

40

50

60

70

1950 1960 1970 1980 1990 2000 2010

% of change in global GDP (at PPPs)over rolling 5-year intervals

GGDC series(1990 US$ at

GK PPPs)IMF series

US$ at PPPs)52

53

54

55

56

57

1950 1960 1970 1980 1990 2000 2010

%

Per capita GDP

15

20

25

30

35

40

1950 1960 1970 1980 1990 2000 2010

% (at PPPs)GGDC series

(1990 US$ at 'GearyKhamis' PPPs)

IMF series(US$ at PPPs)

303540455055606570

1950 1960 1970 1980 1990 2000 2010

% of world average(at PPPs)

Sources: Groningen Growth and Development Centre & The Conference Board Total Economy Database January 2007; IMF World Economic Outlook DatabaseApril 2007; Economics@ANZ.

economics@3

Asia accounts for a rising share of trade, saving, capital flows and reservesAsia accounts for a rising share of trade, saving, Asia accounts for a rising share of trade, saving, capital flows and reservescapital flows and reserves

Share of global exports

Share of global FDI flows

Share of global saving & investment

15

20

25

30

35

40

45

1980 1985 1990 1995 2000 2005 2010

% of global totals (at MERs)

Saving

Investment

5

10

15

20

25

30

1950 1960 1970 1980 1990 2000 2010

%Goods

Commercialservices

Share of FX reserves

0

5

10

15

20

25

30

1970 1980 1990 2000 2010

%

Inwards

Out-wards

0

20

40

60

80

100

1960 1970 1980 1990 2000 2010

% of world total

Sources: WTO Statistical Database; UNCTAD, World Investment Report 2006; IMF,World Economic Outlook Database April 2007 and InternationalFinancial Statistics; Economics@ANZ.

economics@4

Asia is the source of much of the world’s surplus capital – mostly now through central banksAsia is the source of much of the worldAsia is the source of much of the world’’s surplus s surplus capital capital –– mostly now through central banksmostly now through central banks

-100

0

100

200

300

400

500

600

700

80 84 88 92 96 00 04 08

Japan China

NICs ASEAN

India Other

Total

US$ bn

Note: ‘NICs’ are Korea, Taiwan, Hong Kong & Singapore. ‘ASEAN 4’ are Indonesia, Thailand, Philippines & Malaysia. Sources: IMF World EconomicOutlook database April 2007; central banks.

Asian current accountsurpluses

-100

0

100

200

300

400

500

600

80 84 88 92 96 00 04 08

Japan China

NICs ASEAN

India Total

US$ bn

Jan-Apr 2007

Annual change in Asian foreign exchange reserves

economics@5

Asian central banks and private investors have financed a large proportion of US deficitsAsian central banks and private investors have Asian central banks and private investors have financed a large proportion of US deficitsfinanced a large proportion of US deficits

Note: US Treasury International Capital (‘TIC’) System data is based on the identity of the foreign counterparty to transactions with US reporting entities and hence may not capture the full extent of transactions with particular groups such as ‘Asian purchasers’. In the TIC system ‘Asia’ includes ‘Asian oil exporters’ such as Saudi Arabia, Iran and UAE which have been excluded in this chart. Sources: US Treasury; US Bureau of Economic Analysis;Economics@ANZ.

Asian securities transactions with US residents

0

100

200

300

400

500

600

700

800

900

00 01 02 03 04 05 06 07

US$bn (12-mthmoving total)

US currentaccount deficit Asian net

transactionsin long-termsecurities withUS residents

Asian purchases of US Treasury bonds

-300

-200

-100

0

100

200

300

400

500

00 01 02 03 04 05 06 07

US$bn (12-mthmoving total) US budget

deficit

Asian (includingcentral bank) netpurchases of USTreasury notes and bonds

economics@6

Contrasting trends gross saving and investment across Japan, China, India and other economiesContrasting trends gross saving and investment Contrasting trends gross saving and investment across Japan, China, India and other economiesacross Japan, China, India and other economies

Japan India

20

22

24

26

28

30

32

1990 1993 1996 1999 2002 2005 2008

% of GDP

Grosssaving

Gross investment

202224262830323436

1990 1993 1996 1999 2002 2005 2008

% of GDP

Gross saving

Gross investment

China

202530354045505560

1990 1993 1996 1999 2002 2005 2008

% of GDP

Gross saving

Gross investment

Smaller East Asian economies*

202224262830323436

1990 1993 1996 1999 2002 2005 2008

% of GDP

Gross saving

Gross investment

* For more detail see Slide 43. Note: Gross saving calculated as gross investment plus the current account balance (as a p.c. of GDP).Sources: Economist Intelligence Unit; Economics@ANZ.

economics@7

6668707274767880

1980 1985 1990 1995 2000 2005

% of US level

Contrasting trends in productivity growth between China & India and other Asian economiesContrasting trends in productivity growth between Contrasting trends in productivity growth between China & India and other Asian economiesChina & India and other Asian economies

* Korea, Indonesia, Thailand, Malaysia and Philippines. Sources: Groningen Growth and Development Centre, Total Economy Database January 2007; Economics@ANZ.

Japan

China and India Smaller Asian economiesф

4

6

8

10

12

14

16

1980 1985 1990 1995 2000 2005

% of US levelChina

India

14

16

18

20

22

24

1980 1985 1990 1995 2000 2005

% of US level

40

50

60

70

80

90

100

1980 1985 1990 1995 2000 2005

% of US levelHong Kong

Singapore

Taiwan

‘Asian crisis’ economies*

GDP per person employed

economics@8

Asia is becoming less dependant on the US as an export marketAsia is becoming less dependant on the US as an Asia is becoming less dependant on the US as an export marketexport market

Destination of Asian merchandise exports

0

5

10

15

20

25

30

80 83 86 89 92 95 98 01 04 07

%of total (12-month moving average)

United StatesOtherAsia

EUEU

China

Japan

Source: IMF Direction of Trade Statistics; Economics@ANZ.

economics@9

JapanJapanJapan

Japan is experiencing its longest episode of economic growth since the collapse of the 1980’s ‘bubble economy’

– but it’s a weak recovery by historical standards driven largely by business investment and exports

The Japanese corporate sector and the financial system have largely recovered from the 1980s excesses and their aftermath

– however households remain cautious (despite improving labour market conditions) given weak income growth

