Fast-forward: the Asia-Pacific after the crisis

Peter A. Petri Brandeis University and East-West Center Asia Pacific Council May 6, 2010

Slide 1

Most likely a “V”

Real GDP growth rates 4 2 0 -2 -4 14 12 10 8 6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 USA ASEAN-5 China World Advanced Asia IMF WEO April 2010 “WEO Apr10 groups”

Slide 2

Growth before and after crisis

Real GDP growth rates, 2000-07 and projected 2009-15 12 10 8 6 4 2 After Before IMF WEO April 2010 “WEO Apr10 groups”

Slide 3

The rebalancing challenge

• Rebalancing demand – Make demand sustainable (Asian consumption, investment) – Link to engines of growth (Asian trade and demand) • Rebalancing supply – Expand net exports (deficit economies) – Energize non-tradable sectors (surplus economies) • Magnitudes – Imbalances declined in crisis; now rising – Manageable if addressed now

Slide 4

Structural policies

US China Japan • Budget discipline • Financial regulation • Export renewal • Increase household income, security • Capital market development • Infrastructure, renewable energy • Currency flexibility • Deregulated services • Energy and conservation technology • Services for ageing populations

Slide 5

When will China pass the US?

Current dollar GDP projection based on prior 5-year growth rate 2070 2060 2050 2040 2030 2020 2010 2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Year of Projection

Purchasing power Market prices Calculations based on IMF WEO April 2010 “catchup graph”

Slide 6

Rebalancing US exports

US exports 2009 Other Developing Europe Western Hemisphere US export growth, 2009-14 Other Developing Europe Other Advanced Western Hemisphere Developing Asia (20%) Other Advanced Developing Asia (41%) Calculations based on US Department of Commerce trade (5/2/2010) and IMF WEO GDP data (4/2010) “WEO apr10 groups”

Slide 7

US strategic imperative

• Priorities – Engage emerging economies (Asia) – Facilitate domestic adjustment (exports) – Manage multi-layered architecture (regional FTAs) • We get it – “We have to lead, and our engagement must extend to governments, business, and peoples across the Pacific.” (Obama) – “The United States is back in Asia… back to stay.” (Clinton) – “We want to be in the game in Asia.” (Geithner)

Slide 8

Crucial 18 months

• APEC: Japan 2010, US 2011 • US legislative window: early 2011 • Three dreams – KORUS – Trans-Pacific Partnership – A fruitful Hawaiian APEC • Investment: investment principles • Environment: trade and technology transfer • Demographics: future capital, people flows • Inclusion: spotlight on women

Slide 9

APEC timeline

• Japan – June 2010: SOM2, trade, energy – September 2010: SOM3 – November 2010: Leaders’ Meeting (Yokohama) • US – December 2010: informal SOM – Mid 2011: SOM2, trade, energy – November 2011: Leaders’ Meeting (Honolulu)

Slide 10