东盟+3 区域2023年度展望报告（英文）-AMROVIP专享VIP免费

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On the Road

to Net Zero

ASEAN+3

REGIONAL

ECONOMIC

OUTLOOK

2023

This report is produced by the ASEAN+3 Macroeconomic Research Oce (AMRO) for the use of AMRO members. It has

been reviewed and approved for publication by the Executive Committee of AMRO. Any interpretations or conclusions

expressed are not necessarily those of AMRO members. By making any designation of or reference to a particular terri-

tory or geographical area, or by using the term “member” or “country” in this report, AMRO does not intend to make any

judgments as to the legal or other status of any territory or area.

Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of

AMRO, all of which are specically reserved.

The factual information covers data for the period up to 28 February 2023, except when stated otherwise.

ISSN: 2529-7538

Printed in Singapore

ASEAN+3 Macroeconomic Research Oce

10 Shenton Way, #15-08 MAS Building

Singapore 079117

enquiry@amro-asia.org

www.amro-asia.org

ASEAN+3 Regional Economic Outlook 2023

Table of Contents

Foreword

Acknowledgments

Abbreviations

Chapter 1. Macroeconomic Prospects and Challenges

Highlights

I. Recent Developments and Outlook

A Bumpy Transition to the “New Normal”

Domestic Demand Leads the Way

Exports Face Headwinds

A Partial Labor Market Recovery

High(er) Ination—Here to Stay?

Credit Growth Slows

Financial Markets Seesaw

II. Risks to the Outlook

III. AMRO Sta Macroeconomic Forecasts for 2023–24

IV. Policy Considerations

Policy Space

Policy Positions

Appendix: Selected Key Macroeconomic and Financial Indicators

References

Chapter 2. On the Road to Net Zero

Highlights

I. Introduction

II. Out with the Old: Macroeconomic Implications of Moving Away from Fossil Fuels

Will Ination Go Up?

Will Exports Suer?

What about Stranded Assets?

Will Economic Growth Be Stunted?