Deflation has not yet been eradicated– hopes this time last year of a return to positive inflation rates have not

been fulfilled – obliging the BoJ to move very slowly in ‘normalizing’monetary policy settings

Diversification by households into foreign currency assets (prompted by persistently low interest rates) is the main factorbehind on-going weakness in the yen

– the ‘carry trade’ is magnifying this trend

Japanese politics are in for a period of uncertainty after this month’s Upper House election

– PM Abe will stand down and reform momentum could stall entirely if the LDP loses its Upper House majority (as seems quite likely)

Japan faces a tougher demographic challenge than any other advanced economy

economics@10

Japan’s longest period of sustained growth since the ‘bubble’ era is continuingJapanJapan’’s longest period of sustained growth since s longest period of sustained growth since the the ‘‘bubblebubble’’ era is continuingera is continuing

-10

-8

-6

-4

-2

0

2

4

6

8

10

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

From previous quarter (annualized)

From year earlier

% change

Japanese real GDP growth

Forecast

Note: Shaded periods denote recessions.Source: Economic & Social Research Institute (ESRI).

economics@11

… but growth has been very weak by comparison with earlier ‘boom’ periods…… but growth has been very weak by comparison but growth has been very weak by comparison

with earlier with earlier ‘‘boomboom’’ periodsperiods

100

110

120

130

140

150

160

170

180

0 4 8 12 16 20 24

Izanagi boom (Q4 1965 - ) Heisei boom (Q4 1986 - ) Current expansion (Q1 2002 - )

Recession trough = 100

Real GDP growth in three cycles

Sources: ESRI; Economics@ANZ.

economics@12

A striking contrast between profit and jobs growth in the current and previous expansionsA striking contrast between profit and jobs A striking contrast between profit and jobs growth in the current and previous expansionsgrowth in the current and previous expansions

Real corporate profits Employment

80

100

120

140

160

180

200

220

240

0 4 8 12 16 20 24


Izanagi boom(Q4 66 - )

Heisei boom(Q4 86 - )

Currentexpansion(Q1 02 - )

Note: real profits are operating profits deflated by the GDP deflator. Sources: ESRI; Home Ministry; Economics@ANZ.

98

100

102

104

106

108

110

112

0 4 8 12 16 20 24


Izanagi boom(Q4 66 - )

Heisei boom(Q4 86 - )

Currentexpansion(Q1 02 - )

economics@13

Household and consumer spending have been particularly weak compared with previous cyclesHousehold and consumer spending have been Household and consumer spending have been particularly weak compared with previous cyclesparticularly weak compared with previous cycles

100110120130140150160170

0 4 8 12 16 20 24


Izanagi boom

Heisei boom

Current

Consumer spendingExports

100

150

200

250

300

0 4 8 12 16 20 24


Izanagi boom

Heisei boom

Current

Business investment

100

150

200

250

300

0 4 8 12 16 20 24


Izanagi boom

Heisei boom

Current90

100110120130140150160170

0 4 8 12 16 20 24


Izanagi boom

Heisei boomCurrent

Public spending

Sources: ESRI; Economics@ANZ.

economics@14

Japan’s corporate sector has worked off the ‘four excesses’ created by the 1980s ‘bubble’ …JapanJapan’’s corporate sector has worked off the s corporate sector has worked off the ‘‘four four excessesexcesses’’ created by the 1980s created by the 1980s ‘‘bubblebubble’’ ……

Excess capacity

-15-10-505

10152025

90 93 96 99 02 05 08

Net balance (%) reporting 'excessive'

Large

Small

Source: Bank of Japan Tankan survey

Excess labour

-50-40-30-20-10

010203040

90 93 96 99 02 05 08


Large

Small

Excess inventories

05

10152025303540

90 93 96 99 02 05 08


Large

Small

Excess debt

-30

-20

-10

0

10

20

30

90 93 96 99 02 05 08

Net balance (%) reporting financialposition as 'satisfactory'

Large

Small

economics@15

… and is now in its strongest financial position since the mid-1980s…… and is now in its strongest financial position and is now in its strongest financial position since the midsince the mid--1980s1980s

Corporate profit share of GDP

1.0

1.5

2.0

2.5

3.0

80 84 88 92 96 00 04 08

% (4-qtr moving average)

Rate of return on assets

2.0

3.0

4.0

5.0

6.0

7.0

80 84 88 92 96 00 04 08

% pa (4-qtr moving average)

Rate of return on equity

1015202530354045

80 84 88 92 96 00 04 08

% pa (4-qtr moving average)

Debt-equity ratio

100

200

300

400

500

600

80 84 88 92 96 00 04 08

% (4-qtr moving average)

Sources: Bank of Japan; Economics@ANZ.

economics@16

Capital spending has been rising strongly for over three years but may have peaked this yearCapital spending has been rising strongly for over Capital spending has been rising strongly for over three years but may have peaked this yearthree years but may have peaked this year

Sources: ESRI; METI; Bank of Japan Tankan survey.

-15

-10

-5

0

5

10

15

01 02 03 04 05 06 07

Real % change from year earlier

Business investment

Machinery orders

-25-20-15-10-505

10152025

01 02 03 04 05 06 07

% change from year earlier

Seas. adj.

Trend

Successive capex estimates

Manufacturing capacity

90

92

94

96

98

100

102

01 02 03 04 05 06 07

Index: 2000 = 100

-10

-5

0

5

10

15

01 02 03 04 05 06 07

% ch from year earlier

(Fiscal yearsbeginning 1 Apr)

Actual

economics@17

The banking system has largely dealt with its bad loan problem and is now lending againThe banking system has largely dealt with its bad The banking system has largely dealt with its bad loan problem and is now lending againloan problem and is now lending again

Banks’ NPL ratio

0

2

4

6

8

10

96 97 98 99 00 01 02 03 04 05 06

% (as at 31 March)

Banks’ capital adequacy ratio

Bank lending

Sources: IMF; Financial Services Agency; Bank of Japan.

02468

101214

96 97 98 99 00 01 02 03 04 05 06

% (as at 31 March)

-8

-6

-4

-2

0

2

4

97 98 99 00 01 02 03 04 05 06 07


Tankan bank lending judgement

-30-20-10

010203040

97 98 99 00 01 02 03 04 05 06 07

Net balance (%) reporting banks' lending stance 'easier'

Largefirms

Small firms

economics@18

Employment growth is strengthening, resulting in a noticeable tightening in the labour marketEmployment growth is strengthening, resulting in Employment growth is strengthening, resulting in a noticeable tightening in the labour marketa noticeable tightening in the labour market

Source: Health, Labour & Welfare Ministry.