III. In with the New: Growth Opportunities of Moving Towards Carbon Neutrality

Clean Energy

Electric Vehicles

Energy Storage

Critical Minerals

Carbon Capture, Utilization, and Storage

Carbon Osets

IV. (How) Can Finance Pave the Way?

Green Finance

Transition Finance

V. Summary and Policy Implications

References

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/188

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OntheRoadtoNetZeroASEAN+3REGIONALECONOMICOUTLOOK2023ThisreportisproducedbytheASEAN+3MacroeconomicResearchOffice(AMRO)fortheuseofAMROmembers.IthasbeenreviewedandapprovedforpublicationbytheExecutiveCommitteeofAMRO.AnyinterpretationsorconclusionsexpressedarenotnecessarilythoseofAMROmembers.Bymakinganydesignationoforreferencetoaparticularterri-toryorgeographicalarea,orbyusingtheterm“member”or“country”inthisreport,AMROdoesnotintendtomakeanyjudgmentsastothelegalorotherstatusofanyterritoryorarea.NothinghereinshallconstituteorbeconsideredtobealimitationuponorwaiveroftheprivilegesandimmunitiesofAMRO,allofwhicharespecificallyreserved.Thefactualinformationcoversdatafortheperiodupto28February2023,exceptwhenstatedotherwise.©2023ASEAN+3MacroeconomicResearchOfficeISSN:2529-7538PrintedinSingaporeASEAN+3MacroeconomicResearchOffice10ShentonWay,#15-08MASBuildingSingapore079117enquiry@amro-asia.orgwww.amro-asia.orgiiASEAN+3RegionalEconomicOutlook2023TableofContentsForewordAcknowledgmentsAbbreviationsChapter1.MacroeconomicProspectsandChallengesHighlightsI.RecentDevelopmentsandOutlookABumpyTransitiontothe“NewNormal”DomesticDemandLeadstheWayExportsFaceHeadwindsAPartialLaborMarketRecoveryHigh(er)Inflation—HeretoStay?CreditGrowthSlowsFinancialMarketsSeesawII.RiskstotheOutlookIII.AMROStaffMacroeconomicForecastsfor2023–24IV.PolicyConsiderationsPolicySpacePolicyPositionsAppendix:SelectedKeyMacroeconomicandFinancialIndicatorsReferencesChapter2.OntheRoadtoNetZeroHighlightsI.IntroductionII.OutwiththeOld:MacroeconomicImplicationsofMovingAwayfromFossilFuelsWillInflationGoUp?WillExportsSuffer?WhataboutStrandedAssets?WillEconomicGrowthBeStunted?III.InwiththeNew:GrowthOpportunitiesofMovingTowardsCarbonNeutralityCleanEnergyElectricVehiclesEnergyStorageCriticalMineralsCarbonCapture,Utilization,andStorageCarbonOffsetsIV.(How)CanFinancePavetheWay?GreenFinanceTransitionFinanceV.SummaryandPolicyImplicationsReferencesixxxi123381122232426293335354248505253545860697578828294101104106110115116120122125ASEAN+3RegionalEconomicOutlook2023iiiBoxesBox1.1LivingwithCOVID-19:TheLongandWindingRoadforthePlus-3Economies5Box1.2ChippingAwayatChina’sAdvance:HowWillUSTradeRestrictionsAffectASEAN+3’sSemiconductorSector?16Box1.3TheReturnofTravelandTourism19Box1.4TugofWar:RisingGeopoliticalRisksandASEAN+331Box1.5FiscalStressinASEAN+337Box1.6MonetaryPolicyFrameworksinASEAN+341Box1.7FiscalPolicyintheMediumTerm44Box2.1ASEAN+3MitigationTargetsundertheParisAgreement57Box2.2CarbonTaxesinJapanandSingapore64Box2.3EmissionsTradingSchemesinthePlus-366Box2.4WhatWilltheEuropeanUnion’sCarbonBorderAdjustmentMechanismMeanforASEAN+3Exports?72Box2.5Vietnam’sSolarEnergyBoom87Box2.6(Hydro)PoweringLaoPDR’sEnergyTrade89Box2.7China’sElectricVehicleLeapfrog99Box2.8CarbonOffsets:FromKyototoParis113Box2.9MonetizingASEAN’sForests114Annex.DevelopmentsinASEAN+3EconomiesBruneiDarussalamCambodiaChinaHongKong,ChinaIndonesiaJapanKoreaLaoPDRMalaysiaMyanmarThePhilippinesSingaporeThailandVietnam132133136139142145148151154157160163166169172ivASEAN+3RegionalEconomicOutlook2023FiguresFigure1.1.UnitedStatesandEuroArea:RealGDPGrowthandHeadlineInflation3Figure1.2.SelectedASEAN+3:RealGDPGrowth3Figure1.3.ASEAN+3:DailyCOVID-19Cases4Figure1.4.ASEAN+3:BusinessCyclePositions,20234Figure1.5.SelectedASEAN+3:AggregateRealGDPGrowth,byExpenditureCategory8Figure1.6.SelectedASEAN+3:RealPrivateConsumptionGrowthandContributiontoGDPGrowth9Figure1.7.SelectedASEAN+3:MobilityOutsidetheResidence9Figure1.8.SelectedASEAN+3:RetailSalesGrowth10Figure1.9.SelectedASEAN+3:ServicesSalesGrowth10Figure1.10.SelectedASEAN+3:RealandNominalWages10Figure1.11.SelectedASEAN+3:ConsumerConfidence10Figure1.12.SelectedASEAN+3:RealGrossFixedCapitalFormationandContributiontoGDPGrowth10Figure1.13.SelectedASEAN+3:GrowthofCredittoPrivateNonfinancialCorporations10Figure1.14.World:SemiconductorBillings,TradeVolume,andElectronicsNewOrders11Figure1.15.China:FixedAssetInvestment,bySector11Figure1.16.SelectedASEAN+3:BusinessInvestmentProspects11Figure1.17.ASEAN+3:GoodsExportGrowth12Figure1.18.SelectedASEAN+3:GoodsandServicesExportGrowth13Figure1.19.WorldandSelectedASEAN+3:GlobalSupplyChainPressureandManufacturingPriceIndices13Figure1.20.SelectedASEAN+3:ManufacturingPurchasingManagers’Index13Figure1.21.SelectedASEAN+3:ManufacturingPurchasingManagers’Indices,byComponent13Figure1.22.ASEAN+3:GrowthinExportsofServices,byCategory14Figure1.23.SelectedASEAN+3:ForeignDirectInvestment14Figure1.24.SelectedASEAN+3:ForeignDirectInvestment,byRegionalGrouping14Figure1.25.ASEAN+3:AggregateInwardFDIAnnouncements14Figure1.26.ASEAN+3:AggregateInwardFDIAnnouncements,byRegionalGrouping14Figure1.27.ASEAN+3:AggregateInwardFDIAnnouncements,bySector15Figure1.28.SelectedASEAN+3:ChangeinEmploymentfromQ42019,byIndustry22Figure1.29.SelectedASEAN+3:NominalWages,byEconomy22Figure1.30.SelectedASEAN+3:LaborForceParticipationRate23Figure1.31.SelectedASEAN+3:EmploymentLevel23Figure1.32.SelectedASEAN+3:UnemploymentRate23Figure1.33.ASEAN+3:ConsumerPriceInflation24Figure1.34.World:CommodityPrices24Figure1.35.SelectedASEAN+3:GrowthinCredittoPrivateNonfinancialSector25Figure1.36.SelectedASEAN+3:BankingSectorNonperformingLoanRatios25Figure1.37.ASEAN+3:ReportedandEstimated“Hidden”CorporateandHouseholdNonperformingLoanRatios,asofQ3202226Figure1.38.SelectedASEAN+3:NonresidentPortfolioInvestment,Q1–Q3202226Figure1.39.ASEAN+3:ExchangeRates27Figure1.40.ASEAN+3:GrossForeignExchangeReserves28Figure1.41.ASEAN+3:AdequacyofForeignCurrencyReserves28Figure1.42.ASEAN+3:ReserveAssets28Figure1.43.ASEAN-4andKorea:CapitalFlowsatRisk29Figure1.44.RegionalRiskMap,March202330Figure1.45.ASEAN+3:GDPGrowthForecastsunderAMROStaffScenarios34ASEAN+3RegionalEconomicOutlook2023vFigure1.46.ASEAN+3:ProjectedGDPGrowthRanges,2023–2435Figure1.47.ASEAN+3:FiscalBalances42Figure1.48.SelectedASEAN+3:ContributiontotheChangeinFiscalBalance,FY202343Figure1.49.SelectedASEAN+3:FiscalImpulse,FY202343Figure1.50.SelectedASEAN+3,UnitedStatesandEuroArea:PolicyInterestRates46Figure1.51.SelectedASEAN+3:HeadlineConsumerPriceInflation46Figure2.1.ASEAN+3andSelectedEconomies:GreenhouseGasandCarbonDioxideEmissions54Figure2.2.ASEAN+3andSelectedEconomies:GreenhouseGasandCarbonDioxideEmissionsperCapita55Figure2.3.ASEAN+3:NetZeroTargets55Figure2.4.ASEAN+3andWorld:CarbonDioxideEmissions,bySector,201958Figure2.5.ASEAN+3andWorld:CarbonDioxideEmissions,byEnergySubsector,201958Figure2.6.SelectedASEAN+3andWorld:ShareofFossilFuelsinPrimaryEnergyConsumption,202159Figure2.7.ASEAN+3andWorld:CarbonIntensityofEnergyMix,202159Figure2.8.SelectedASEAN+3:FossilFuelSubsidies,202160Figure2.9.SelectedEconomies:CarbonPrices,202262Figure2.10.SelectedASEAN+3:InflationProjectionsunderTransitionScenarios63Figure2.11.ASEAN+3andSelectedEconomies:CarbonDioxideEmissionsEmbodiedinInternationalTrade,201870Figure2.12.SelectedEconomies:CarbonPricing,202170Figure2.13.ASEAN+3andSelectedEconomies:EmissionsIntensity,201971Figure2.14.ASEAN+3andSelectedEconomies:DegreeofExposuretoStranded-AssetRisk,201976Figure2.15.ASEAN+3:FossilFuelExports,2020–2176Figure2.16.ASEAN+3:PowerGenerationfromFossilFuelsandEmissionsIntensity76Figure2.17.World:UnextractableFossilFuelReservestoLimitGlobalWarmingby205076Figure2.18.SelectedASEAN+3:FossilFuelRentsbyFuelType,202077Figure2.19.SelectedEconomies:EmbeddedEmissionsinFossilFuelReservesofListedCompanies,202277Figure2.20.ASEAN+3:BankExposuretoTransitionRisks,202177Figure2.21.ASEAN+3:PrimaryEnergyConsumptionversusGDPPerCapita80Figure2.22.ASEAN+3:EnergyIntensityofGDP81Figure2.23.SelectedEconomies:ProjectedEnergySupplyandEnergyMix81Figure2.24.ASEAN+3:RenewableNetCapacityAdditions84Figure2.25.World:LevelizedCostsofElectricity,bySelectedTechnology85Figure2.26.ASEAN+3:RenewableElectricityGeneration85Figure2.27.ASEAN+3:RenewableEnergyInstalledCapacity,202185Figure2.28.ASEAN+3:RenewableTechnologyMix85Figure2.29.ASEAN+3:ImpliedCompoundAnnualGrowthRateofRenewablesSharetoAchieveAnnouncedTarget85Figure2.30.World:Top15ExportersofSolarandWindEnergyProducts,2020–2186Figure2.31.World:OperationalNuclearCapacity,202191Figure2.32.SelectedEconomies:ShareofNuclearPowerinElectricityGeneration,202191Figure2.33.JapanandKorea:CumulativeCarbonEmissionsAvoidedbyNuclearPowerSince199091Figure2.34.SelectedASEAN+3:ReadinessforAdvancedNuclearDevelopment,202292Figure2.35.SelectedASEAN:PublicSupportforNuclearEnergyDevelopment,201892Figure2.36.World:TopTenExportersofNuclearReactors,202192Figure2.37.HydrogenEnergyTechnologies93Figure2.38.ASEAN+3:OperationalProjectsforCleanHydrogen,byTechnologyType,asofOctober202293Figure2.39.ASEAN+3:UpcomingProjectsforCleanHydrogen,asofOctober202294Figure2.40.ElectricVehicles,ElectrifiedVehicles,andZero-EmissionVehicles95viASEAN+3RegionalEconomicOutlook2023Figure2.41.ASEAN+3:CarbonEmissionsfromTransport96Figure2.42.ASEAN+3:NumberofMotorVehicles96Figure2.43.World:ElectricVehicleStocksandSales,byEconomy96Figure2.44.SelectedEconomies:ElectricCarRegistrationsandSales96Figure2.45.SelectedASEAN:ElectricVehicleAdoptionRate,202196Figure2.46.ASEAN-6:PowertrainPreferences,September–October202296Figure2.47.SelectedEconomies:ElectricMobilityReadiness,202297Figure2.48.GlobalElectricVehicleMarket,byMainProducer,202198Figure2.49.EnergyStorageTechnologies101Figure2.50.World:ProjectedAnnualElectricVehicleBatteryDemand101Figure2.51.World:Grid-ScaleBatteryStorageCapacityAdditions101Figure2.52.World:Top10ElectricVehicleBatteryProducers102Figure2.53.World:ActualandProjectedInstalledEnergyStorageCapacity103Figure2.54.Lithium-ionBatteryPrice103Figure2.55.World:ProjectedGrowthinDemandforCriticalMinerals,2020–40105Figure2.56.World:MajorProducersofCriticalMinerals,2020105Figure2.57.ASEAN+3andSelectedEconomies:AverageAgeofExistingCoalPlants,2020107Figure2.58.CarbonRecycling:PotentialApplications107Figure2.59.SelectedASEAN+3:EstimatedCarbonStorageResources107Figure2.60.ASEAN+3andSelectedEconomies:CCSReadinessIndex,2021109Figure2.61.TheCarbonOffsetCreditEcosystem111Figure2.62.ASEAN+3andSelectedEconomies:NonretiredVoluntaryCarbonOffsetCredits,byHostEconomy,July2022111Figure2.63.ESG-LabeledBonds115Figure2.64.World:AnnualIssuanceofLabeledBonds,byRegion116Figure2.65.ASEAN+3:AnnualIssuanceofLabeledBonds,byJurisdiction116Figure2.66.ASEAN+3:GreenBondIssuance117Figure2.67.CarbonPerformanceAlignmentwithParisAgreementBenchmarksin2030,bySector120Figure2.68.ASEAN+3:OutstandingTransitionBonds121Figure2.69.ASEAN+3:NewIssuancesofTransitionBonds121Figure1.1.1.ASEAN+3:DailyCOVID-19Cases6Figure1.1.2.ASEAN+3:VaccinationCoverageStatus7Figure1.1.3.Japan:COVID-19VaccinationCoverage7Figure1.1.4.ASEAN+3:COVID-19BoosterDoseAdministration7Figure1.1.5.Korea:COVID-19DailyCasesandVaccinationCoverage7Figure1.2.1.China:TopPartnersforSemiconductorImports,2017–2117Figure1.2.2.World:TopTenSemiconductorImportersandExporters,2017–2117Figure1.2.3.China:ImportGrowth18Figure1.2.4.ASEAN,HongKong,Japan,andKorea:SemiconductorTradewithChinaandtheUnitedStates,2017–2118Figure1.3.1.ASEAN+3:InternationalTravelRestrictions20Figure1.3.2.SelectedASEAN+3:InternationalFlightArrivals20Figure1.3.3.SelectedASEAN+3:TouristArrivals20Figure1.3.4.SelectedASEAN+3:TouristReceipts21Figure1.3.5.SelectedASEAN:TargetandActualTouristArrivals21Figure1.3.6.SelectedASEAN:ShareofTouristArrivals,bySourceEconomy21Figure1.4.1.World:GeopoliticalRisk32ASEAN+3RegionalEconomicOutlook2023viiFigure1.4.2.ASEAN+3:SourcesofGeopoliticalRisksandKeyChannelsofImpacttoGrowth32Figure1.4.3.World:TradeUncertainty32Figure1.4.4.ASEAN+3:MonthlyFDIAnnouncements32Figure1.5.1.ASEAN+3:GovernmentDebt38Figure1.5.2.ASEAN+3:ContributiontoChangeinGovernmentDebtRatio,FY2019–2238Figure1.5.3.SelectedASEAN+3:PrimaryBalanceandNeededFiscalAdjustment38Figure1.5.4.ASEAN+3:GrossFinancingNeeds38Figure1.5.5.ASEAN+3:ContributiontoChangeinGrossFinancingNeedsfromFY2019–2239Figure1.5.6.SelectedASEAN+3:AdditionalInterestPaymentsdueto2022PolicyRateHikes,FY202339Figure1.5.7.ASEAN+3:Short-TermFiscalSustainabilityIndicator39Figure1.7.1.SelectedASEAN+3:Medium-TermFiscalBalanceProjections45Figure1.7.2.SelectedASEAN+3:Medium-TermGovernmentDebtProjections45Figure1.7.3.ASEAN+3:Old-agePopulation45Figure1.7.4.SelectedASEAN+3:InfrastructureInvestmentGap,2023–4045Figure2.2.1.Japan:CarbonTax65Figure2.2.2.Singapore:CarbonTax65Figure2.3.1.Japan:TokyoETSExcessEmission-ReductionCreditPrices68Figure2.3.2.Korea:ETSAllowancePrices68Figure2.3.3.China:DailyEmissionAllowancePrices68Figure2.4.1.SelectedASEAN+3:ExportsofCBAMProductstotheEuropeanUnion,2019–22Average73Figure2.4.2.ASEAN+3:EstimatedImpactofCBAMonGDPandExportstotheEuropeanUnion,203073Figure2.4.3.ASEAN+3:ExportsofCBAMProducts,2019–2274Figure2.5.1.SelectedEconomies:InstalledSolarPhotovoltaicCapacity88Figure2.5.2.ASEAN+3:ElectricityProductionfromSolarPhotovoltaics,202188Figure2.5.3.Vietnam:Feed-inTariffRates,202188Figure2.6.1.TopTenEconomies:NewInstalledRenewableHydropowerCapacity,2019–2190Figure2.6.2.ASEAN+3:InstalledRenewableHydropowerCapacity,202190Figure2.6.3.ASEAN:ElectricityTradeBalance,2020–2190Figure2.6.4.LaoPDR:ElectricityExports90Figure2.6.5.LaoPDR:PlannedHydropowerProjects,byEconomyofSponsor,202090Figure2.7.1.China:ElectricVehicleIndustrialEcosystem100Figure2.7.2.China:PubliclyAvailableElectricVehicleChargingPoints100Figure2.7.3.China:ElectricCarSales100Figure2.7.4.China:ElectricVehicleExports100viiiASEAN+3RegionalEconomicOutlook2023TablesTable1.1.ASEAN+3:AMROStaffGrowthandInflationEstimatesandForecasts,2023–24(Percent,year-on-year)34Table1.2.ASEAN+3:AssessmentofPolicySpace,202336Table1.3.ASEAN+3PolicyMatrix:AMROStaffAssessmentofCurrentPolicyStanceandRecommendations47Table2.1.ASEAN+3:CommitmentstoReduceRelianceonCoal59Table2.2.SelectedASEAN+3:StatusofCarbonPricingPolicies61Table2.3.ASEAN:EnergyAccessandEnergyEfficiencyTargets82Table2.4.ASEAN+3:CommitmentsonRenewableEnergy83Table2.5.ASEAN+3:RenewableEnergyPolicies84Table2.6.SelectedASEAN+3:PolicyDevelopmentsRelatedtoNuclearEnergy,asofDecember202292Table2.7.SelectedASEAN+3:TargetsforElectricVehicleAdoptionandProduction98Table2.8.ASEAN+3:CarbonCapture,Utilization,andStorageFacilitiesandProjects,asofNovember2022108Table2.9.ASEAN+3:KeyCarbonCapture,Utilization,andStoragePoliciesandInitiatives109Table2.10.ASEAN+3:GreenBondDevelopments118Table2.11.ASEAN+3:GreenFinanceIncentivesandPolicyMeasures119Table2.12.ASEAN+3:KeyRegionalCooperationInitiativesonClimateChangeMitigation124Table1.6.1.ASEAN+3:MonetaryPolicyFrameworks41Table2.1.1.ASEAN+3:NationallyDeterminedContributions57ASEAN+3RegionalEconomicOutlook2023ixForeword2022couldhavebeenabadyearfortheASEAN+3regionbutitturnedouttoberelativelygood.Theyearstartedwithtwomajorshocks:amassivewaveofCOVID-19infectionandtheRussia-Ukraineconflictwhichescalatedintoacrisisandsentcommoditypricesskyrocketingacrosstheworld.TheOmicronvariantthreatenedtoshutdowntheregion’seconomiesonceagainandderailtheirnascenteconomicrecovery,justliketheDeltavariantdidin2021.However,itdidnotbecauseOmicron,althoughhighlyinfectious,turnedouttobequitemildandthepopulationwaswellprotectedagainstsevereillnessesbythehighvaccinationratesinmostcountries.Asaresult,theauthoritiesinitiallyimposedsomemildrestrictionstocontainthespreadofthevirus.ByQ2,mostcontainmentmeasureshadbeenremoved,includingbordercontrols,andtheeconomieswerefullyopened.TheUkrainecrisisresultedinsupplydisruptionsthatcausedfuel,grain,andothercommoditypricestospike,leadingtorisinginflationacrosstheworld.ThisledtheFederalReserveandothermajorcentralbankstoraisetheirpolicyratessharplytocontaintherapidriseininflation.Thehigherinterestratesledtoamassivesell-offinfinancialmarkets,astrongUSdollar,andlargecapitaloutflowsfromemergingmarkets.Thetighteningfinancialconditionwasamajorthreattorecoveryintheregion.However,thankstostrongeconomicfundamentalsandskillfulmacroeconomicmanagement,theregionwasrelativelyresilientandtheeconomiesgrewrobustlyduringtheyear.AnexceptiontotherobustrecoveryoftheregionaleconomieswasChinawhichpursuedadynamiczeroCOVID-19policyandimposedstrictcontainmentmeasuresinresponsetothesporadicoutbreaksacrossthecountryduringtheyear,causingtheeconomytostall.InearlyDecember,however,theviruswasreclassifiedasamilddiseaseandtheauthoritiesliftedalmostallrestrictions.Infectionsspikedacrossthecountryimmediatelybuthassincesubsidedandtheeconomyisexpectedtoreboundstronglythisyear.Chapter1oftheAREOreportisdevotedtoanalyzingtherisksandvulnerabilitiesfacingtheregionandassessingtheoutlook.Althoughtheregionperformedwellin2022,itbegan2023withstrongheadwindsanduncertainties.TheUkrainecrisisisongoingandcouldescalatefurtherwithspilloverstotherestoftheworld.Inflationhascomeoffitspeakbutitremainselevatedandsticky.Thishasbecomeamajorchallengeforcentralbanks,especiallythosecommittedtobringingdowninflationtothe2percenttargetlevel.TheFedandtheECBmaybeforcedtoraisetheirpolicyratesmuchhigherandkeepithigherforlonger,causingtheireconomiestoweakensharply,reducingtheirdemandforimports.Thiswouldbeamajordragontheopeneconomiesoftheregionwhicharehighlydependentonexports.Fortunately,theexpectedstrongreboundofChinawillprovideamuch-neededboosttotherestoftheregionandcushionthedownsiderisk.Evenintheregion,thebattleagainstinflationisnotoveryet.Someeconomiesarestillstrugglingwithhighandstickyinflationandpolicymakersmustdecideonwhatcourseofactiontotake.Shouldtheycontinuetotightenpoliciestobringinflationundercontrolorshouldtheyeasepoliciesnowtosupporttheireconomiesagainstthestrongheadwinds?Thetrade-offbetweeninflationandgrowthhasneverbeenmoreacute.Chapter2oftheAREOreportis,asusual,devotedtosomelonger-termstructuralissuesthatareofmacro-criticalimportance.Thisyear,inlightofCOP26,wehavedecidedtofocusonthetopicofclimatechange,anexistentialissuefortheregionandtheworld.Thisisaverybroadtopicsowehavedecidedtofocusontheissueofclimatechangemitigation,takingstockofthecommitmentsbytheregionaleconomiesundertheParisAgreementtocapglobalwarmingto2percentorless.Weanalyzethechallengesaswellastheopportunitiesoftransitioningtonetzeroemissionandtheimplicationsforfinanceinmakingthetransition.Today’scomplexandrapidlyevolvinggloballandscapehasmadetheworkofAMROmoreimportantandurgent,andAMROhasrecentlyformulatedournewlong-terminstitutionalstrategytoward2030—SD2030—toguideourjourneyintothefuture.AMROwillcontinuetomakesurveillanceacornerstoneandAMROmustenhanceouranalyticalandsurveillancecapacitytocomeupwithideasandstrategiestoaddressthechallengesahead.Wearelivinginprecarioustimes.Therearebothshort-termconjuncturalrisksaswellaslong-termexistentialchallengestotheglobaleconomy;yettheworldhasneverbeenmoredivided.Theregionmuststayunitedandpulltogethertosecureitsmacroeconomicandfinancialresilienceandstability.HoeEeKhorChiefEconomistxASEAN+3RegionalEconomicOutlook2023AcknowledgmentsThisreportprovidesAMROstaff’sassessmentofconjuncturalandstructuralissuesfacingtheASEAN+3region.Itcoverstheshort-termrisks,vulnerabilities,andchallengesfacingmembereconomies,aswellasthepoliciestakenbyorpolicyoptionsavailabletotheirauthorities.Italsopresentsstaffstudiesonthelonger-termissuespertinenttosustainedeconomicgrowthintheregion.ThereporthasbeenreviewedbytheExecutiveCommitteeofAMRO.TheanalysisinthisreportwascoordinatedbytheRegionalSurveillanceteamledbyLingHuiTan;italsodrawsonthesurveillanceworkoftheAMROcountryteams.ThereportwasreviewedandclearedbyChiefEconomist,HoeEeKhor.IthasalsobenefitedfromtheguidanceofAMRODirectorKouqingLiandothermembersoftheSeniorManagementteam.ContributorstothereportareAndriansyah,JinhoChoi,MeganWenXiChong,ChiangYong(Edmond)Choo,DianadelRosario,ThanhThiDo,AzizDurrani,TanyasornEkapirak,SuanYongFoo,LauraGraceGabriela,PaoloHernando,MartheM.Hinojales,Xu(Kimi)Jiang,CatharineTjingYiingKho,WeeChianKoh,VanneKhut,MingHan(Justin)Lim,ByunghoonNam,ThiKimCucNguyen,YokiOkawa,PrashantPande,ToànLongQuách,AnthonyChiaKiatTan,LingHuiTan,Liyang(Alex)Tang,HeungChun(Andrew)Tsang,JadeVichyanond,WanwisaMayVorranikulkij,TrungThanhVu,SiangLengWong,FanZhai,andHongyanZhao;withinputfromKevinChunChauCheng,SeungHyun(Luke)Hong,SumioIshikawa,JaeYoungLee,LiLianOng,andRunchanaPongsaparn.MeganWenXiChongprovidedresearchsupport.ChiangYong(Edmond)Choocoordinatedproductionofthepublication,witheditorialassistancefromJamesUnwin;JieQin,KarenWilkinson,JohnCramer,AndreaAbellon,andHuiShanSeahcoordinatedcommunicationsandoutreach;KarenChuaprovidedliaisonsupportwithmemberauthorities.TheauthorswouldliketothankmembersofAMRO’sAdvisoryPanel,chairedbyDaikichiMomma,fortheirusefulinput;ASEAN+3centralbankandfinanceministryparticipantsatthe2023AMROAREOBrainstormingSessionfortheirinsightfulobservationsoncountryandregionaldevelopments;andmemberauthoritiesfortheirconstructivecomments.Finally,theviewsexpressedinthisreportarethoseofAMROstaffanddonot,inanyway,implicateASEAN+3members.ASEAN+3RegionalEconomicOutlook2023xiAbbreviationsA6.4ERArticle6,paragraph4,emissionreductionADBAsianDevelopmentBankACXAirCarbonExchange(Singapore)AREOASEAN+3RegionalEconomicOutlookASEANAssociationofSoutheastAsianNationsASEAN-4Indonesia,Malaysia,thePhilippines,andThailandASEAN-5Indonesia,Malaysia,thePhilippines,Thailand,andSingaporeASEAN-6Indonesia,Malaysia,thePhilippines,Thailand,Singapore,andVietnamBCAbordercarbonadjustmentBEVbatteryelectricvehicleCARcapitaladequacyratioCBAMCarbonBorderAdjustmentMechanism(EuropeanUnion)CBIClimateBondsInitiativeCCScarboncaptureandstorageCCUScarboncapture,utilization,andstorageCDMCleanDevelopmentMechanismCERcertifiedemissionsreductionCEVcleanenergyvehicleCfaRcapitalflowsatriskCHIPSCreatingHelpfulIncentivestoProduceSemiconductors(UnitedStates)CIXClimateImpactX(Singapore)CNYChineseyuanCOPUnitedNationsClimateChangeConferenceofthePartiesCORSIACarbonOffsettingandReductionSchemeforInternationalAviationCOVID-192019coronavirusdiseaseEECEasternEconomicCorridor(Thailand)EGATElectricityGeneratingAuthorityofThailandEITEenergy-intensive,trade-exposedsectorEORenhancedoilrecoveryESGenvironmental,social,andgovernanceETSemissionstradingscheme/systemEUEuropeanUnionEVelectricvehicleFCEVfuelcellelectricvehicleFCPFForestCarbonPartnershipFacilityFDIforeigndirectinvestmentFITfeed-intariffFSSshort-termfiscalsustainabilityFYfiscalyearGDPgrossdomesticproductGEMGlobalEconomicModelGHGgreenhousegasGWgigawattGWhgigawatt-hourHEVhybridelectricvehicleHKMAHongKongMonetaryAuthorityIAEAInternationalAtomicEnergyAgencyIBCIndonesiaBatteryCorporationICAOInternationalCivilAviationOrganizationICEinternalcombustionengineICMAInternationalCapitalMarketAssociationICTinformationandcommunicationstechnologyIEAInternationalEnergyAgencyIFCInternationalFinanceCorporationIMFInternationalMonetaryFundIPCCIntergovernmentalPanelonClimateChangeIRENAInternationalRenewableEnergyAgencyITMOinternationallytransferredmitigationoutcomeJPYJapaneseyenxiiASEAN+3RegionalEconomicOutlook2023KRWKoreanwonkWhkilowatt-hourMASMonetaryAuthorityofSingaporeMETIMinistryofEconomy,Trade,andIndustry(Japan)MICEmeetings,incentives,conventionsandexhibitionsMtCO2emillion(metric)tonofcarbondioxideequivalentMWhmegawatt-hourMYRMalaysianringgitNDCNationallyDeterminedContributionNEERnominaleffectiveexchangerateNEVnewenergyvehicleNGFSNetworkfortheGreeningoftheFinancialSystemNPLnon-performingloanOECDOrganisationforEconomicCo-operationandDevelopmentPBCPeople’sBankofChinaPHEVplug-inhybridelectricvehiclePlus-3China(includingHongKong),Japan,KoreaPMIPurchasingManagers'IndexPPPpurchasingpowerparityR&DresearchanddevelopmentREDD+ReducingEmissionsfromDeforestationandForestDegradationREERrealeffectiveexchangerateREErareearthelementROSATOMStateAtomicEnergyCorporation(Russia)S&PStandardandPoor’sSMICSemiconductorManufacturingInternationalCorporation(China)SRISustainableandResponsibleInvestment(Malaysia)tCO2(metric)tonofcarbondioxidetCO2e(metric)tonofcarbondioxideequivalentTSMCTaiwanSemiconductorManufacturingCompanyUNEPUnitedNationsEnvironmentProgrammeUNFCCCUnitedNationsFrameworkConventiononClimateChangeUSUnitedStatesUSDUSdollarVREvariablerenewableenergyZEVzero-emissionvehicleChapter1.MacroeconomicProspectsandChallenges2ASEAN+3RegionalEconomicOutlook2023Highlights•Thepost-pandemic“recovery”yearof2022wasbesetbynewchallengesastheregionwasbuffetedbymultipleexternalshocks.Inearly2022,whenmosteconomieswerebattlingthehighlytransmissibleOmicronvariantofCOVID-19,theRussia-Ukraineconflictescalatedintoacrisisandsentglobalcommoditypricessoaringtomultiyearhighs.Recordhighinflationandthereleaseofpent-upconsumerdemandforcedfasterandsharpermonetarypolicytighteningintheUnitedStates.Bythesecondhalfoftheyear,tighterfinancialmarketconditionshadsignificantlyslowedthegrowthmomentuminadvancedeconomies.Geopoliticaltensionsintensifiedthroughouttheyear,whilerelentlesswavesofCOVID-19infectionsdisruptedeconomicreopeningeffortsinsomeeconomies,especiallyChina.•Overall,theASEAN+3regiongrewat3.2percentin2022.TheliftingofCOVID-19containmentmeasuresledtoasurgeinconsumerspendingandinvestment,helpingtooffsetthedragonexportsinthesecondhalfoftheyear.Meanwhile,inflationintheregionroseto6.5percentin2022,duemainlytosupplydisruptionscausedbytheUkrainecrisis,thereleaseofpent-updemandinadvancedeconomies,andthelingeringimpactofsupplychainbottlenecks.TimelyadministrativeandpolicymeasureshelpedtopreventinflationintheASEAN+3regionfromspiralinghigher.Infinancialmarkets,theUSFederalReserve’saggressiveratehikesledtoasharpspikeinriskaversion,currencydepreciations,andlargeportfoliocapitaloutflowsfromtheregioninthefirstthreequartersof2022.ByOctober,theoutlookforportfoliocapitalflowsintheregionhadimprovedonmarketexpectationsthattheUSFederalReservewouldslowthepaceofrateincreasesin2023.•Lookingahead,growthinASEAN+3isexpectedtobeanchoredbydomesticdemandaseconomicrecoverygainstraction.Theregion’sgoodsexportgrowthisprojectedtoweakenasglobaldemandslows.However,thiswillbecounterbalancedtosomeextentbythestrengtheningofservicesexports(notablytourism)asborderrestrictionsareliftedthroughouttheregion.AMROstaffforecasttheregiontogrowatafasterpaceof4.6percentin2023,drivenbystrongrecoveryinthePlus-3economies,especiallyChina.Headlineinflationisforecastat4.5percentin2023,lowerthanin2022.In2024,growthisexpectedtobesustainedat4.5percent,andinflationtomoderateto3.0percent.•ThegrowthoutlookforASEAN+3isfraughtwithuncertainties.ThemostimmediateriskisthepossibilityofanothershocktoglobalenergypricesshouldtheongoingUkrainecrisisescalate.Atthesametime,iftighteningfinancialconditionstriggeramuchsharperUSeconomicslowdownthancurrentlyenvisaged,spilloverstotherestoftheworldwouldbesignificant.Aglobalenergyshockinconjunctionwithaglobaleconomicslowdownwouldbeamajorblowtotheregion.InChina,prolongedweaknessintherealestatesectorwouldweighonconsumerandinvestorconfidenceandcouldhindertheeconomy’srecovery,draggingdownregionalgrowth.ThepossibleemergenceofmorevirulentCOVID-19variantsisstillarisk.Inthemediumterm,furtherdeepeningofthestrategicrivalrybetweentheUnitedStatesandChinacouldfragmenttheglobaleconomyintoideologicalblocsandunderminetheregion’sgrowthprospects.•Policymakersintheregionarelargelyendingtheextraordinarystimulusmeasuresintroducedduringthepandemicandshiftingtorestoringpolicybuffers.Risinginflationandalesssupportiveglobaleconomiclandscapehavecompelledmonetarypolicytighteninginsomeeconomies,whilemaintainingtargetedfiscalsupporttosafeguardgrowth.ASEAN+3authoritieswillcontinuetofacesharppolicytradeoffsanddifficultpolicydecisionsintheyearahead.Acalibratedpolicymix,drawingonarangeofpolicytools,willbeessentialtonavigatethechallengesof2023.Chapter1.MacroeconomicProspectsandChallenges3I.RecentDevelopmentsandOutlookThischapterwaswrittenbyAnthonyChiaKiatTanandCatharineTjingYiingKho(co-anchors),ChiangYong(Edmond)Choo,MeganWenXiChong,DianadelRosario,LauraGraceGabriela,MartheM.Hinojales,ByunghoonNam,PrashantPande,ToànLongQuách,Liyang(Alex)Tang,SiangLengWong,andHongyanZhao,withinputfromAMROcountrydeskeconomists.Source:NationalauthoritiesviaHaverAnalytics.Note:USinflationreferstoannualchangeinthepersonalconsumptionexpenditurepriceindex.