Participation rate

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

01 02 03 04 05 06 07

% change from year earlier(trend estimate)

Employer survey

Householdsurvey

Employment

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

01 02 03 04 05 06 07

Ratio of job offersto job seekers

‘Job offers ratio’

3.5

4.0

4.5

5.0

5.5

6.0

01 02 03 04 05 06 07

% of the labour force

Seas. adj. Trend

Lowest since Mar '98

Unemployment rate

60.0

60.5

61.0

61.5

62.0

62.5

63.0

01 02 03 04 05 06 07

% of civilian working age population

Seas. adj. Trend

economics@19

But employee earnings are still growing very slowly, so household finances remain pressuredBut employee earnings are still growing very But employee earnings are still growing very slowly, so household finances remain pressuredslowly, so household finances remain pressured

Sources: Health, Labour & Welfare Ministry; OECD; ESRI.

Employee cash earnings

-6

-4

-2

0

2

4

01 02 03 04 05 06 07


Seas. adj.

Trend

-4

-3

-2

-1

0

1

2

01 02 03 04 05 06 07


Household disposable income

2

3

4

5

6

7

8

9

01 02 03 04 05 06 07

% of disposable income

Household saving rate

30

35

40

45

50

55

01 02 03 04 05 06 07

Net balancejudging "good" (%) Tokyo

All Japan

Consumer confidence

economics@20

As a result, household spending has remained sluggishAs a result, household spending has remained As a result, household spending has remained sluggishsluggish

Sources: OECD; Land Ministry; ESRI.

Housing starts

Household consumption spending

96

97

98

99

100

101

102

01 02 03 04 05 06 07 07

Index (2000 = 100)

Trend

Actual

Retail sales volume

220230240250260270280290300

01 02 03 04 05 06 07

'000s

Trend

Actual

Passenger car sales

90

95

100

105

110

115

01 02 03 04 05 06 07 07

'000Trend

Actual

-1.0-0.50.00.51.01.52.02.53.0

01 02 03 04 05 06 07

Real % change from year earlier

economics@21

Japan’s trade surplus is rising despite slowing exports and deteriorating terms of tradeJapanJapan’’s trade surplus is rising despite slowing s trade surplus is rising despite slowing exports and deteriorating terms of tradeexports and deteriorating terms of trade

Export volumes

-15-10-505

101520

01 02 03 04 05 06 07

% change from year earlierTrend

Actual

Trade surplus

4

6

8

10

12

14

16

01 02 03 04 05 06 07

¥ trillion (annual rate)Trend

Actual

Terms of trade

707580859095

100105110

01 02 03 04 05 06 07

2000 = 100

Import volumes

-10

-5

0

5

10

15

01 02 03 04 05 06 07


Actual

Trend

Sources: Ministry of Finance; Bank of Japan.

economics@22

Rising short-term capital outflows appear to be more than offsetting the current account surplusRising shortRising short--term capital outflows appear to be term capital outflows appear to be more than offsetting the current account surplusmore than offsetting the current account surplus

Current account balance

Note: negative sign denotes capital outflows. Sources: Bank of Japan.

Direct and portfolio investment

-20-15-10-505

101520

01 02 03 04 05 06 07

¥ trn (12-mth moving total)

Net FDI

Net portfolio investment(debt and equity)

Other private capital flows

-30

-20

-10

0

10

20

30

01 02 03 04 05 06 07


Change in official reserve assets

-40

-30

-20

-10

0

10

01 02 03 04 05 06 07


1012141618202224

01 02 03 04 05 06 07


economics@23

-200

-150

-100

-50

0

50

100

01 02 03 04 05 06 07

'000 contractsLong

Short

Capital outflows (including the so-called ‘carry trade’) keeping the yen weakCapital outflows (including the soCapital outflows (including the so--called called ‘‘carry carry tradetrade’’) keeping the yen weak) keeping the yen weak

Net open yen positions on IMM

Foreign banks’ call moneyborrowings

0

10

20

30

40

50

01 02 03 04 05 06 07

% of total outstandings

Yen vs US$100105110115120125130135140

01 02 03 04 05 06 07 08

¥ per $ (inverted)

Real trade-weighted yen

60

70

80

90

100

110

120

71 74 77 80 83 86 89 92 95 98 01 04 07

2000 = 100Record

low

Sources: Bloomberg; Bank of Japan; JP Morgan Chase.

economics@24

Contrary to appearances this time last year deflation hasn’t completely disappearedContrary to appearances this time last year Contrary to appearances this time last year deflation hasndeflation hasn’’t completely disappearedt completely disappeared

Sources: Bank of Japan; OECD; ESRI.

Corporate prices

Consumer prices

-4

-3

-2

-1

0

1

2

01 02 03 04 05 06 07


Domestic goods

Services

-2

-1

0

1

01 02 03 04 05 06 07


Excl. foodand energy

Allitems

GDP price deflator

-3.0-2.5-2.0-1.5-1.0-0.50.00.5

01 02 03 04 05 06 07


Output prices judgement

-50

-40

-30

-20

-10

0

10

01 02 03 04 05 06 07

Net balance (%) reporting increases

Large firms

Small firms

economics@25

Share and more recently land prices have been rising Share and more recently land prices have been Share and more recently land prices have been rising rising

Share prices Land prices

Sources: Thomson Financial Datastream; NationalLand Agency.

20

30

40

50

60

70

80

90

100

110

87 91 95 99 03 07

Dec 1989 = 100(monthly average)

Topix index(relative to

'bubble' peak)

20

30

40

50

60

70

80

90

100

110

87 91 95 99 03 07

Sep qtr 1990 = 100

6 major cities(relative to

'bubble' peak)

Residentialland

economics@26

Bank of Japan will move very slowly in ‘normalizing’ monetary policyBank of Japan will move very slowly in Bank of Japan will move very slowly in ‘‘normalizingnormalizing’’ monetary policymonetary policy

Banks’ current balances at BoJ

05

10152025303540

01 02 03 04 05 06 07

¥ billion

'Normal' level

Long-term interest rates

0.0

0.5

1.0

1.5

2.0

2.5

3.0

01 02 03 04 05 06 07

% per annum

10-year JGB yield

Long-termprime rate

Short-term interest rates

0.0

0.5

1.0

1.5

2.0

01 02 03 04 05 06 07 08

% per annum3-mth

interbank rate

Call money rate

90-day Tibor futures

0.00

0.50

1.00

1.50

2.00

2.50

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

% pa 30 Jun 2006

31 Dec 200619 Jun 2007

Sources: Bank of Japan; Bloomberg; Datastream.

economics@27

Japan has made substantial progress in stabilizing its fiscal position but more needs to be doneJapan has made substantial progress in stabilizing Japan has made substantial progress in stabilizing its fiscal position but more needs to be doneits fiscal position but more needs to be done

Government debtGovernment financial balance

-10

-8

-6

-4

-2

0

2

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Actual Structural

% of GDP

0

20

40

60

80

100

120

140

160

180

200

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

% of GDP

Gross

Net

Source: OECD Economic Outlook 81, May 2007.

economics@28

Demographic change will have a bigger impact on Japan than any other advanced economy Demographic change will have a bigger impact on Demographic change will have a bigger impact on Japan than any other advanced economy Japan than any other advanced economy

Population

100

105

110

115

120

125

130

1990 2000 2010 2020 2030 2040 2050

Mn

Pc of population aged 15-64

50

55

60

65

70

75

1990 2000 2010 2020 2030 2040 2050

%

Source: UNESCO, World Population Prospects: The 2006 Revision.

Median age

35

40

45

50

55

60

1990 2000 2010 2020 2030 2040 2050

Years

10

15

20

25

30

35

40

1990 2000 2010 2020 2030 2040 2050

%

Pc of population aged 65+

economics@29

ChinaChinaChinaChina’s economy is continuing to grow at a rapid (10%+) pace despite repeated efforts by the authorities to slow it down

– Premier Wen Jiabao (on 16 March this year) characterized China’s growth as ‘unstable, imbalanced, uncoordinated and unsustainable’

Recent rise in inflation is largely due to rising food (especially meat) prices and is not primarily a symptom of ‘excess demand’

– although Chinese export prices appear also to have stopped falling

Authorities have relied on ‘token’ changes to monetary policy settings and administrative measures in attempting to contain liquidity growth and its consequences

– interest rates on deposits are still negative in real terms while lending rates are well below nominal GDP growth

– increased bank reserve requirements are ineffective given that reserve holdings already exceed minimum requirements

Stockmarket is a ‘bubble’ but its bursting would have only limited consequences for the real economyCurrency policy is the main source of liquidity growth

– but authorities will resist pressure for one-off revaluation or more rapid appreciation, preferring other measures (such as allowing greater capital outflows, or removing tax-breaks for foreign investors)

Some serious thought is being given to introducing dividend requirements for SOEs – which would get to the heart of the excess saving/investment problem

economics@30

China’s GDP growth rate remains above 10% pa despite ostensible efforts to slow it downChinaChina’’s GDP growth rate remains above 10% pa s GDP growth rate remains above 10% pa despite ostensible efforts to slow it downdespite ostensible efforts to slow it down

Note: IP and retail sales figures for January and February in some years distorted by shifts in timing of New Year holidays.Source: China National Statistics Bureau

Real GDP

Industrial production

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08

% ch. from year earlier

0

5

10

15

20

25

00 01 02 03 04 05 06 07

% ch. from year earlierActual

6-mth moving average

Fixed asset investment

0

10

20

30

40

50

60

00 01 02 03 04 05 06 07

Cumulative % ch.from year earlier

Retail sales

0

5

10

15

20

25

30

00 01 02 03 04 05 06 07



economics@31

Rising CPI inflation largely the result of higher meat prices – but export prices are rising tooRising CPI inflation largely the result of higher Rising CPI inflation largely the result of higher meat prices meat prices –– but export prices are rising toobut export prices are rising too

Consumer food prices Export prices

Producer pricesConsumer prices

-5

0

5

10

15

00 01 02 03 04 05 06 07


Food

All groups

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06 07

% ch. from year earlierMeatGrains

-6-4-202468

10

00 01 02 03 04 05 06 07


-8-6-4-202468

05 06 07


China export prices

US price index ofgoods importedfrom China

Sources: China National Statistics Bureau; US Commerce Department.

economics@32

China’s external accounts continue to be a major source of liquidity generation ChinaChina’’s external accounts continue to be a major s external accounts continue to be a major source of liquidity generation source of liquidity generation

Current account surplus Foreign exchange reserves

Merchandise trade

3540455055606570

00 01 02 03 04 05 06 07

US$ bn (12-mth moving total)

Foreign direct investment

0

10

20

30

40

50

00 01 02 03 04 05 06 07

% ch. from year earlier(6-mth moving avge)

Exports

Imports

0

50

100

150

200

250

00 01 02 03 04 05 06 07

US$bn (annual moving total)

Current accountsurplus

Merchandisetrade surplus

0.00.20.40.60.81.01.21.4

00 01 02 03 04 05 06 07

US$ trn

Sources: China National Statistics Bureau; OECD; People’s Bank of China.

economics@33

Increased reserve requirements and modest rate increases haven’t stemmed credit growthIncreased reserve requirements and modest rate Increased reserve requirements and modest rate increases havenincreases haven’’t stemmed credit growtht stemmed credit growth

Source: China National Statistics Bureau; People’s Bank of China; Thomson Financial Datastream.