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:AggregateGDPiscalculatedusingpurchasingpowerparity(PPP)weightedaverage.SelectedASEANreferstoBrunei,Indonesia,Malaysia,thePhilippines,Singapore,Thailand,andVietnam.Cambodia,LaoPDR,andMyanmarareexcludedduetodataunavailability.ABumpyTransitiontothe“NewNormal”Thepost-pandemic“recovery”yearof2022wasfraughtwithchallenges.TheyearbeganwithmostregionsbattlingthehighlycontagiousOmicronvariantofCOVID-19.Then,theRussia-UkraineconflictbrokeoutinFebruaryandescalatedintoacrisis,sendingglobalcommoditypricestomultiyearhighs.Theconfluenceofrecordhighinflationratesandthereleaseofpent-upconsumerdemandforcedfasterandsharpermonetarypolicytighteningintheUnitedStates,rattlingglobalfinancialmarkets.Bythesecondhalfoftheyear,tighterfinancialmarketconditionsamidstubbornlyhighinflationslowedgrowthmomentuminadvancedeconomies(Figure1.1).Geopoliticaltensionsintensifiedthroughouttheyear,aggravatingfinancialmarketvolatilityanddeepeninginvestoruncertainty.Ontopofthesenewchallenges,relentlesswavesofCOVID-19infectionscontinuedtodisrupteconomicreopeningeffortsofsomeeconomies,notablyChina.GrowthinthePlus-3economiesin2022wasimpactedbyrecurringCOVID-19outbreaks,highinflation,andidiosyncraticdomesticfactors(Figure1.2).•Plus-3economiesfacedthreelargewavesofinfectionsin2022(Figure1.3).EconomicactivitiesinChinaandHongKongwereconstrainedbystringentpandemiccontainmentmeasureswhichlasteduntilearlyDecember.COVID-19casessurgedinbotheconomieswhenthestrictcontainmentmeasureswerelifted.JapanremovedmostdomesticcontainmentpoliciesinMarchandKoreadidsoinApril,despitebothhavinghighcaseloads.However,borderrestrictionsinJapanremainedinplaceformostoftheyear(Box1.1).Figure1.1.UnitedStatesandEuroArea:RealGDPGrowthandHeadlineInflation(Percent,year-on-year)Figure1.2.SelectedASEAN+3:RealGDPGrowth(Percent,year-on-year)-15-10-5051015Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4202020212022USGDPgrowthEuroareaGDPgrowthUSinflation-10-505101520Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4202020212022Plus-3SelectedASEAN•Thespikeinglobalenergypricesresultedinhighinflationandweakertermsoftradeforthenetenergy-importingPlus-3economies.Fiscalsupporttodampenthepassthroughofhighenergypricestohouseholdsandbusinessesweighedongovernmentbudgetsthatwerealreadystrainedbymorethantwoyearsofpandemicsupport.•GrowthinChinawasfurtherweakenedbyaprolongedslowdowninthepropertysectorandfinancialstabilityconcerns.TheHongKongeconomywasheavilyaffectedbythecontinuedborderclosurewithmainlandChinaandtheresultinglossofgoodsandservicesexportrevenue.Meanwhile,JapanandKoreawereconfrontedwithsharpcurrencydepreciations,inpartduetotheaggressiveinterestratehikesbytheUSFederalReserveandstrengtheningoftheUSdollar.TheASEANregiongrewmorefirmlythanthePlus-3in2022,thankstoastrongreboundindomesticdemandandnetexports.HighCOVID-19vaccinationcoverage(forbothprimaryandboosterdoses)allowedASEANeconomiestostayonareopeningcoursedespitethelargewaveofOmicroninfectionsatthebeginningoftheyear.COVID-19infectionsdeclinedsignificantlyinthemiddleoftheyear(exceptinSingapore),witheconomieslikeCambodia,LaoPDR,andMyanmarreportingfewerthan25dailycasesbytheendoftheyear.Thereopeningofborderstointernationaltouristsalsohelpedtoboostgrowthintourism-dependenteconomies.4ASEAN+3RegionalEconomicOutlook2023Source:JohnsHopkinsUniversityviaHaverAnalytics;AMROstaffcalculations.Note:Dataasof28February2023.Source:AMROstaffestimates.Note:“Earlycycle”indicatesthatGDPgrowthisbelowtrendandtheoutputgapisnegativeandnarrowing.“Mid-cycle”indicatesthatgrowthisaroundtrendandtheoutputgapispositiveandwidening.“Latecycle”indicatesthatgrowthisabovetrendandtheoutputgapispositiveandnarrowing.“Downturn”indicatesthatgrowthisbelowtrendandtheoutputgapisnegativeandwidening.Asterisk()indicatechangesinpositionrelativeto2022.China,Korea,andSingaporewereassessedtobeinmid-cyclein2022;Indonesia,thePhilippines,andVietnamwereassessedtobeinearlycyclein2022.MostofASEAN+3iscurrentlyintheearlyphaseofthebusinesscycle.Thenegativeoutputgapisnarrowinginmostoftheregion’seconomies,butrealGDPremainsbelowtrendlevels,reflectingsomeeconomicscarringfromthepandemic.ChinaisbackintheearlycyclepositionwithanegativebutnarrowingoutputgapduetodisruptioncausedbyCOVID-19outbreaksandstressesinthepropertymarket.IndonesiaandVietnamtransitionedfromearlycycletomid-cycleonwideningpositiveoutputgapsandtighteninglabormarkets,supportedbyrobustgrowthmomentumcontinuinginto2023.ThePhilippinesisassessedtobeinmid-cyclewithawideningpositiveoutputgapfollowingcontinuedgrowthonmultiplefronts,includingmanufacturinganddomestictourism.Meanwhile,export-orientedKoreaandSingapore,whichreboundedstronglyin2021,havemovedfrommid-cyclein2022tolatecycleasexternaldemandslowsdown(Figure1.4).Figure1.3.ASEAN+3:DailyCOVID-19Cases(Thousandpersons,seven-dayaverage)Figure1.4.ASEAN+3:BusinessCyclePositions,2023ThreeorMoreInfectionWavesFewerthanThreeInfectionWaves010020030040050001020304050607080Jan-22Apr-22Jul-22Oct-22Jan-23SingaporeChinaHongKongJapan(rightaxis)Korea(rightaxis)0501001502002503000102030405060Jan-22Apr-22Jul-22Oct-22Jan-23CambodiaBruneiLaoPDRMyanmarIndonesiaMalaysiaThailandVietnam(rightaxis)EarlyMidLateDownturnBruneiCambodiaChinaHongKongJapanLaoPDRMalaysiaMyanmarThailandIndonesiaPhilippinesVietnamKoreaSingapore5Chapter1.MacroeconomicProspectsandChallengesBox1.1:LivingwithCOVID-19:TheLongandWindingRoadforthePlus-3EconomiesPlus-3economiestransitionedtolivingwithCOVID-19indifferentways.TheemergenceofnewsubvariantsledtotwolargenewsurgesofOmicron-variantinfectionsin2022aftertheinitialwaveofinfectionssubsidedinthepreviousyear(Figure1.1.1,toppanel).DailynewcasesinthePlus-3inthesecondhalfoftheyearfarsurpassedthoseinASEAN,evenafteradjustingforpopulationsize(Figure1.1.1,bottompanel).Yet,JapanandKoreareopenedearlierthanChinaandHongKongdespitehavingreportedsignificantlyhighernumbersofcasesandlowervaccinationcoverage(Figure1.1.2).AcceleratedadministrationofboosterdoseswaskeytoJapan’sreopening.Thespikeininfectionsledtothedeclarationofaquasi-stateofemergencyin34ofJapan’s47prefecturesinthefirstquarterof2022.Inresponse,thegovernmentaccelerateditsroll-outofboosterdoses,whichbeganinDecember2021.Within100days,32.5percentofthepopulationhadreceivedabooster,comparedtoonly10.9percentwhentheprimarydosewasrolledout(Figure1.1.3).Japan’sboosterdosecoverageishigherthanelsewhereintheregion(Figure1.1.4).Withthehighvaccinationrate,authoritieswereabletograduallyrelaxcontainmentmeasures,andallquasi-emergencymeasureswereliftedbytheendofthefirstquarterof2022.Borderswereopenedtointernationaltravelers—firsttoalimitednumberofguidedtourgroupsinJune2022,thentoalltravelersinOctober2022.Koreareliedonitshighvaccinationrateandstronghealthcaresysteminreopening.Newcasessurpassed600,000perdayinMarch2022—thehighestintheworldatthetime—butdeathratesremainedamongthelowestglobally,thanksinparttothecountry’shighvaccinecoverage:morethan80percentofthepopulationwasvaccinatedandmorethanhalfhadreceivedtheirboosterdosesbythen(Cha2022)(Figure1.1.5).ThehealthcaresystemwasreinforcedinJanuary2022withtheadditionofsmallhospitalstomanageanexpectedsurgeincases(CNA2022).KoreascaledbacksocialdistancingmeasuresinApril2022,allowingprivategatherings,lengtheningbusinesshoursofrestaurantsandcafes,andresumingpublicevents.OutdoormaskmandateswereliftedinSeptember2022andanendtoindooronesfollowedinJanuary2023.Travelrestrictionswerealsoeased,withquarantinerulesforinternationalarrivalsremovedon8Juneandpre-departuretestrequirementsformostinboundtravelersliftedon3September.China’sCOVID-19caseswerecontainedbystringentcontrolsthatremainedinplaceuntilearlyDecember2022.Thedynamiczero-COVIDapproachinChinawascharacterizedbymasstestingandcity-widelockdowns.Numerouscities,suchasChengdu,Guangzhou,Shanghai,andZhengzhou,wereplacedunderlockdownaftercaseswerereported.Withsteadilyrisingtestingandvaccinationcapacity,quarantinedurationsforclosecontactsandinternationaltravelerswereshortenedinNovemberandremovedcompletelythefollowingmonth(Xinhua2022).Afterthereopeningoftheeconomyon7December,therewasanuptickincases.However,thenumberofinfectionsandCOVID-relatedhospitalizationsdeclinedthroughoutJanuary2023,auguringwellforthetransitiontoaCOVID-19endemicstate(TheStraitsTimes2023).ThesameappliedinHongKong.Hospitalswerereportedlyoverwhelmedinthefirstquarterof2022asCOVID-19casesspiked(AgenceFrance-Presse2022).Vaccinehesitancyamongtheelderly—onlyaquarterofthepopulationaged80andabovewerevaccinatedasofJanuary2022—contributedtothehighfatalityratioforthisagegroup.HongKongauthoritiestightenedbordercontrolsandincreasedmasscommunitytesting,sewagesurveillance,andcontacttracinginresponse.BySeptember,morethan90percentofthepopulationwasfullyvaccinated—upfromThisboxwaswrittenbyMeganWenXiChongandCatharineTjingYiingKho.6ASEAN+3RegionalEconomicOutlook2023Figure1.1.1.ASEAN+3:DailyCOVID-19Cases(Thousandcases,seven-dayaverage)ASEAN+3(Newcasespermillionpersons,seven-dayaverage)Plus-3(Newcasespermillionpersons,seven-dayaverage)02004006008001,0001Jan202119Aug20216Apr202222Nov2022ASEANChinaHongKongJapanKoreaOmicronwaveDeltawave0100200300400500600Jan-22Apr-22Jul-22Oct-22Plus-3ASEAN0102030405005001,0001,5002,0002,5003,000Jan-22Apr-22Jul-22Oct-22JapanandKoreaChinaandHongKong(rightaxis)Source:JohnsHopkinsUniversityviaHaverAnalytics;AMROstaffcalculations.Note:ASEAN=Brunei,Cambodia,Indonesia,LaoPDR,Malaysia,Myanmar,thePhilippines,Singapore,Thailand,andVietnam;Plus-3=China,HongKong,Japan,andKorea.70percentinMarch—andthehealthcaresystemwasnolongeroverstrained.On14December,HongKongrelaxeditsCOVID-19measures,includingscrappingtheuseofitsLeaveHomeSafetrackingappandremovingsocialdistancingrequirementsforrestaurantsandpublicgatherings.On-andpost-arrivalCOVID-19testingofinternationalvisitorswasabolishedon29December.WhileallPlus-3economieshavenowreopened,thechallengeistostayopen.Anegativepre-departuretestremainsnecessaryforentrytoChinaandHongKong.InboundvisitorstoJapanhavetoshowproofofhavingreceivedatleastthreevaccinedoses,oranegativeCOVID-19testwithin72hoursofdeparture.Korearemoveditsindoormaskmandateon30January2023,butmaintainsaseven-dayisolationruleforthosewhohavetestedpositiveforCOVID-19.HighvaccinationcoverageandresilienthealthcaresystemsshouldhelpthePlus-3economiesstayontheeconomicreopeningpath.7Chapter1.MacroeconomicProspectsandChallengesFigure1.1.3.Japan:COVID-19VaccinationCoverage(Cumulativedosesper100persons)Figure1.1.5.Korea:COVID-19DailyCasesandVaccinationCoverage(Newcasespermillionpersons,seven-dayaverage;cumulativedosesper100persons)Figure1.1.4.ASEAN+3:COVID-19BoosterDoseAdministration(Cumulativedosesper100persons)0204060801001201400100200300DayssincevaccinationprogrambeganPrimarydoseBoosterdose78808284868802,5005,0007,50010,000Jan-22Apr-22Jul-22Oct-22Jan-23NewcasesVaccinationcoverage(rightaxis)0204060801001201400200400DayssinceboosterprogrambeganChinaHongKongJapanKoreaBruneiCambodiaIndonesiaMalaysiaMyanmarPhilippinesThailandSingaporeVietnamSource:OurWorldinDataviaHaverAnalytics;AMROstaffcalculations.Source:JohnsHopkinsUniversityviaHaverAnalytics;AMROstaffcalculations.Source:OurWorldinDataviaHaverAnalytics;AMROstaffcalculations.Note:DataforLaoPDRareunavailable.Figure1.1.2.ASEAN+3:VaccinationCoverageStatus(Percentofpopulation)18.7-24.7-44.850.482.579.862.658.058.890.682.575.764.151.663.571.474.881.283.485.787.373.587.590.887.8100.067.969.373.978.279.582.984.486.591.191.992.192.392.4100.0-20406080100120140160180PhilippinesMyanmarIndonesiaLaoPDRThailandMalaysiaJapanKoreaCambodiaChinaVietnamHongKongSingaporeBruneiVaccinatedwithboosterdoseFullyvaccinatedVaccinatedwithonedoseWithboosterdosesPercentageofpopulation:WithatleastonedoseFullyvaccinatedSource:OurWorldinDataviaHaverAnalytics;AMROstaffcalculations.Note:Dataareupto28February2023.Percentoffullyvaccinatedpopulationshowsthenumberofpeoplewhoreceivedalldosesprescribedbythevaccinationprotocol(e.g.,onedoseofasingle-dosevaccine,ortwodosesofatwo-dosevaccine).IntheeventofdiscrepancybetweendatafromOurWorldinDataandnationalauthorities,datafromnationalauthoritiestakeprecedence.8ASEAN+3RegionalEconomicOutlook2023DomesticDemandLeadstheWayDomesticdemandanchoredtheregion’srecoveryin2022.TheliftingofCOVID-19containmentmeasuresreleasedpent-updemand,whichledtoasurgeinconsumerspendingandinvestment.Privatesectorspendingwasrobustthroughout2022,offsettingthedragfromnetexportsinthesecondhalfoftheyear(Figure1.5).Growthmomentum,measuredbyquarter-on-quartergrowthofseasonallyadjustedGDPgrowth,weakenedtowardthesecondhalfoftheyear,weigheddownbytheslowdowninexternaldemand.Thepaceofrecoverywasalsoheldbackbyrecurringvirusoutbreaks,increasedcostsofliving,andhigherborrowingcosts.Extensionofpolicymeasuressuchascashvouchersandpricesubsidiesforhouseholdsandcreditsupportforfirmswascrucialtomaintainingconsumerandinvestorconfidence,supportingdomesticdemand.Privateconsumptionhasbeenthekeydriverofgrowth.ASEANeconomiesbenefitedfromrapidprogressinmassvaccinationswhichprotectedthepopulationagainstsevereillnesses,enablingauthoritiestoloosenmobilityrestrictionsandreopenborders(Figure1.6).Mobilityoutsidetheresidence—i.e.,movementstogroceriesandpharmacies,retailandrecreationfacilities,transitstations,andworkplaces—surpassedpre-pandemiclevelsintheregionasretailerswelcomedthereturnofconsumerspending(Figure1.7andFigure1.8).HongKong,Japan,andKoreaallowedmobilitytoreturnclosetopre-pandemiclevelsin2022,evenastheyfacedrecurrentwavesofinfectionsthroughouttheyear.Spendingonservices,whichwereheavilyrestrictedduringthepandemic,pickeduptoo(Figure1.9).Policymeasurestostimulatethedomesticeconomy—suchasconsumptionvouchersinHongKonganddomestictourismsubsidiesinJapanandThailand—alsosupportedprivateconsumption.InChina,privateconsumptionisexpectedtorecoverwiththeeconomyhavingmovedonfromitsdynamiczero-COVIDpolicyandasitslabormarketimproves.Consumptionwassubduedinthelastthreequartersof2022duetoaslumpinconsumerconfidenceamidrecurringCOVID-19outbreaksandthepropertymarketdownturn.InearlyDecember,ChinareclassifiedCOVID-19asamilddiseaseandliftedsomeofitsmoststringentcontainmentmeasures,suchasmasstestingandquarantineforthoseinfected,contacttracing,differentiatinghighandlowinfectionriskareas,andrequiringasymptomaticandmildcasestoisolateinmedicalfacilities.Amassivesurgeininfectionsacrossthecountryfollowedthatrelaxationandledtoasharpdropinconsumerspendingaspeoplestayedhometoavoidbecominginfected.However,withthesurgeincaseshavinglargelysubsided,privateconsumptionwilllikelyreboundstronglyinthesecondquarterin2023.Robustholidayspendingduringthisyear’sSpringFestivalbodeswellforthestrengthoftherecovery.1Animprovementinlabormarketconditions—purchasingmanagers’index(PMI)employmentsubindicespickedupinDecember2022andJanuary2023—couldfurtherreinforceconsumerconfidenceandcontributetowardtherevivalofconsumptiondomestically.Figure1.5.SelectedASEAN+3:AggregateRealGDPGrowth,byExpenditureCategory(Percentagepoints,year-on-year)-10-50510Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q42019202020212022PrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationChangesininventoriesNetexportsStatisticaldiscrepancyRealGDPgrowth(y-o-y)RealGDPgrowth(q-o-q,sa)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffestimatesandcalculation.Note:SelectedASEAN+3includesBrunei,HongKong,Indonesia,Japan,Korea,Malaysia,thePhilippines,Singapore,andThailand.DataareunavailableforCambodia,China,LaoPDR,Myanmar,andVietnam.q-o-q,sa=quarter-on-quarter,seasonallyadjusted;y-o-y=year-on-year.Q42022dataforBruneiareestimatedbyAMROstaff.1/AccordingtofiguresfromChina’sMinistryofCultureandTourism,domestictourismrevenuefor21–27January2023reachedCNY375.8billion,almostthree-quartersofthespendingduringtheSpringFestivalin2019(ChinaDaily2023).Chapter1.MacroeconomicProspectsandChallenges9Figure1.6.SelectedASEAN+3:RealPrivateConsumptionGrowthandContributiontoGDPGrowth(Percent,year-on-year;percentagepoints,year-on-year)Figure1.7.SelectedASEAN+3:MobilityOutsidetheResidence(Percentagechangefrombaseline,five-daymovingaverage)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:DataforChinarefertoconsumption’scontributiontoyear-on-yearGDPgrowth.DataareunavailableforCambodia,LaoPDR,Myanmar,andVietnam.ASEAN-5=Indonesia,Malaysia,thePhilippines,Singapore,andThailand.Source:GoogleCOVID-19CommunityMobilityreportsviaHaverAnalytics;AMROstaffcalculations.Note:Baselinereferstothemedianvalueofthecorrespondingdayintheperiod3Januaryto6February2020.Mobilityoutsidetheresidencereferstoaggregatedmobilitydataforplacessuchasgroceriesandpharmacies,retailandrecreationfacilities,transitstations,andworkplaces.Googlediscontinuedthedataafter15October2022.ASEAN-5=Indonesia,Malaysia,thePhilippines,SingaporeandThailand;CLMV=Cambodia,LaoPDR,Myanmar,andVietnam.Fortherestoftheregion,privateconsumptionisexpectedtoremainfirmalthoughinflationandhouseholddebtcouldweighonconsumersentiment.ThesharpriseinfuelandfoodpriceshasraisedthecostoflivingintherestofASEAN+3.Whilepricesubsidiesandimporttariffcutshavepartiallycontainedrisingprices,purchasingpowercontinuestobeerodedaswageshavenotkeptupwithinflation(Figure1.10).Monetarypolicynormalizationhasalsoraisedborrowingcostsandincreasedthedebtburdenofhouseholds.Theconfluenceoftheseheadwindscoulddampenconsumersentimentandreducediscretionaryspending(Figure1.11).Domesticinvestmenthascontinuedtoimproveacrossmostoftheregion,althoughataslowerpace.Theresumptionofeconomicactivitiesandtheeasingofsupply-sideconstraintshavesupportedgrossfixedcapitalformation,especiallyforASEANeconomies(Figure1.12).WhileinterestrateshaveincreasedinresponsetotheUSFederalReserve’sratehikesandrisinginflationpressures,creditconditionsremaingenerallysupportive(Figure1.13).However,downcyclesintheglobalsemiconductorsectorandglobaltradehavecooledinvestmentprospectsfortheregion’selectronicsindustryaspandemic-propelleddemandforconsumerelectronicshaswounddown(BlanchardandWu2022)(Figure1.14).TheexceptionisChina,whererealestatefixedassetinvestmentscontractedsharplyin2022afterregulatorymeasureswereintroducedtocurbexcessiveleverageinthesector.Thesuspensionofprojectsbydistressedpropertydevelopershasledtoadeclineinrealestateinvestment(Figure1.15).Uncertaintyovertheextentandseverityofspilloversfromthepropertysectortothebroadereconomyalsoweighedoninvestorsentiment.However,theadjustmentinthepolicystancelatelastyearshouldprovidesomerelieftovulnerabledevelopersandrestorehomebuyers’confidenceandstabilityinthemarket.Whilerealestateinvestmentwilllikelytaketimetorecover,thegovernmentisdeterminedtoincreasespendingoninfrastructureandmanufacturingassetsinthenextfewyears,especiallyingrowthareassuchasdigital-economyinfrastructure,renewableenergy,andelectricvehicles(Chapter2).Inaddition,thereopeningofChina’sborderscouldseemoredirectinvestmentfromoverseasreturningtotheeconomy.Lookingahead,aweakerglobaleconomywithhigherborrowingcostscouldhinderinvestmentrecovery.Businessconfidenceintheregiondeterioratedtowardthesecondhalfof2022intandemwithincreasedconcernsoverrecessioninadvancedeconomies(Figure1.16).WhileinvestorsentimentsinChinaimprovedsignificantlyatthestartof2023,additionalinterestratehikesintheregioncouldexacerbatefirms’alreadyrisingdebtburdensandreducecreditdemand.Slowercreditgrowthandworseningdebtservicingcapacityforbusinessescouldconsequentlylimittherecoveryincapitalexpenditureintheregion.-15-10-5051015-15-10-50510152019202020212022China(rightaxis)HongKong,Japan,andKoreaASEAN-5andBrunei-60-50-40-30-20-100102030Feb-20Jun-20Oct-20Feb-21Jun-21Oct-21Feb-22Jun-22Oct-22HongKong,Japan,andKoreaASEAN-5CLMV10ASEAN+3RegionalEconomicOutlook2023Figure1.8.SelectedASEAN+3:RetailSalesGrowth(Percent,year-on-year,three-monthmovingaverage)Figure1.9.SelectedASEAN+3:ServicesSalesGrowth(Percent,year-on-year)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:CalculatedbasedonlocalcurrencyvaluesforalleconomiesexceptIndonesiaandThailand(volume).Colorsindicatethesizeanddirectionofchange:thedeepertheshadeofred,thelargerthenegativechange,withthedarkestshadeindicatingadecreaseofmorethan30percentyear-on-year;thedeepertheshadeofgreen,thelargerthepositivechange,withthedarkestshadeindicatinganincreaseofmorethan30percentyear-on-year.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Calculationsarebasedonthevolumeofrestaurantreceipts(HongKong);servicessectorrevenues(Malaysia);businessreceiptsindexforservices(Singapore);andservicesproductionindex(Thailand).China–2.7HongKong0.4Indonesia1.2Japan4.1Korea3.9Malaysia23.8Philippines21.4Singapore8.0Thailand1.2Vietnam16.7>=3020Economy20202021–10–20<=–30100LatestmonthlychangefrompreviousyearJantoDecJantoDecJantoDec20222023JantoFeb-40-2002040602019202020212022HongKongMalaysiaSingaporeThailandFigure1.10.SelectedASEAN+3:RealandNominalWages(Percent,year-on-year,four-quartermovingaverage)Figure1.12.SelectedASEAN+3:RealGrossFixedCapitalFormationandContributiontoGDPGrowth(Percent,year-on-year;percentagepoints,year-on-year)Figure1.13.SelectedASEAN+3:GrowthofCredittoPrivateNonfinancialCorporations(Percent,year-on-year,four-quartermovingaverage)Figure1.11.SelectedASEAN+3:ConsumerConfidence(Index,October–December2019=100)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:DatarefertotheaverageofwagegrowthinlocalcurrencytermsforKorea,Malaysia,Singapore,andThailand.WagesforMalaysiarefertothoseinthemanufacturingsectoronly.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:DataforChinarefertothecontributionofgrossfixedcapitalformationtoyear-on-yearGDPgrowth.DataareunavailableforCambodia,LaoPDR,Myanmar,andVietnam.ASEAN-5=Indonesia,Malaysia,thePhilippines,Singapore,andThailand.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Creditgrowthiscalculatedbasedonlocalcurrencyterms.ASEAN-5growthiscalculatedbytakingthesimpleaverageofgrowthinindividualeconomies.Datarefertoclaimsonnonfinancialinstitutionsbydepositorycorporationsotherthanthecentralbank(China);loansandadvancesbyauthorizedinstitutionstononfinancialsectorsexcepthouseholdsector(HongKong);loanstocorporationsbydomesticbanks(Japan);claimsonnonfinancialcorporationsbydepositorycorporationsotherthanthecentralbank(Korea);loanstoprivatenonfinancialcorporationsbycommercialandruralbanks(Indonesia);loansbythebankingsystemlesshouseholdsector(Malaysia);allbankloanstononfinancialproductionlesshouseholdsector(thePhilippines);credittononfinancialcorporations(Singapore);andclaimsonprivatenonfinancialcorporationsbydepositorycorporationsotherthanthecentralbank(Thailand).ASEAN-5=Indonesia,Malaysia,thePhilippines,Singapore,andThailand.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:DataaremonthlyforalleconomiesexceptMalaysia(quarterly).DataforMalaysiaareindexedtoQ42019=100.-202462019202020212022RealwageNominalwage-20-15-10-505101520-20-15-10-5051015202019202020212022China(rightaxis)HongKong,Japan,andKoreaASEAN-5andBrunei-5051015202019202020212022ChinaHongKongJapanKoreaASEAN-5'18'19'19'19'19'19'19'19'19'19'19'19'19'20'20'20'20'20'20'20'20'20'20'20'20'21'21'21'21'21'21'21'21'21'21'21'21'22'22'22'22'22'22'22'22'22'22'22'2240.060.080.0100.0120.0140.0160.040608010012014016020192020202120222023ChinaIndonesiaJapanKoreaThailandMalaysiaChapter1.MacroeconomicProspectsandChallenges11Figure1.16.SelectedASEAN+3:BusinessInvestmentProspects(Index,October–December2019=100,seasonallyadjusted)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:DatarefertotheinvestmentsubindicatoroftheCKGSBBusinessConditionsIndex(China);investmentprospectsintheFederationofKoreanIndustries’BusinessSurveyIndex(Korea);BankofThailand’sPrivateInvestmentIndex(Thailand);andinvestmentrealizationinBankIndonesia’sBusinessSurvey(Indonesia).DataaremonthlyforalleconomiesexceptIndonesia(quarterly).DataforIndonesiaareindexedtoQ42019=100.2019202020212022607080901001101201301406070809010011012013014020192020202120222023ChinaKoreaThailandIndonesiaExportsFaceHeadwindsASEAN+3exportsgrewmoderatelyin2022,amidsofteningglobaldemand.ExportsofthePlus-3andASEAN-6startedtocontractinOctoberaseconomicactivityslowedinmajortradingpartners—e.g.,theUnitedStatesandtheeuroarea(Figure1.17).For2022asawhole,exportsoftheseeconomiesgrewby6percentinvalue,significantlylessthanin2021whenthegrowthratewas26percent(Figure1.18).Exportswerealsobesetbyproductionchallengesduringtheyear.Inearly2022,businessesintheregion—particularlyChinaandHongKong—werehamperedbystrictcontainmentmeasuresaimedatlimitingthespreadofCOVID-19infections(Omicron).Factoriesstruggledthroughtheyearwithrecurringwavesofinfectionsandassociatedlaborshortages,althoughtheywereabletomanagecapacityandproductionbetterthanin2021.SupplydisruptionscausedbytheUkrainecrisisandlockdownsinChinadroveuprawmaterialcostsandimpededproductionineconomiessuchasJapanandKorea.However,costpressureslikelypeakedinthesecondhalfof2022andareexpectedtocontinuetoeasein2023(Figure1.19).Theregion’sexportgrowthisprojectedtoweakenin2023asglobaldemandslowsfurther.GDPgrowthintheeuroareaisexpectedtobesubduedduetoongoinggeopoliticaltensionsandmonetarypolicytightening(EuropeanCommission2022).TheUSeconomyisalsoexpectedtogrowataslowerpacein2023,ascontinuedmonetarypolicytighteningkeepsalidoneconomicactivity.AllthiswilltranslateintosofterexternaldemandFigure1.14.World:SemiconductorBillings,TradeVolume,andElectronicsNewOrders(Percent,year-on-year;index)Figure1.15.China:FixedAssetInvestment,bySector(Percent,year-on-year)Source:WorldSemiconductorTradeStatistics,Inc.;NetherlandsBureauforEconomicPolicyAnalysis;S&PGlobalviaHaverAnalytics;AMROstaffcalculations.Note:DataareuptoQ42022.DataonelectronicsnewordersareseasonallyadjustedandderivedfromtheS&PGlobalElectronicsPurchasingManagers’Indexwhichindicateexpansionifabove50andcontractionifbelow50.Source:ChinaNationalBureauofStatisticsviaHaverAnalytics.30405060708090-20-10010203040201220142016201820202022Semiconductorbillings(Three-monthmovingaverage)TradevolumeElectronicsneworders(rightaxis)-60-40-2002040602019202020212022TotalfixedassetinvestmentRealestateManufacturingInfrastructure12ASEAN+3RegionalEconomicOutlook2023Figure1.17.ASEAN+3:GoodsExportGrowth(Percent,year-on-year,three-monthmovingaverage)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:CalculatedbasedonmerchandiseexportsinUSdollarsforalleconomies.Colorsindicatethesizeanddirectionofchange:thedeepertheshadeofred,thelargerthenegativechange,withthedarkestshadeindicatingadecreaseofmorethan30percentyear-on-year;thedeepertheshadeofgreen,thelargerthepositivechange,withthedarkestshadeindicatinganincreaseofmorethan30percentyear-on-year.Economy2020202120222023LatestmonthlychangefrompreviousyearJan–DecJan–DecJan–DecJan-FebPLUS-3-11.9China-6.8HongKong-36.9Japan-8.9Korea-7.5ASEAN19.0Brunei27.9Cambodia-17.1Indonesia16.4LaoPDR23.9Malaysia-1.5Myanmar42.9Philippines-9.7Singapore-7.9Thailand-0.8Vietnam11.7forASEAN+3exports.Inaddition,exportcontrolsthattheUnitedStatesimposedonsemiconductorfirmsinChinainOctober2022couldsignificantlyweakenglobaltradeinsemiconductorsbecauseChinaisthelargestimporterinthesector(Box1.2).Leadingindicatorsarealreadyshowingdeterioratingbusinessconditionsintheregion’smanufacturingsector.Thedimmerglobaloutlook,whichcoincidedwiththesemiconductordowncycle,hasbeenreflectedinweakerorderbooksforfirmsintheregionsincethesecondhalfof2022.Somefirmshavereportedlystartedcurtailingproductiontoreduceunsoldinventoriesthatwerestockpiledduringtheglobalsupplychaindisruptioninthemiddleof2022(Markit2022).High-frequencymanufacturingPMIdatashowasofteningofactivityinmosteconomiesinthethreemonthsendingFebruary2023,comparedtotheprecedingthreemonths(Figure1.20andFigure1.21).PMIreadingsforChina,HongKong,Korea,andThailandimprovedslightlyatthestartof2023followingtheresumptionofeconomicactivitiesinChina.Servicestraderemainedstrongin2022,thankstobordersreopeningthroughouttheregion,andisexpectedtostrengthenfurtherin2023.Servicesexportsgrewbyanaverageof14percent(year-on-year)inthefirstthreequartersof2022,higherthanbeforethepandemic(Figure1.22).TransportservicesgrowthwashelpedbytheeasingofshippingdisruptionscausedbyCOVID-19containmentmeasures.Meanwhile,travelservicespostedthestrongestexpansion,especiallyinIndonesia,Malaysia,Singapore,andThailandasaresultofborderreopening(Box1.3).Servicestradeisexpectedtostrengthenin2023withChinahavingreopeneditsbordersinJanuaryafternearlythreeyearsoflockdown.Theregion’stravelsectorispoisedtoreboundstrongly,withmanyeconomiesbenefittingfromincreasedoutboundtourismfromChina.Thisshouldhelptooffsettheexpectedslowergrowthintransportservicesduetoslowerglobaltrade.