Money supply and bank lending

0

5

10

15

20

25

30

01 02 03 04 05 06 07


M2

Bank lending

Interest rates

5.005.255.505.756.006.256.506.757.007.25

01 02 03 04 05 06 07 08

% pa

1 yr baselending rate

Increase in FX reserves

050

100150200250300350

01 02 03 04 05 06 07

US$bn

Currentaccountsurplus

Change in FXreserves (over

12-mth interval)

Banks required reserves ratio

56789

10111213

01 02 03 04 05 06 07 08

%

economics@34

Chinese authorities are also concerned about bubble-like developments in the equity marketChinese authorities are also concerned about Chinese authorities are also concerned about bubblebubble--like developments in the equity marketlike developments in the equity market

Shanghai market capitalization

Shanghai composite index

0.0

1.0

2.0

3.0

4.0

5.0

01 02 03 04 05 06 07

Monthly average( / 1000)

Shanghai turnover

0.0

1.0

2.0

3.0

4.0

5.0

6.0

01 02 03 04 05 06 07

Yn trn (monthly)

`

Shanghai p/e ratio

0

5

10

15

20

25

01 02 03 04 05 06 07

x

0

100

200

300

400

500

01 02 03 04 05 06 07

US$bn

`

Sources: Global Source; Datastream.

economics@35

China will eventually have to let the yuan rise more strongly – for its own reasons, not the US’sChina will eventually have to let the yuan rise China will eventually have to let the yuan rise more strongly more strongly –– for its own reasons, not the USfor its own reasons, not the US’’ss

Sources: Thomson Financial Datastream; JP Morgan Chase

Yuan real effective rate

Yuan vs US$7.20

7.40

7.60

7.80

8.00

8.20

8.4000 01 02 03 04 05 06 07 08

Yuan per $(inverted)

Spotrate

12-mthNDF

90

95

100

105

110

00 01 02 03 04 05 06 07

2000 = 100

The US Treasury (correctly) concluded that China was not manipulating its currency for the purpose of ‘gaining unfair competitive advantage in international trade’

However China’s reluctance to let the yuan appreciate more rapidly is making it impossible to achieve its macroeconomic policy objectives and is fuelling asset price bubbles

For the time being China is seeking to offset pressure on the yuan by intervention and allowing more capital outflow

Eventually however (and at a time of its own choosing) China will either engineer a discrete revaluation or allow ‘market forces’ to achieve the same outcome

economics@36

IndiaIndiaIndia

India’s economy has experienced growth rates almost as rapid as China’s over the past three yearsBut unlike China, India has been showing some signs of ‘over-heating’, suggesting that India’s ‘speed limit’ is lower than China’s

– consumer price inflation exceeding 6% pa over the past year– and the emergence of the world’s ninth largest current account deficit

The policy response needed to be (and has been) stronger than inChina

– interest rates raised 1½ pc pts over the past 18 months (though lending rates remain below nominal GDP growth)

– rupee allowed to rise 13% against the dollar over past 12 months– plus some more questionable measures such as a ban on wheat exports

Despite an apparent peak in wholesale price inflation, monetary policy is unlikely to be eased any time soonIndia has what should be much more favourable demographics than China …

– India’s population will surpass China’s within 20 years and a much higher proportion of it will be of working age

… but India lags well behind China in developing its ‘human capital’ through appropriate investment in health, education and infrastructure

economics@37

Macro-economic strains associated with excess demand more obvious in India than ChinaMacroMacro--economic strains associated with excess economic strains associated with excess demand more obvious in India than Chinademand more obvious in India than China

Real GDP

Industrial production

02468

101214

00 01 02 03 04 05 06 07 08


02468

10121416

00 01 02 03 04 05 06 07




Inflation

0

2

4

6

8

10

00 01 02 03 04 05 06 07

% ch. from year earlierCPI

WPI

-80

-60

-40

-20

0

20

40

00 01 02 03 04 05 06 07

US$bn (annual moving total)

Current account

Merchandisetrade

Sources: Reserve Bank of India; Central Statistical Organization; OECD.

economics@38

Greater tolerance of currency appreciation has allowed RBI monetary policy to be more effectiveGreater tolerance of currency appreciation has Greater tolerance of currency appreciation has allowed RBI monetary policy to be more effectiveallowed RBI monetary policy to be more effective

Interest rates Foreign exchange reserves

Money and credit

05

10152025303540

00 01 02 03 04 05 06 07

% ch. from year earlie

Bank lending

M2

Rupee vs US$

0

50

100

150

200

250

00 01 02 03 04 05 06 07

US$ bn

4

6

8

10

12

14

01 02 03 04 05 06 07

% pa

RBI repo rate

Prime lending rate

38

40

42

44

46

48

5000 01 02 03 04 05 06 07 08

Rp per $(inverted)

Sources: Reserve Bank of India; Thomson Financial Datastream

economics@39

India’s demographic profile is potentially a major advantage over China …IndiaIndia’’s demographic profile is potentially a major s demographic profile is potentially a major advantage over China advantage over China ……

Population

0.6

0.8

1.0

1.2

1.4

1.6

1.8

1990 2000 2010 2020 2030 2040 2050

Bn India

China

Pc of population aged 15-64


Median age

20

25

30

35

40

45

50

1990 2000 2010 2020 2030 2040 2050

YearsChina

India

Pc of population aged 65+

0

5

10

15

20

25

1990 2000 2010 2020 2030 2040 2050

%

China

India

55

60

65

70

75

1990 2000 2010 2020 2030 2040 2050

%

China

India

economics@40

… but India lags a long way behind China in developing its ‘human capital’…… but India lags a long way behind China in but India lags a long way behind China in developing its developing its ‘‘human capitalhuman capital’’

China India

Probability at birth of surviving to 65 (%) -

Cell phones per 1000 population (2003) 258 44

No of procedures to start a business (2006) 13 11

Infant mortality (% of births, 2004) 26 62

Males born 2000-05

Females born 2000-05

1 yr olds immunized against TB (%, 2004)

Population with access to -

Improved sanitation

Improved drinking water

Adult literacy (%, 2004)

Internet users per 1000 population (2003)

Rigidity of employment index (2006)

No of days to enforce a debt (2006)

74.2 59.2

81.3 67.4

94 73

44 33

73 32

24 41

77 86

90.9 61.0

292 1,420

Sources: UNDP Human Development Report 2006; World Bank Doing Business 2006 database

economics@41

Smaller East Asian economiesSmaller East Asian economiesSmaller East Asian economiesThe economies affected by the financial crisis of a decade ago have never completely recovered from it

– on average, growth rates over the past five years have been three-quarters of their average over the five years prior to the crisis

Governments of countries affected by the financial crisis have sought to ‘buy insurance’ against a recurrence by

– suppressing investment (by 5-6 pc pts of GDP), running large current account surpluses and accumulating large stockpiles of FX reserves

The rising inflation experienced by most smaller Asian economiesduring 2005 and 2006 has since been reversed through a combination of tighter monetary policy and currency appreciation

– interest rates have begun falling and in most cases will fall further– some countries (particularly Korea and Thailand) are again worrying

about exchange rate strength (and in Thailand damaging market confidence by their attempts to prevent it), while Taiwan by contrast is worried about capital outflows and persistent currency weakness

Political uncertainties weigh on Thailand, Korea, Taiwan and (tosome extent) IndonesiaImprovements in Indonesia and the Philippines are under-appreciated by the global investment community

– in particular Indonesia merits inclusion in the so-called ‘BRICs’

By contrast Vietnam’s strong economic performance is (rightly) attracting significant investor interest

economics@42

Among the smaller East Asian economies only the Philippines has regained its pre-crisis growth rateAmong the smaller East Asian economies only the Among the smaller East Asian economies only the Philippines has regained its prePhilippines has regained its pre--crisis growth ratecrisis growth rate

Note: horizontal lines show average annual growth rates for Q2 1990 – Q2 1997and Q1 2000 – Q1 2007. Sources: National statistical agencies and central banks; Datastream; Economics@ANZ.