Foreigndirectinvestment(FDI)flowsintotheASEAN+3regionremainedrobustinthefirstthreequartersof2022.RealizedinwardFDIflowsamountedtoUSD510billion,slightlylessthaninthefirstthreequartersof2021butmorethaninthesameperiodinearlieryears(Figure1.23).Chinawasthelargestrecipient,accountingforalmosthalfofFDIinflowsintheregion.FDIinflowsintoChina’smanufacturingsectorgrewwhileFDIinflowsintoitsservicessectorfellrelativetothepreviousyearduetotherecurringoutbreaksofandstrictmeasuresagainstCOVID-19.FDIinflowsintheotherPlus-3economiesandASEAN-5remainedstrong,especiallyinHongKongandMalaysia(Figure1.24).DataonannouncedprojectspresentamixedpictureoftheFDIoutlookintheregion.ThenumberofannouncedFDIprojectscontinuedtoholdupin2022,althoughthecapitalexpenditureofannouncedprojectspaledincomparisonwithpre-pandemicamounts,suggestinggreatercautionfromforeigninvestors(Figure1.25).Afterdeclininginearly2022,announcedFDIprojectsinChinapickedupduringtheyear,drivenlargelybyretail-relatedinvestmentsinanticipationofaconsumerspendingreboundonthereopeningoftheeconomy(Xinhua2023).Incontrast,announcedFDIprojectsdestinedforASEANhavemoderatedsincelastJulyasrisinginterestratesandweakeningglobaldemanddampenedinvestorinterestintheregion’smanufacturing(Figure1.26).Intermsofsectors,retailcontinuedtodrawthemostinterestfromoverseasinvestors—accountingforthehighestnumberofprojectannouncementsinChina,Indonesia,Japan,andMalaysiain2022—whileinvestorinterestforothersectorshasyettorecovertopre-pandemiclevels(Figure1.27).Chapter1.MacroeconomicProspectsandChallenges13Figure1.21.SelectedASEAN+3:ManufacturingPurchasingManagers’Indices,byComponent(Index,seasonallyadjusted)40455055606570Jan-21Jul-21Jan-22Jul-22Jan-23OutputNewordersEmploymentFutureoutputSource:S&PGlobalviaHaverAnalytics;AMROstaffcalculations.Note:APurchasingManagers’Index(PMI)readingofabove50denotesanincreaseinactivityoverthepreviousmonth,andareadingbelow50denotesadecrease.DataarecalculatedbytakingasimpleaverageofmanufacturingPMIsubindicesforChina,Indonesia,Japan,Korea,Malaysia,Myanmar,thePhilippines,Thailand,andVietnam.Figure1.20.SelectedASEAN+3:ManufacturingPurchasingManagers’Index(Seasonallyadjusted)Source:S&PGlobalviaHaverAnalytics;AMROstaffcalculations.Note:ThePurchasingManagers’Index(PMI)readingsarecodedbycolors:thereddertheshade,thelowerthevaluefromthediffusionlevelof50;thegreenertheshade,thehigherthevaluefrom50.APMIreadingofabove50denotesanincreaseinactivityoverthepreviousmonth,andareadingbelow50denotesotherwise.ThePMIsofHongKongandSingaporedenoteprivatesectorPMIs.DatainthelastcolumnarecalculatedbysubtractingtheaveragePMIofthelatestthreemonthsfromtheaveragePMIoftheprecedingthreemonths.EconomyChangeinlatest3monthsfrompreceding3monthsPLUS-30.2China1.1HongKong2.9Japan-1.6Korea0.3ASEAN-1.0Indonesia-0.8Malaysia-1.0Philippines0.4Singapore-7.2Thailand1.1Myanmar3.1Vietnam-1.92021JantoDecJantoDec20202023JantoFeb2022JantoDecFigure1.18.SelectedASEAN+3:GoodsandServicesExportGrowth(Percent,year-on-year,three-monthmovingaverage)Figure1.19.WorldandSelectedASEAN+3:GlobalSupplyChainPressureandManufacturingPriceIndices(Index,seasonallyadjusted;numberofstandarddeviations)Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4-30-20-10010203040-30-20-10010203040201720182019202020212022GoodsvolumeGoodsvalue(USD)Servicesexports(quarterly,USD)-2-1012345404550556065707520192020202120222023ASEAN+3inputpricesASEAN+3outputpricesGSCPI(rightaxis)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:GoodsexportsdataarenotavailableforBrunei,Cambodia,LaoPDR,andMyanmar.ServicesexportsdataarenotavailableforBruneiandMyanmar.Source:S&PGlobalviaHaverAnalytics;FederalReserveofNewYork;AMROstaffcalculations.Note:ASEAN+3manufacturingpricesaresourcedfromindividualpurchasingmanagers’index(PMI)surveysforChina,Indonesia,Japan,Korea,Malaysia,Myanmar,thePhilippines,Thailand,andVietnam,andaggregatedbysimpleaveraging.Areadingabove50denotesanincreaseinpriceoverthepreviousmonth,andareadingbelow50denotesotherwise.Globalsupplychainpressureindex(GSCPI)datarefertostandarddeviationsfromtheaveragevalue,whereahigherdeviationdenoteshighersupplychainpressure.14ASEAN+3RegionalEconomicOutlook2023Figure1.22.ASEAN+3:GrowthinExportsofServices,byCategory(Percent,year-on-year)Source:UNCTADstat;AMROstaffcalculations.Note:Transportservicescompriseseatransport,airtransport,othermodesoftransport,andpostalandcourierservices.Exportsoftravelservicescovergoodsandservices(excludingtransportservices)thatareacquiredfromaneconomybynonresidentsduringvisitstothateconomy.DataforBrunei,Cambodia,Myanmar,andVietnamarenotavailable.-100-500501001502019202020212022TotalservicesGoods-relatedservicesOtherservicesTransportTravelFigure1.23.SelectedASEAN+3:ForeignDirectInvestment(MillionsofUSdollars)Figure1.24.SelectedASEAN+3:ForeignDirectInvestment,byRegionalGrouping(MillionsofUSdollars)020040060080020182019202020212021YTD2022YTD050100150200H1H2H1H2H1H2H1H2H1H2H1201720182019202020212022ChinaPlus-3exChinaASEAN-5RestofASEAN+3Source:BalanceofPaymentsandInternationalInvestmentPositionStatisticsdatabase,IMF;AMROstaffcalculations.Note:Datarefertothedirectinvestmentliabilitiesiteminthebalanceofpayments.DataareuptoQ32022,exceptforLaoPDRandMalaysia(uptoQ22022).Brunei,Myanmar,andVietnamareexcludedduetounavailabilityofdata.YTD=year-to-date.Source:InternationalFinancialStatisticsdatabase,IMF;AMROstaffcalculations.Note:Datarefertothedirectinvestmentliabilitiesiteminthebalanceofpayments.ASEAN-5=Indonesia,Malaysia,thePhilippines,Singapore,andThailand;H=half;Plus-3exChina=HongKong,Japan,andKorea.Figure1.25.ASEAN+3:AggregateInwardFDIAnnouncements(Numberofprojects;billionsofUSdollars)Figure1.26.ASEAN+3:AggregateInwardFDIAnnouncements,byRegionalGrouping(Numberofprojects)0501001502002503002016201820202022ASEANPlus-3exChinaChina051015202501002003004005002016201820202022AnnouncedprojectsCapitalexpenditureofannouncedprojects(rightaxis)SourceOrbisCrossborder;AMROstaffcalculations.Note:Datarefertothesix-monthmovingaverageofthenumberandcapitalexpenditureofannouncedprojectsforeachmonth.TherearefourtypesofFDIprojectannouncements:newprojects,expansionprojects,relocatedprojectsandco-locatedprojects(i.e.,thosethataremovedtoalocationwheretheinvestoralreadyhasanexistingbusiness).AnFDIprojectannouncedinagivenyearcanstartinthatsameyearorinfutureyears;insomeinstances,anannouncedprojectcouldbesubsequentlycanceled.SourceOrbisCrossborder;AMROstaffcalculations.Note:Datarefertothesix-monthmovingaverageofthenumberandcapitalexpenditureofannouncedprojectsforeachmonth.TherearefourtypesofFDIprojectannouncements:newprojects,expansionprojects,relocatedprojectsandco-locatedprojects(i.e.,thosethataremovedtoalocationwheretheinvestoralreadyhasanexistingbusiness).AnFDIprojectannouncedinagivenyearcanstartinthatyearorinfutureyears;insomeinstances,anannouncedprojectcouldbesubsequentlycanceled.Plus-3exChina=HongKong,Japan,andKorea.Chapter1.MacroeconomicProspectsandChallenges15Figure1.27.ASEAN+3:AggregateInwardFDIAnnouncements,bySector(Averagenumberofprojects)SourceOrbisCrossborder;AMROstaffcalculations.Note:TherearefourtypesofFDIprojectannouncements:newprojects,expansionprojects,relocatedprojectsandco-locatedprojects(i.e.,thosethataremovedtoalocationwheretheinvestoralreadyhasanexistingbusiness).AnFDIprojectannouncedinagivenyearcanstartinthatsameyearorinfutureyears;insomeinstances,anannouncedprojectcouldbesubsequentlycanceled.ICT=informationandcommunicationtechnology;R&D=researchanddevelopment.Othersincludeagriculture,commercialrealestate,construction,educationandtraining,health,mining,recycling,residentrealestate,technicalsupport,testingcenter(s)andutilities.050010001500200025000100200300400500600700800OthersElectricityICTinfrastructureEntertainmentDataandR&DcentersBankingandfinanceLogisticsRegionalheadquartersHotelsBusinessservicesSalesofficeManufacturingRetail(topaxis)2018-20192020-2021202216ASEAN+3RegionalEconomicOutlook2023Box1.2:ChippingAwayatChina’sAdvance:HowWillUSTradeRestrictionsAffectASEAN+3’sSemiconductorSector?TheUnitedStatesinthepasttwoandahalfyearshasimplementedvariouspolicymeasuresaimedatslowingChina’sabilitytoproduceadvancedsemiconductors.InSeptember2020,theTrumpadministrationnotifiedsomeUSfirmsthattheywouldneedalicensetoexporttoSemiconductorManufacturingInternationalCorporation(SMIC),China’slargestchipmanufacturer(Whalen2020).Threemonthslater,theUSCommerceDepartmentplacedSMICand10ofitssubsidiaries,togetherwithdozensofotherChinesefirms,ontheso-calledentitylist,whichblocksUSfirmsfromexportingtechnologytothemwithoutagovernmentlicense(WhalenandNakashima2020).InAugust2022,USPresidentBidensignedintolawtheCreatingHelpfulIncentivestoProduceSemiconductors(CHIPS)andScienceActof2022which,amongotherthings,aimsto“counterChina”byprovidingUSD52.7billioninfederalsubsidiestobolsterdomesticchipmanufacturingandprohibitingfundingrecipientsfromexpandingchipmanufacturinginChina(TheWhiteHouse2022).TheUnitedStatessteppedupexportcontrolsonChinesesemiconductorfirmslatelastyear.InOctober2022,theBidenadministrationprohibitedUSfirmsfromexportingtoChinathetechnology,software,andequipmentusedinproducingadvanced(14-nanometerprocess)computingchipsandsupercomputers,andbarredUScitizensandgreen-cardholdersfromactivitiesthatwhollyorpartlysupportthedevelopmentorproductionofcertainadvancedchipswithoutalicensefromtheUSgovernment.Themeasures,sometakingimmediateeffect,builtonnotificationssentearlierintheyeartotopUStoolmakers,effectivelyrequiringthemtohaltshipmentsofequipmenttowhollyChinese-ownedfactoriesproducingadvanced(10-nanometerprocess)logicchips(Nellis,Freifeld,andAlper2022).InDecember2022,theUSDepartmentofCommerceadded35Chinesefirms,includingchipmakerYangtzeMemoryTechnologiesandothermajorChineseplayersintheartificialintelligencechipsector,totheentitylist,bringingthenumberofChinesefirmsrestrictedfromacquiringadvancedUStechnologytomorethan65(Reuters2022).ThisboxwaswrittenbyMartheM.HinojalesandHongyanZhao.Theexportcontrols—ifeffective—arelikelytoslowdownChina’srapidadvancesinhigh-endtechnologiesintheshortterm.Chinaisanetimporterofsemiconductorsandsemiconductormanufacturingequipment.TheUnitedStatesisakeytradingpartnerforsemiconductormanufacturingequipment(Figure1.2.1).Ofthetopfivesemiconductorcapitalequipment(“semicap”)vendors,whichtakenearly70percentoftheglobalmarket,three—AppliedMaterials,KLA,andLamResearch—arefromtheUnitedStates.Atleast80percentofSMIC’sequipmentcomesfromUSvendors(Kharpal2021).SomekeyChinesesemiconductorfirmshavebegunaskingcoreUSemployeestoleaveinordertocomplywiththislatestroundofrestrictions(McMorrow,Liu,andLiu2022).Moreover,manyofthenewUSexportcontrolsalsoaimatpreventingthird-countryfirmsfromsellingadvancedchipstoChinaorsupplyingChinesefirmswithtoolstomaketheirownadvancedchips.ThosethatuseUSequipmentoremployUSpersonstoproducespecifichigh-endchipswillneedalicensefromtheUSgovernmenttoselltoChina.Forexample,TaiwanProvinceofChina’sTSMCandKorea’sSamsungElectronics—theworld’sbiggestfoundries—relyheavilyonequipmentfromUSmanufacturers,andwouldbebarredfromexportingcertainchipstoChina(Kharpal2021).IfothereconomiesjointheUnitedStatesinitsexportcontrols,Chinawillloseaccesstohigh-endsemiconductormanufacturingmachines;withoutneworreplacementsupplies,itsexistingproductioncannotexpand.JapanandtheNetherlands,whichhavetwooftheworld’stopfivesemicapmanufacturers—TokyoElectronandASML—havereportedlyagreedtojointheUSintighteningcontrolsontheexportofadvancedchipmakingmachinerytoChina(KocandLeonard2023).Theexportcontrolswillhaverepercussionsonglobalsemiconductortrade.Chinaisthesingle-largestimporterofsemiconductors,accountingforoverathirdofglobalimportsin2021,makingitakeydriverofglobalsemiconductortradepatterns(Figure1.2.2).China’ssemiconductorimportshavedeclinedsinceJanuary2022,reflectingweakdomesticdemandandtheongoingdownturnintheglobalsemiconductormarket(Figure1.2.3).Thisdeclinecouldcontinue,especiallyasAppliedMaterials,KLA,andLamResearchhavealreadysuspendedsalesandservicestoChinesechipmakers.17Chapter1.MacroeconomicProspectsandChallengesTheexportcontrolsareanticipatedtohavenegativerepercussionsontherevenueofUSsuppliersatatimewhentheirprofitsarefallingandinputpricesarehigh—Chinacomprisesabout31percentofLamResearch’ssalesand33percentofAppliedMaterials’sales(HufbauerandHogan2022).TheUnitedStates’intentiontowidenitsregulatoryinfluenceovertheglobalsemiconductorindustryanditswillingnesstoapplyprovisionswithextraterritorialimpactisalsocausingconcernamongitsallies.IntheEuropeanUnion,forexample,governmentsarestillanalyzinghowtheirownsemiconductorfirmscouldbeaffectedbyUSsanctionsonChina—somemayneedtofenceoffoperationsservingChinafromthosethatservetheUnitedStates,addingtocostsandcomplexityinglobalsemiconductorsupplychains.FortherestofASEAN+3,theimpactwillvarybutishardtopindown.Semiconductorsupplychainsarehighlycomplexandglobalized.ManysemiconductorfirmsoperatingintheregionhavemanufacturingprocessesandproductsthatrelyonUStechnology,andthusmaybesubjecttoexportcontrolsimposedbytheUSgovernment(Figure1.2.4).AlthoughtheUnitedStateshasframedtheexportcontrolsasanattempttocurbChinesemilitaryuseofhigh-endchips,thedual-usenatureandubiquityofchipsindailylifemeanstheimplicationsofitsactionscouldrunwider.Afull-on,widespreaddecouplingbetweentheUnitedStatesandChinacouldincreasesemiconductorpricesbyasmuchas65percent(Varasandothers2021),whichwouldsignificantlyaffectdemand,capitalinvestment,aswellasfutureeconomicgrowthintheASEAN+3region.•JapanandKorea,whichexcelincertainhigh-endsegmentsofthesemiconductorindustry—onlyKoreaandTaiwanProvinceofChinahavethecapacitytomakethemostcutting-edge5-nanometerchips—areunderpressuretojointheUS-proposedChip4Alliance,a"democraticsemiconductorsupplychain”(EIU2022).WhileJapanhassignaledanalliancewiththeUnitedStates,Korea’schipmakersandassemblerswouldbehithardasChinaremainsasignificantclientandproductionbaseforthem.