Korea

-10

-5

0

5

10

15

90 93 96 99 02 05 08

% ch from yr earlier

Taiwan

-6-4-202468

10

90 93 96 99 02 05 08


Hong Kong

-10

-5

0

5

10

15

90 93 96 99 02 05 08


Singapore

-10

-5

0

5

10

15

90 93 96 99 02 05 08


Indonesia

-20-15-10-505

1015

90 93 96 99 02 05 08


Thailand

-15

-10

-5

0

5

10

15

90 93 96 99 02 05 08


Malaysia

-15

-10

-5

0

5

10

15

90 93 96 99 02 05 08


Philippines

-4

-2

0

2

4

6

8

90 93 96 99 02 05 08


Real GDP growth: smaller East Asian economies

Investment has fallen (in some cases massively) as a share of GDP since the crisis …Investment has fallen (in some cases massively) Investment has fallen (in some cases massively) as a share of GDP since the crisis as a share of GDP since the crisis ……

Korea

25

30

35

40

45

90 93 96 99 02 05 08

% of GDP

Investment

Saving

Taiwan Hong Kong Singapore

Indonesia Thailand Malaysia Philippines

Gross investment and saving as percentages of GDP

15

20

25

30

35

90 93 96 99 02 05 08

% of GDP

Investment

Saving

20

25

30

35

90 93 96 99 02 05 08

% of GDP

Saving

Investment

Saving

20

30

40

50

60

70

90 93 96 99 02 05 08

% of GDP

Investment

Saving

15

20

25

30

90 93 96 99 02 05 08

% of GDP

Investment

Saving

20

25

30

35

40

45

90 93 96 99 02 05 08

% of GDP

Investment

Saving

20

25

30

35

40

45

90 93 96 99 02 05 08

% of GDP

Invest-ment

Saving

10

15

20

25

30

35

90 93 96 99 02 05 08

% of GDP

Investment

Saving

Investment

Saving

economics@43Sources: Economist Intelligence Unit; Economics@ANZ.

… which is the main ‘structural’ reason for the swing in these countries’ current accounts…… which is the main which is the main ‘‘structuralstructural’’ reason for the reason for the swing in these countriesswing in these countries’’ current accountscurrent accounts

Korea

-5

0

5

10

15

90 93 96 99 02 05 08

% of GDP


Current account balances as percentages of GDP

0

2

4

6

8

10

12

90 93 96 99 02 05 08

% of GDP

-10

-5

0

5

10

15

90 93 96 99 02 05 08

% of GDP

0

5

10

15

20

25

30

90 93 96 99 02 05 08

% of GDP


-4

-2

0

2

4

6

90 93 96 99 02 05 08

% of GDP

-10

-5

0

5

10

15

90 93 96 99 02 05 08

% of GDP

-15-10-505

101520

90 93 96 99 02 05 08

% of GDP

-8

-6

-4

-2

0

2

4

90 93 96 99 02 05 08

% of GDP

economics@44 Source: IMF World Economic Outlook database (April 2007).

Large external surpluses have allowed these countries to accumulate substantial FX reservesLarge external surpluses have allowed these Large external surpluses have allowed these countries to accumulate substantial FX reservescountries to accumulate substantial FX reserves

Korea

0

50

100

150

200

250

300

90 93 96 99 02 05 08

US$bn



Foreign exchange reserves

0

50

100

150

200

250

300

90 93 96 99 02 05 08

US$bn

0

25

50

75

100

125

150

90 93 96 99 02 05 08

US$bn

0

25

50

75

100

125

150

90 93 96 99 02 05 08

US$bn

0

10

20

30

40

50

90 93 96 99 02 05 08

US$bn

01020304050607080

90 93 96 99 02 05 08

US$bn

0

20

40

60

80

100

90 93 96 99 02 05 08

US$bn

0

5

90 93 96 99 02 05 08

US$bn

10

15

20

25

economics@45 Source: Central banks.

All the smaller East Asian economies now have very comfortable FX reserve positionsAll the smaller East Asian economies now have All the smaller East Asian economies now have very comfortable FX reserve positionsvery comfortable FX reserve positions

Korea

0

25

50

75

100

125

150

90 93 96 99 02 05 08

%



Ratio of FX reserves to gross foreign debt

200

250

300

350

400

450

500

90 93 96 99 02 05 08

%

100150200250300350400450500

90 93 96 99 02 05 08

%

300

400

500

600

700

800

900

90 93 96 99 02 05 08

%

10

15

20

25

30

35

40

90 93 96 99 02 05 08

%

25

50

75

100

125

90 93 96 99 02 05 08

%

255075

100125150175200

90 93 96 99 02 05 08

%

0

10

20

30

40

50

90 93 96 99 02 05 08

%

economics@46 Source: Economist Intelligence Unit.

economics@47

Most central banks have allowed their currencies to rise (Korea & Thailand have tried to cap theirs)Most central banks have allowed their currencies Most central banks have allowed their currencies to rise (Korea & Thailand have tried to cap theirs)to rise (Korea & Thailand have tried to cap theirs)

Source: Thomson Financial Datastream; Economics@ANZ.

Korea0.8

0.9

1.0

1.1

1.2

1.3

1.40102030405060708

'000 Won per $



Smaller East Asian currencies vs US dollar

30

31

32

33

34

35

3601 020304 05060708

NT$ per $ 7.5

7.6

7.7

7.8

7.9

8.00102030405060708

HK$ per $ 1.4

1.5

1.6

1.7

1.8

1.90102030405060708

S$ per $

7

8

9

10

11

1201 020304 05060708

'000 Rupiah per $ 30

35

40

45

5001 020304 05060708

Baht per $ 3.0

3.2

3.4

3.6

3.8

4.00102030405060708

Ringgit per $ 40

45

50

55

6001 020304 05060708

Pesos per $

economics@48

0

1

2

3

4

5

6

01 02 03 04 05 06 07


'Headline'

Excl. agri.products & oil

Currency appreciation and tighter monetary policy have set inflation on a downward pathCurrency appreciation and tighter monetary policy Currency appreciation and tighter monetary policy have set inflation on a downward pathhave set inflation on a downward path

Note: Inflation rates in Indonesia, Thailand & Malaysia were elevated during 2006 by the abolition or reduction in fuel price subsidies.Sources: National statistical agencies and central banks.

Korea Taiwan Hong Kong Singapore


Consumer prices

-3-2-101234

01 02 03 04 05 06 07


'Head-line'

Excl. food& energy

-5-4-3-2-10123

01 02 03 04 05 06 07


Compositeindex

-2

-1

0

1

2

3

01 02 03 04 05 06 07


-5

0

5

10

15

20

01 02 03 04 05 06 07

% ch from year earlier'Headline'

Excl. food

-2

0

2

4

6

8

01 02 03 04 05 06 07


'Headline'

Excl. food0

1

2

3

4

5

01 02 03 04 05 06 07


0

2

4

6

8

10

12

01 02 03 04 05 06 07


'Headline'

Excl. food

economics@49

0

5

10

15

20

01 020304 05060708

% pa

1 monthSBI rate

0

1

2

3

4

5

6

0102 03 0405 06 07 08

% pa

Overnightcall rate

Lower inflation and in some cases exchange rate objectives point to declining interest ratesLower inflation and in some cases exchange rate Lower inflation and in some cases exchange rate objectives point to declining interest ratesobjectives point to declining interest rates

Source: Thomson Financial Datastream; Economics@ANZ.

Korea Taiwan Hong Kong Singapore


Monetary policy indicator interest rates

0

1

2

3

4

5

0102 03 0405 06 07 08

% pa

Discountrate

012345678

0102 03 0405 06 07 08

% pa

Baserate

0

1

2

3

4

0102 03 0405 06 07 08

% pa

3-mthrate

0

1

2

3

4

5

6

0102 03 0405 06 07 08

% pa

14-dayrepo rate

0

1

2

3

4

0102 03 0405 06 07 08

% pa

BNM overnightpolicy rate

02468

10121416

01 020304 05060708

% pa

BSP overnightrate

economics@50

Indonesia is entitled to be considered among the so-called ‘BRICs’Indonesia is entitled to be considered among the Indonesia is entitled to be considered among the soso--called called ‘‘BRICsBRICs’’

Source: IMF World Economic Outlook April 2007 database; The Heritage Foundation Index of Economic Freedom.

Population, 2006

0.0

0.2

0.4

0.60.8

1.0

1.2

1.4

China India Russia Brazil Indonesia

Bns

Per capita GDP, 2006

0

2

4

68

10

12

14


US$'000

Real GDP growth, 2001-06

0

2

4

6

8

10


% per annum

‘Economic freedom’ 2006

50

52

54

56

58

60

62


Index (%) Worldaverage

economics@51

The Philippines is significantly improving its fiscal and external financial positionThe Philippines is significantly improving its The Philippines is significantly improving its fiscal and external financial positionfiscal and external financial position

Government revenue & outlays

Budget balance Gross foreign debt


141516171819202122

96 97 98 99 00 01 02 03 04 05 06

% of GDPExpenditures

Revenues

-6-5-4-3-2-101

96 97 98 99 00 01 02 03 04 05 06

% of GDP

-6-4-202468

1012

96 97 98 99 00 01 02 03 04 05 06 07

US$ bn (12-mth moving total)

150175200225250275300325

96 97 98 99 00 01 02 03 04 05 06 07

% of GDP

Sources: Philippines National Statistics Office; Banco Sentral ng Pilipinas; Economics@ANZ.

economics@52

Indonesia and the Philippines have a lot to do to become more attractive to businessIndonesia and the Philippines have a lot to do to Indonesia and the Philippines have a lot to do to become more attractive to businessbecome more attractive to business

* Index runs 0-100 with 100 being most rigid.Source: World Bank, Doing Business 2006 database.

Procedures to start a business

0

24

6

8

1012

14

CH IN HK TW TH MY SP ID PH VN

Number

Days to start a business

0

20

40

60

80

100


Days

Rigidity of employment index*

0

10

20

30

40

50

60


Index

Days to enforce a contract

0

250

500

750

1000

1250

1500


Days

economics@53

Vietnam is Asia’s third most rapidly-growing economy, after China and IndiaVietnam is AsiaVietnam is Asia’’s third most rapidlys third most rapidly--growing growing economy, after China and Indiaeconomy, after China and India

Real GDP

Shares of GDP

0

2

4

6

8

10

90 92 94 96 98 00 02 04 06 08


GDP by form of ownership

Saving and investment

5

10

15

20

25

30

35

90 92 94 96 98 00 02 04 06 08

% of GDP

Saving

Investment

15

20

25

30

35

40

45

90 92 94 96 98 00 02 04 06 08

% of GDP

Agriculture

Industry

0

10

20

30

40

50

60

95 96 97 98 99 00 01 02 03 04 05 06

% of GDP

ForeignState-owned

Non State-owned

Sources: IMF; Economist Intelligence Unit; General Statistical Office of Vietnam; Economics@ANZ.

economics@54

Vietnam’s external and domestic fundamentals have improved significantly over the past decadeVietnamVietnam’’s external and domestic fundamentals s external and domestic fundamentals have improved significantly over the past decadehave improved significantly over the past decade

Sources: Economist Intelligence Unit; General Statistical Office of Vietnam; Economics@ANZ.