•Othereconomiesintheregion,whichproduceandexportlower-endchipsthatarenottheprimarytargetoftheUSexportcontrols,areunlikelytobeseverelyimpactedintheshortterm.Theseolder-generationchipsareusedinawiderangeofapplications,includingtransport,communications,andmedicalequipment,amongothers,anddemandforthemremainslarge.Opportunitiescouldevenopenupforestablishedandemergingplayersintheregion(e.g.,MalaysiaandVietnam)tofillthevoidinsupplycausedbyUSeffortstoisolateChinafromthemarket.Inthelongterm,theUStraderestrictionsarelikelytoaccelerateChina’sdrivetoachieveself-sufficiencyintheadvancedchipsegment.ThiswouldhavepositiveimplicationsforthedevelopmentofemerginggrowthdriversintheASEANregion,likeelectricvehicles,greentechnologies,andrenewableenergysystems(Chapter2).Figure1.2.1.China:TopPartnersforSemiconductorImports,2017–21(Percentoftotalsemiconductorimports)Figure1.2.2.World:Top10SemiconductorImportersandExporters,2017–21(Percentofglobaltrade)ImportsExportsJPKRUSSGOAOAKRMYJPUS020406080100SemicapSemiconductorsCNHKOASGKRUSVNMYJPDE010203040HKCNOASGKRUSJPMYNLDE010203040HKCNOASGKRUSJPMYNLDESource:UNComtrade;AMROstaffcalculations.Note:SharesarecalculatedusingtradedatainUSdollars.SemiconductorsrefertoHScodes8541-42.Semicap(semiconductorcapitalequipment)referstoHScode8486.JP=Japan;KR=Korea;MY=Malaysia;OA=OtherAsia(includesTaiwanProvinceofChina);SG=Singapore;US=UnitedStates.Source:UNComtrade;AMROstaffcalculations.Note:DatarefertoHScodes8541–2(whichincludesdiodes,transistors,similarsemiconductordevices,photovoltaiccellsassembledornotinmodulesorpanels,light-emittingdiodes,mountedpiezo-electriccrystals,andelectronicintegratedcircuits)and8486(semiconductorcapitalequipment).SharesarecalculatedusingtradedatainUSdollars.CN=China;DE=Germany;HK=HongKong;JP=Japan;KR=Korea;MY=Malaysia;OA=OtherAsia(includesTaiwanProvinceofChina);SG=Singapore;US=UnitedStates;VN=Vietnam.18ASEAN+3RegionalEconomicOutlook2023Figure1.2.3.China:ImportGrowth(Percent,year-on-year)Figure1.2.4.ASEAN,HongKong,Japan,andKorea:SemiconductorTradewithChinaandtheUnitedStates,2017–21(Percentofeacheconomy’stotalsemiconductorandsemicapexports,imports)ChinaUnitedStates-40-200204060Jan-19Jun-19Nov-19Apr-20Sep-20Feb-21Jul-21Dec-21May-22Oct-22SemiconductorsAllcommoditiesSource:IHSMarkit;CEIC;AMROstaffcalculations.Note:GrowthratesarecalculatedusingtradedatainUSdollars.Source:UNComtrade;AMROstaffcalculations.Note:DatarefertoHScodes8541–2(whichincludesdiodes,transistors,similarsemiconductordevices,photovoltaiccellsassembledornotinmodulesorpanels,light-emittingdiodes,mountedpiezo-electriccrystals,andelectronicintegratedcircuits)and8486(semiconductorcapitalequipment).SharesarecalculatedusingtradedatainUSdollars.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;M=imports;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam;X=exports.020406080100XMXMXMXMXMXMXMXMXMXMXMXMXMHKKRVNJPMYSGPHTHIDMMBNKHLASemiconductors020406080100XMKHSemicap010203040XMXMXMXMXMXMXMXMXMXMXMXMVNTHPHMYJPMMSGIDKRHKBNLA19Chapter1.MacroeconomicProspectsandChallengesBox1.3:TheReturnofTravelandTourismInternationaltravelhasbeguntorecoverintheregionaftermorethantwoyearsofborderclosures.Bordersintheregionwereprogressivelyreopenedthroughout2022asvaccinationratesincreasedandCOVIDinfectionratesdeclined.Bytheendof2022,almosthalfoftheregion’s14economieshadfullyremovedallentryrestrictions,includingpre-departureandon-arrivalCOVID-19testingandpost-arrivalquarantineandmonitoring(Figure1.3.1).Internationalflightshaveresumed,withairportsinIndonesia,Korea,thePhilippines,Singapore,andThailandseeingaresurgencetomorethanhalfoftheirpre-pandemictraffic(Figure1.3.2).TherecoveryintravelandtourismhasbeenmorepronouncedinASEANthaninthePlus-3.ASEANeconomiessawmoreinternationaltouristarrivalsin2022thanthePlus-3economies,althougharrivalswerewellbelowpre-pandemicnumbersasthehoped-forresumptionofoutboundtourismfromChinadidnotmaterialize(Figure1.3.3,leftpanel).ASEAN’stravelreceiptsinthefirstthreequartersof2022werehigherthanannualreceiptsin2020and2021,andhigherthanthePlus-3’sinthesameperiod(Figure1.3.4).Monthlytouristarrivalshaverecoveredtomorethanhalftheirpre-pandemiclevelsinCambodia,Indonesia,Malaysia,Singapore,thePhilippines,ThailandandVietnam(Figure1.3.3,centerpanel).•Cambodia—themosttourism-relianteconomyintheregion—sawtouristarrivalsincreasewhenitremovedquarantinerequirementsinNovember2021.TouristarrivalstoCambodiain2022surpassedthegovernment’starget,astouristsfromotherASEANeconomiespartiallymadeupfortheabsenceofChinesevisitors(Figure1.3.5andFigure1.3.6).•Indonesia’stouristarrivalsandtourismreceiptsinthefirst10monthsof2022surpassedthegovernment’stargetsforthefullyear,thankstovisitorsfromMalaysia,Australia,Singapore,Timor-Leste,andIndia(AntaraNews2022).•ThesharpreboundintouristarrivalsinMalaysiaandSingaporebeganinApril2022whenthelandbordercrossingwasreopened.Singaporeaccountedfor56percentoftouriststoMalaysiafromAprilthroughOctober2022.Singapore’svisitornumberswereboostedbytheresumptionofso-calledMICEevents:meetings,incentives,conventions,andexhibitions(STB2022).•Thailandachieveditstargetofreceivingatleast10millionforeignvisitorsin2022,mainlyduetotouristsfromotherASEANeconomies,particularlyMalaysia(Tanakasempipat2022).Russiantourists—thesecondlargestgroupofvisitorstoThailandbeforethepandemic—alsomadeareturnafterasix-monthabsencecausedbythesuspensionofflightsandfinancialtransactionsfollowingtheoutbreakoftheUkrainecrisis(Sangwongwanich2022).•ThePhilippinessurpassedits(relativelymodest)targetof2.4millionvisitorsbeforetheendof2022,althoughinthepaceoftourismrecoverylaggeditsASEAN-5peersbecauseitremovedtravelrestrictionslater(Strangio2022).AsintherestofASEAN,theabsenceofChinesetouristswasdeeplyfelt—thebulkoftouristsin2022werefromtheUnitedStates,Korea,andAustralia(Koumelis2022).•VietnamwasthefirstintheregiontoremovealltravelrestrictionsinMay2022.TouristarrivalswereboostedbyvisitorsfromtherestofASEAN,Korea,andtheAmericas.InthePlus-3economies,entryforforeignvisitorsremainedrestrictedthroughmost,ifnotall,of2022.OnlyKoreahadfullyremovedallentryrestrictionsbyOctober.JapantookaphasedapproachandreopeneditsborderstosmalltourgroupsofvaccinatedtravelersfromselectedcountriesbeginninginMay;vaccinatedtravelersfromallregionswereallowedentrywithoutmandatoryquarantineinOctober,whichfacilitatedastronginflowofvisitors.ThenumberoftouristarrivalsThisboxwaswrittenbyEdmondChiangYongChooandCatharineTjingYiingKho.20ASEAN+3RegionalEconomicOutlook2023surpassed50percentofthepre-pandemiclevelbyDecember2022(Figure1.3.3,rightpanel).ChinaandHongKongbegantorelaxdomesticCOVID-19containmentmeasuresinDecember,butforeignvisitorscontinuetofacetheneedforpre-departuretesting.Quarantinerequirementswereremovedon8January2023.Tourismisexpectedtorecoverfurtherin2023andreturntopre-pandemiclevelsby2024.“Revengetravel”—theurgetotraveltocompensateforlosttimeduetothepandemic—willbeoneofthekeydriversoftourismdemandinthenear-term(Tan,M.2022).Theadoptionoftechnology,suchasdigitaltravelportalstoverifyhealthentryrequirementsanddigitalpaymentsacrosstheregionwillalsofacilitatetravelinthepost-pandemicworld.Inaddition,theregion’sadvantagesinhostingMICEeventsandpromotingecotourismcouldfurtherimproveitsattractivenessastheworldreopensfurther.Therecoveryintourismreceiptswillbecrucialinsupportingcurrentaccountbalancesandbuttressingeconomicgrowthintheregionasglobaldemandforgoodsweakens.Chinaholdsthekeyasthelargestsourceoftouristsformostoftheregion’seconomies—afullregionaltourismrecoverywillbehighlydependentontherateofresumptionofoutboundtravelfromChina.Figure1.3.1.ASEAN+3:InternationalTravelRestrictions(Index)Figure1.3.3.SelectedASEAN+3:TouristArrivals(Index,monthlyaverageof2019=100)Figure1.3.2.SelectedASEAN+3:InternationalFlightArrivals(Index,December2019=100)01234Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Plus-3ASEANTotalbanBanonarrivalfromhigh-riskcountriesRequirequarantineRequirescreening020406080100120140Apr-19Apr-20Apr-21Apr-22ASEANPlus-3exChina020406080100120Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23HKIDJPKRPHSGTHDec2019=100Source:OxfordCOVID-19GovernmentResponseTracker,OurWorldinDataviaHaverAnalytics;AMROstaffcalculations.Note:TheOxfordCOVID-19GovernmentResponseTrackerhasstoppedpublishingreal-timeupdatesformostjurisdictionson31December2022.OftheASEAN+3economiescovered,onlydataforChinaendson8January2023.Indexrangesfrom0(norestrictions)to4(moststringent).ASEAN=Brunei,Cambodia,Indonesia,LaoPDR,Malaysia,Myanmar,thePhilippines,Singapore,Thailand,andVietnam;Plus-3=China,HongKong,Japan,andKorea.Source:NationalauthoritiesviaHaverAnalytics,AMROstaffcalculations.Note:Brunei,Cambodia,China,LaoPDR,Malaysia,Myanmar,andVietnamareexcludedduetodataunavailability.DataforJapanincludebotharrivalsanddepartures.DataforIndonesiarefertodeparturesonly.HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;PH=Philippines;SG=Singapore;TH=Thailand.ASEANPlus-3exChina010203040506070Jan-22Jul-22Jan-23IDKHMMMYPHSGTHVN50percentof2019monthlyaverage010203040506070Jan-22Jul-22Jan-23HKJPKR50percentof2019monthlyaverageSource:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Brunei,China,andLaoPDRareexcludedduetodataunavailability.Circlemarkerdenotesthemonthoffullremovalofinternationaltravelrestrictionsforthateconomy.HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.ASEAN+3exChina21Chapter1.MacroeconomicProspectsandChallengesFigure1.3.4.SelectedASEAN+3:TouristReceipts(BillionsofUSdollars)Figure1.3.6.SelectedASEAN:ShareofTouristArrivals,bySourceEconomy(Percentoftotalarrivals)Figure1.3.5.SelectedASEAN:TargetandActualTouristArrivals(Millionsofinboundtourists)010203040Plus-3SelectedASEAN20202021Q1–Q320220204060801002019Jan–Nov20222019Jan–Sep2022201920222019202220192022CambodiaMalaysiaSingaporeThailandVietnamRestoftheWorldASEANPlus-3exChinaChinaEuropeAmericas024681012THSGMYIDVNPHKHLATargetfor20222022YTDSource:NationalauthoritiesviaHaverAnalytics,AMROstaffcalculations.Note:SelectedASEANreferstoCambodia,LaoPDR,Malaysia,thePhilippines,Singapore,Thailand,andVietnam;Brunei,LaoPDR,andMyanmarareexcludedduetodataunavailability.Plus-3=China,HongKong,Japan,andKorea.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:ASEAN=Brunei,Cambodia,Indonesia,LaoPDR,Malaysia,Myanmar,thePhilippines,Singapore,Thailand,andVietnam.Plus-3(exChina)=HongKong,Japan,andKorea.Source:Nationalauthorities.Note:Dataontargetsobtainedthroughnewsflows.Theaverageisusedifthetargetisannouncedasarange.ID=Indonesia;KH=Cambodia;LA=LaoPDR;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.YTD=year-to-date.DataareasofDecember2022exceptforMalaysia(September).22ASEAN+3RegionalEconomicOutlook2023APartialLaborMarketRecoveryLabormarketconditionsintheregionhavegenerallyimproved,thankstofullereconomicreopening.Withtheliftingofcontainmentmeasuresandtheresumptionofcross-bordertravel,employmentinso-calledsocial(high-contact)industriessuchastravelandtourism—whichwerehithardestbythepandemic—turnedthecornerinthefourthquarterof2022,registeringpositivegrowth.Employmentgrowthinessentialindustriessuchasutilities,health,andinformationandcommunicationtechnologyhascontinuedtoberobust(Figure1.28).Nominalwagegrowthstrengthenedin2022,supportedbytheresumptionofhiringbybusinesses(Figure1.29).Targetedfiscalsupportandactivelabormarketpoliciessuchasretrainingprogramshavehelpedsupportthejobsrecovery.Laborforceparticipationratesintheregionhavemostlyrecoveredto,andevenexceeded,precrisislevelsinmosteconomies(Figure1.30).However,totalemploymentremainslowerthanpre-pandemic,particularlyinindustrieswhereremoteworkingisnotpossible,suchasminingandconstruction(Figure1.31).The“employmentgap”isestimatedtobeabout12millionjobs(or3.5percentoftotalemploymentinthecounterfactualsituationwherethepandemicdidnotoccur).Partofthisgapreflectsjobsthathadbeenfilledbyforeignworkerswhoreturnedhomeduringthepandemicandhavenot(yet)returnedtothehosteconomy.Withemploymentgrowthstillnascent,headlineunemploymentremainsabovepre-pandemicratesinsomeeconomies,eventhoughsharplydownfrompandemicpeaksin2020.KoreaandSingaporearenotableexceptionswherethelabormarketseemstohavefullyrecovered(Figure1.32).Theoutlookfortheregion’slabormarketsremainschallenging.Althoughemploymenttrendsarepositive,prospectsareunevenacrossindustries.Slowingglobaltradecoulddampenmanufacturingemploymentprospectsasbusinessesturnmorecautious.Buttheliftingofcross-bordertravelrestrictionsin2022shouldfacilitateafullerreturnofforeignworkersthisyear.Inthemediumterm,labormarketscarringfromprolongedunemploymentduringthepandemicremainsasignificantrisk,particularlyforlow-skilledandinformalsectorworkers,whoareunabletotakeadvantageofpoliciesforupskillingandreskilling(Silva,Weber,andPela2022).Figure1.28.SelectedASEAN+3:ChangeinEmploymentfromQ42019,byIndustry(Percentagepoints)Figure1.29.SelectedASEAN+3:NominalWages,byEconomy(Percent,year-on-year)-8-404812Q22020(COVID-19firstwave)Q42022EssentialindustriesTeleworkableindustriesNon-TeleworkableindustriesSocialindustries-10-50510152025201720182019202020212022HongKongIndonesiaKoreaMalaysiaSingaporeThailandVietnamCOVID-19(Firstwave)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:SelectedASEAN+3referstoHongKong,Indonesia,Japan,Korea,Malaysia,thePhilippines,Singapore,Thailand,andVietnam.Calculationsarebasedonseasonallyadjustedemploymentdatabyindustry,withseriesstartingfromQ12005toQ42022.Essentialindustriesrefertoutilities,transport,informationandcommunicationtechnology,andhealthandpublicadministration.Socialindustriesrefertowholesaleandretail,hotelsandrestaurants,andartsandentertainment.Industrieswhereremoteworkingarrangementispossible(i.e.,teleworkable)refertofinance,professionalservicesandeducation.Nonteleworkableindustriesrefertomining,manufacturing,andconstruction.Giventhevolatilenatureofagriculturalemploymentdata,agricultureisexcludedfromtheanalysis.Source:NationalauthoritiesviaHaverAnalytics.Note:DataforMalaysiareferonlytomanufacturingwages.DataareuptoQ32022forHongKong,IndonesiaandSingapore,anduptoQ12021forVietnam.Chapter1.MacroeconomicProspectsandChallenges23Figure1.31.SelectedASEAN+3:EmploymentLevel(Logofemployment,seasonallyadjusted)Figure1.32.SelectedASEAN+3:UnemploymentRate(Percentoflaborforce,seasonallyadjusted)Plus-3ASEAN-601234567820082010201220142016201820202022ChinaHongKongJapanKoreaGlobalfinancialcrisisCOVID-19(firstwave)05101520024681020082010201220142016201820202022IndonesiaMalaysiaSingaporeThailandVietnamPhilippines(rightaxis)GlobalfinancialcrisisCOVID-19(firstwave)5.505.555.605.655.705.755.8020152016201720