Net foreign debt

-15

-10

-5

0

5

90 92 94 96 98 00 02 04 06 08

% of GDP

050

100150200250300350400

90 92 94 96 98 00 02 04 06 08

% of GDP

Inflation

-10

0

10

20

30

40

90 92 94 96 98 00 02 04 06 08

% of GDP

Exports

20

30

40

50

60

70

80

90 92 94 96 98 00 02 04 06 08

% of GDP

economics@55

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30Yrs

Medianage (lhs)

% aged65+ (rhs)

%

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30

40Yrs

Medianage (lhs)

% aged65+ (rhs)

%

The richer Asian economies have much more challenging demographic profilesThe richer Asian economies have much more The richer Asian economies have much more challenging demographic profileschallenging demographic profiles

Korea Vietnam


Median age and % of population in retirement age groupsHong Kong Singapore

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30

40YrsMedian

age (lhs)

% aged65+ (rhs)

%

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30

40YrsMedian

age (lhs)

% aged65+ (rhs)

%

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30

40Yrs

Medianage (lhs)

% aged65+ (rhs)

%

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30

40Yrs

Medianage (lhs)

% aged65+ (rhs)

%

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20

30Yrs

Medianage (lhs)

% aged65+ (rhs)

%

10

20

30

40

50

60

90 00 10 20 30 40 500

10

20Yrs

Medianage (lhs)

% aged65+ (rhs)

%


economics@56

Key risks for AsiaKey risks for AsiaKey risks for AsiaRising protectionism in the US (and possibly Europe also)

– a majority of the current Congress appears to favour imposing tariffs on imports from China – and whoever wants to be President after January 2009 may feel obliged to pander to this mood

– unilateral tariffs on imports from China would redistribute the US deficit from China to other countries (including other Asian countries) but would also lead to higher US inflation and interest rates and lower US and global growth

– and would induce retaliation in a form which could lead to destabilizing capital flows and currency swings

‘Excess liquidity’ in Asian financial systems and asset price bubbles

– prompted by excessive reserve accumulation and resistance to exchange rate appreciation and/or excessively loose monetary policy

– potentially leading to macroeconomic instability and renewed banking system problems

Political uncertainty and / or unfavourable political trends– particularly in Japan, Thailand (where an election is supposed to be

held by November) and Taiwan (Presidential election March 2008)– Likely positive outcome from December’s Korean presidential election

Extended or abrupt slowdown in the US– although Asia is less directly dependent on the US as a market than

hitherto there are still strong indirect linkages via China

economics@57

Summary of the Asian economic outlook (1)Summary of the Asian economic outlook (1)Summary of the Asian economic outlook (1)

Real GDP growth (% pa) 2005 2006 2007 2008

Japan 1.9 2.2 2½ 2

East Asia ex Japan & China 5.1 5.5 5¼ 5¼

10.7

5.0

4.6

6.8

5.6

5.0

5.9

7.9

5.4

Vietnam 8.4 8.2 8 8

9.4

China 10.2 10¼ 9½

Korea 4.0 4½ 4¼

Taiwan 4.0 4 3½

Hong Kong 7.3 6½ 6¼

Indonesia 5.6 6 6½

Thailand 4.5 4¼ 5½

Malaysia 5.2 5½ 5¾

Singapore 6.4 6¼ 5½

Philippines 5.0 6½ 4½

India (a) 8.5 8¾ 8

(a) Fiscal years beginning 1 April

economics@58


Inflation (% pa) 2005 2006 2007 2008

Japan -0.2 0.0 ½ 1

1.5

2.7

0.6

2.0

13.3

4.7

3.6

1.0

6.3

Vietnam 8.2 7.5 7 6¾

6.0

China 1.8 3¼ 3

Korea 2.8 3¼ 3½

Taiwan 2.3 1½ 2

Hong Kong 0.9 1¾ 2¼

Indonesia 10.5 6 5

Thailand 4.5 2 2¼

Malaysia 2.9 2 2¼

Singapore 0.5 1 1¾

Philippines 7.8 4 5

India (a) 4.2 6 5½

(a) Fiscal year beginning 1 April

economics@59


Current account (% of GDP) 2005 2006 2007 2008

Japan 3.6 3.7 3½ 2½

9.5

1.7

5.8

9

2.6

1.6

15.8

27.5

5.0

Vietnam 0.9 1.5 1¾ 2

-1.7

China 7.2 10 9½

Korea 2.4 1¼ 1

Taiwan 4.7 5½ 6

Hong Kong 11.4 8 8½

Indonesia 0.1 1½ 1

Thailand -4.5 2½ 1½

Malaysia 15.3 15¼ 15

Singapore 24.5 25 24

Philippines 2.4 4 5

India (a) -0.9 -2¼ -2¾

(a) Fiscal year beginning 1 April

economics@60

Asian interest rate outlookAsian interest rate outlookAsian interest rate outlook

Rate (% pa) Dec 2006*

Jun 2007*

Dec 2007

Jun 2008

Japan call rate 0.25 0.50 1.00 1.25

7.02

4.25

3.25

5.75

8.00

3.50

3.00

2.60

7.00

7.75

1.50

6.57

4.50

3.13

6.50

8.75

4.00

3.50

2.58

7.50

7.75

Dec 2008

China 1 yr base rate 6.12 6.75 6.75

Korea call rate 4.50 4.50 4.00

Taiwan discount rate 2.75 3.25 3.00

Hong Kong discount rate 6.75 5.75 5.75

Indonesia BI rate 9.75 8.00 8.00

Thailand 14-d repo rate 5.00 3.50 3.50

Malaysia overnight rate 3.50 3.25 3.00

Singapore 3-mth rate 3.44 2.60 2.60

Philippines reverse repo 7.50 7.25 7.25

India reverse repo 7.25 7.75 7.75

* Actual

economics@61

Asian currency outlookAsian currency outlookAsian currency outlook

Currency values per US$

Dec 2006*

Jun 2007*

Dec 2007

Jun 2008

Yen 116 122 125 126

7.40

910

31.5

7.80

8 300

37.0

3.35

1.49

48

16 200

39.8

123

7.62

925

33.0

7.82

8 900

34.5

3.43

1.53

46

Dong 16 050 16 100 16 100 16 250

40.0

Dec 2008

China 7.81 7.45 7.30

Won 930 910 925

NT$ 32.6 32.0 31.0

HK$ 7.78 7.80 7.80

Rupiah 8 995 8 500 8 100

Baht 35.5 36.0 38.0

Ringgit 3.53 3.37 3.33

S$ 1.54 1.50 1.48

Peso 49 45 52

Rupee 44.3 39.5 40.0

* Actual

presentation to international conference of commercial

Documents