182019202020212022EmploymentlevelEmployment(lineartrend)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:SelectedASEAN+3referstoHongKong,Indonesia,Japan,Korea,Malaysia,thePhilippines,Singapore,Thailand,andVietnam.DataareuptoQ42022.Source:NationalauthoritiesviaHaverAnalytics.Note:DataareuptoQ42022,exceptforChina(Q42021)andIndonesia(Q32022).High(er)Inflation—HeretoStay?Globalandregionalinflationreachedhistoricalhighsin2022.Inflationsurgedgloballyinearly2022duetodisruptionsinsuppliesoffuel,grains,andothercommoditiescausedbytheUkrainecrisis,thereleaseofpent-updemandinadvancedeconomies,andthelingeringimpactofsupplychainbottlenecks.HeadlineinflationinASEAN+3rosetoanine-yearhighasthepriceoffood,utilities,andtransportgoodsandservicesclimbed(Figure1.33).Thedepreciationofmostcurrenciesintheregion,followingaggressivemonetarypolicytighteninginadvancedeconomies,compoundedtheincreaseindomesticprices.TimelyadministrativeandpolicymeasurespreventedinflationintheASEAN+3regionfromspiralingup.EnergyimportersJapanandKoreareducedfuelimporttaxesandsubsidizedfuelproductsforconsumersandbusinesses.Koreaalsotightenedmonetarypolicytotemperdemand-pullinflation.FuelsubsidieswereextendedinalmostallASEANeconomiesaswell(KhoandZhao2022).IndonesiaandMalaysiatemporarilybannedtheexportofkeyfoodproductssuchascrudepalmoil,cookingoil,andpoultrytoensuresufficientsupplyforthedomesticmarketinanefforttocontainincreasesinfoodprices(Tan,Choo,andChong2022).InChina,highagriculturalproductionkeptfoodpriceslowandinflationincheck.Headlineinflationisexpectedtomoderatebutremainelevated.Sincethethirdquarterof2022,commoditypriceshavedeclinedtolevelsbeforetheUkrainecrisisbecauseofweakerdemandfrommajorimporterslikeChinaandEuropeandsomeresumptioningrainshipmentsfromUkraine(Figure1.34).Importedinflationislikelytobelowergoingforwardasglobalcommoditypricesareexpectedtodeclinefurther,ledbyweakeningglobaldemand.Intheregion,strengtheningdemandfromtherecoveringeconomiescouldcontributetoinflationpressure.Figure1.30.SelectedASEAN+3:LaborForceParticipationRate(Percentofworking-agepopulation,seasonallyadjusted)5560657075HKIDJPKRMYPHTHPre-pandemic(Q42019)Latest2022Source:NationalauthoritiesviaHaverAnalytics.Note:Latest2022dataareforQ4,exceptIndonesia(uptoQ32022).HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines;TH=Thailand.24ASEAN+3RegionalEconomicOutlook2023Figure1.33.ASEAN+3:ConsumerPriceInflation(Percent,year-on-year)Figure1.34.World:CommodityPrices(Index,23February2022=100)Plus-3ASEAN-10-50510152019202020212022HeadlineFoodUtilitiesTransport050100150200250Feb-22Apr-22Jun-22Aug-22Oct-22Dec-22Feb-23BrentcrudeoilNaturalgasCrudepalmoilWheat-10-5051015202019202020212022HeadlineFoodUtilitiesTransportSource:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Aggregateconsumerpriceinflationiscalculatedasasimpleaverageofindividualeconomies’dataseries.DataforASEANareuptoQ42022,exceptforCambodia(Q32022)andMyanmar(Q22022).Source:EnergyInformationAdministration;WallStreetJournal;MalaysianPalmOilBoardviaHaverAnalytics;AMROstaffcalculations.Note:WheatpricesrefertothecashpriceofwheatquotedintheKansasCityBoardofTrade.Pricesareindexedto23February2022,adaybeforetheUkrainecrisisbegan.CreditGrowthSlowsBanklendingactivitiesinASEAN+3presentedamixedpicturein2022.CreditgrowthremainedlargelysubduedinChinaandHongKong,asthestringentpandemiccontainmentmeasuressignificantlycurtailedloandemandduetodeterioratingbusinessesearnings.Onthesupplyside,bankshavealsobeenwaryofextendingcredittobusinesses,particularlyinsectorshardhitbythepandemicandcontainmentmeasures,aswellaspropertydevelopersandbusinessesexposedtotherealestatemarket.InJapan,creditgrowthisreturningtopre-pandemiclevels,asthegovernment’szero-interestratepolicyhelpedsupporttherecovery.InKorea,rapidcreditgrowthreflectsstrongdemandforcreditfromnonfinancialfirms.InASEAN,demandforbankcreditnotonlyrecoveredbutstrengthenedgoingintothethirdquarterof2022—notablyinIndonesia,Malaysia,thePhilippines,andVietnam(Figure1.35).Creditgrowthisgenerallyexpectedtoslowin2023,mainlyonaccountofthesoftereconomicoutlook.InthePlus-3,therelativelyweakergrowthoutlookinJapanandKoreacouldweighondemandforbankfinancinginthesetwoeconomies,whereasinChinaandHongKong,economicreopeningshouldsupportarecoveryincreditdemand.InASEAN-6,therateofcreditexpansionisexpectedtocomedownfromitsstrongpacein2022,reflectingmoderatingdomesticdemandalongsideconcernsaboutthepotentialweakeningofcreditfundamentalsandhigherborrowingcosts.Thetighteningoftheregionalinterestratecycleover2022–23couldweakenassetqualityinsomeASEAN+3bankingsystems.InASEAN-6,nonperformingloans(NPLs)couldincreaseasbusinesses(mainlysmallandmedium-sizedenterprises)arehurtbyslowingeconomicactivity,whileexpirationofpandemic-eraloanChapter1.MacroeconomicProspectsandChallenges25Figure1.35.SelectedASEAN+3:GrowthinCredittoPrivateNonfinancialSector(Percent,year-on-year,4-quartermovingaverage)Plus-3ASEAN-60510152020142016201820202022ChinaHongKongJapanKorea-50510152020142016201820202022IndonesiaMalaysiaPhilippinesSingaporeThailandVietnamSource:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Theprivatenonfinancialsectorincludesnonfinancialfirmsandhouseholds.Datareferto:claimsonnonfinancialinstitutionsandotherresidentsectorsbydepositorycorporationsotherthanthecentralbank(China);loansandadvancesbyauthorizedinstitutionstononfinancialsectors(HongKong);loanstocorporationsandhouseholdsbydomesticbanks(Japan);claimsonnonfinancialcorporationsandhouseholdsbydepositorycorporationsotherthanthecentralbank(Korea);claimsontheprivatesectorbycommercialandruralbanks(Indonesia);loansbythebankingsystem(Malaysia);claimsonprivatesectorbydepositorycorporationsotherthanthecentralbank(thePhilippines);thesumofhouseholdliabilitiesandcredittononfinancialcorporations(Singapore);andclaimsonprivatenonfinancialcorporationsandotherresidentsectorsbydepositorycorporationsotherthanthecentralbank(Thailand).Creditgrowthiscalculatedbasedonlocalcurrencyterms.Figure1.36.SelectedASEAN+3:BankingSectorNonperformingLoanRatios(Percent)Plus-3ASEAN-5BCLV0123452019202020212022ChinaHongKongJapanKorea0123452019202020212022IndonesiaMalaysiaPhilippinesSingaporeThailand0123452019202020212022BruneiCambodiaLaoPDRVietnamSource:NationalauthoritiesviaCEIC.Note:DataareuptoQ42022,exceptforBrunei,HongKong,Japan,Korea,LaoPDR,Malaysia,Philippines,Vietnam(Q32022),andChina(Q22022).DataforMyanmararenotpubliclyavailable.moratoriumswouldfurtherweighonassetqualitymetricsatatimewhenthelaggedeffectsofpolicyratehikesarebeingfelt.InChina,continuingpropertysectorweaknesscouldbeadragonthedebtservicingcapacityofrealestatedevelopers(particularlythehighlyleveragedones),despitemultipleinterestratecutsandotherpolicymeasurestoeasetheir(re)financingstrains.Thiscoulddampenbankingsectorloansoundness.Sofar,banks’assetqualityremainssound,asreflectedinrelativelylowNPLratios(Figure1.36).However,thelowNPLratiosdonotincludeNPLswhicharesuppressed(“hidden”)byforbearancemeasuresintroducedduringthepandemic.BasedonestimatesfromtheAMROGlobalMacro-FinancialModel,“hidden”NPLscouldincreasereportedratiosintheregionbyupto5percentagepointsforfirmsand7.5percentagepointsforhouseholds(Figure1.37).26ASEAN+3RegionalEconomicOutlook2023Figure1.37.ASEAN+3:ReportedandEstimated“Hidden”CorporateandHouseholdNonperformingLoanRatios,asofQ32022(Percent)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffestimates.Note:TheestimatesarebasedontheAMROGlobalMacro-FinancialModel(Tang2022).EstimatesarebasedoninformationasofQ32022,exceptforJapan(Q12022)andMyanmar(Q42020).BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;NPL=nonperformingloan;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.0246810121416MMKHTHPHLAMYIDHKKRSGCNBNJPVNReportedNPLratioEstimatedhiddenNPLratio(Households)EstimatedhiddenNPLratio(Firms)FinancialMarketsSeesawGlobalfinancialconditionshavetightenedsincethefirsthalfof2022,reflectingpolicyratehikestobringinflationundercontrolintheUnitedStatesandtheeuroarea.SinceMarch2022,theUSFederalReservehasraiseditspolicyrateby450basispoints(asofFebruary2023),withmarketspricinginfurtherratehikesinthefirsthalfof2023.TheaggressivemonetarytighteningintheUnitedStatesledtoasharpspikeinriskaversionandlargeportfoliooutflowsfromtheregionduring2022,althoughrisksentimentsimprovedbytheendoftheyear.ThePlus-3andASEAN-4economiespostedatotalofUSD112billioninnetnonresidentportfolioinvestmentoutflowsinthefirstthreequartersof2022—predominantlyfromChina’sbondmarketandJapan’sequitymarket(Figure1.38).Whilesubstantial,thesegrossoutflowsrepresentedonly0.7percentofChina’soutstandingbondsand0.5percentofJapan’sequitymarketcapitalizationattheendof2021.ByOctober,theoutlookforportfoliocapitalflowsintheregionhadimprovedonmarketexpectationsthattheUSFederalReservewouldeasethepaceofrateincreasesin2023.Indonesia,Korea,thePhilippines,andThailandrecordednetnonresidentpurchasesintheirlocalequityandbondmarketsinOctoberandNovember2022.TheUSmonetarypolicystanceputconsiderabledepreciationpressureonmostASEAN+3currenciesagainsttheUSdollarin2022.Plus-3andASEAN-5currenciesreachedmultiyearlowsagainsttheUSdollarinthethirdquarterof2022asmarketspricedinhigherterminalratesfortheFederalReserve'stighteningcycle.However,regionalcurrenciesreboundedandappreciatedagainsttheUSdollarinthefourthquarterof2022onexpectationsofaslowerpaceofratehikesfollowingindicationsthatinflationintheUnitedStateshadpeakedandstartedtotrenddown.Trade-weightednominalandrealexchangerateswerelargelyunchangedin2022,exceptforSingaporeandThailand,whichrecordednotableappreciationsin2022(Figure1.39).Figure1.38.SelectedASEAN+3:NonresidentPortfolioInvestment,Q1–Q32022(BillionsofUSdollars)Source:BalanceofPaymentsandInternationalInvestmentPositionStatisticsdatabase,IMF;nationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.-140-120-100-80-60-40-200204060Plus-3+ASEAN-4ThailandPhilippinesMalaysiaIndonesiaKoreaJapanHongKongChinaBondEquityTotalChapter1.MacroeconomicProspectsandChallenges27Figure1.39.ASEAN+3:ExchangeRatesExchangeRateagainstUSDollar(Index,31December2021=100)CurrencyPerformance,2022(Percent)Source:HaverAnalytics;BloombergL.P;BankforInternationalSettlementsviaHaverAnalytics;AMROstaffcalculations.Note:Exchangeratedataareupto28February2023.Forbothnominaleffectiveexchangerateandrealeffectiveexchangerate,datarefertothechangesfromtheendofDecember2021totheendofDecember2022.ForbilateralexchangeratesagainsttheUSdollar,datarefertochangesfrom2Januaryto31December2022.EffectiveexchangeratedataarenotavailableforBrunei,Cambodia,LaoPDR,Myanmar,andVietnam(BCLMV).BN=Brunei;CLMV=Cambodia,LaoPDR,Myanmar,andVietnam;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.95100105110115120125Jan-22Apr-22Jul-22Oct-22Jan-23ChinaPlus-3exChinaASEAN-5CLMVDepreciation20October2022-40-30-20-1001020CNHKJPKRIDMYPHSGTHBNKHLAMMVNPlus-3ASEAN-5BCLMVExchangerateagainstUSdollarNominaleffectiveexchangerateRealeffectiveexchangerateAppreciationASEAN+3centralbankreserveshavefallensharplyasaresultofforeigncurrencyinterventionsandvaluationeffects.Theregion’sforeignexchangereservesdeclinedbyUSD710billion(or10percent)in2022(Figure1.40).AbouthalfofthedeclinecanbeattributedtointerventionsbytheauthoritiesinforeignexchangemarketstostemsharpcurrencydepreciationpressuresagainsttheUSdollar.Currencyvaluationeffects—giventheconsiderableproportionofreservesheldinothermajorcurrenciessuchastheeuro,thepound,andtheJapaneseyen—alsocontributedtothedropinthevalueofforeigncurrencyreservesheldbyASEAN+3centralbanks.2Despitethedecline,foreigncurrencyreservesgenerallyremainample,exceeding100percentofshort-termexternaldebtandthreemonthsofimports(Figure1.41).HongKong,Japan,Malaysia,andSingaporehavesubstantiallylargershort-termexternaldebtthanforeigncurrencyreserves,buttheseeconomiesalsohavealargerproportionofexternalassetsheldbypublicinstitutionsandprivatebusinessthatcouldbeusedtocovertheirforeigncurrencyliabilitieswithoutmakingaclaimoncentralbankreserves(Figure1.42).Absentnewshocks,theoutlookforcapitalflowsintheregionissanguine.Theshort-term(sixmonthsahead)outlookfornonresidentportfoliocapitalflowshasimproved,basedonthecapitalflowsatrisk(CfaR)methodologyoutlinedinTan,A.(2022)(Figure1.43).EconomicreopeninginChinaisalsohelpingtobolsterconfidenceintheregion’soutlook.However,asharperslowdownintheUSeconomythancurrentlyexpectedand/oraweakereconomicrecoveryinChinacouldheightenglobalriskaversionandresultinasharpre-pricingofriskassetsinemerging-marketeconomies,includingintheASEAN+3region.AlargerdivergencefromUSmonetarypolicy,reflectedininterestratedifferentials,couldtranslateintoweakercurrenciesandpossiblyfuelcapitaloutflowsfromtheregion.Stagflationintheregionwouldhurtinvestorconfidenceandlikelyleadtocapitaloutflows.2/BasedonaggregatedataintheIMF’sCurrencyCompositionofOfficialForeignExchangeReservesdatabase,theestimatedfallinforeignexchangereservesafterstrippingoutcurrencyvaluationeffectsisUSD338billionin2022.Theactualfallinthevalueofforeignexchangereservescouldbesmallersincethecalculationsdonottakeintoaccountthedeclineinassetpricevaluations.28ASEAN+3RegionalEconomicOutlook2023Figure1.40.ASEAN+3:NetInternationalReserves(BillionsofUSdollars)Figure1.41.ASEAN+3:AdequacyofNetInternationalReserves02004006008001,0001,20001,0002,0003,0004,0005,0006,0007,000Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Plus-3ASEAN-5(rightaxis)BCLMV(rightaxis)JapanChinaHongKongKoreaIndonesiaMalaysiaPhilippinesSingaporeThailandCambodiaLaoPDRMyanmarVietnam0369121518-1012345678910Netreservestoshort-termexternaldebt3-monththreshold1xthresholdMonthsofgoodsandservicesimportsSource:IMFviaHaverAnalytics;AMROstaffcalculations.Note:Dataexcludescheduledcontractualcommitmentsinforeigncurrencies.DataareuptoDecember2022exceptforVietnam(October2022),LaoPDR(September2022),BruneiandCambodia(November2022),andMyanmar(March2021).Singapore’sforeignexchangereserveshavebeenadjustedfortransferstoitssovereignwealthfund.ASEAN-5=Indonesia,Malaysia,thePhilippines,Singapore,andThailand;BCLMV=Brunei,Cambodia,LaoPDR,Myanmar,andVietnam;Plus-3=China,HongKong,Japan,andKorea.Source:IMF;nationalauthorities;WorldBank;AMROstaffcalculations.Note:DataareasofDecember2022forreserves.Forshort-termexternaldebt,dataareasofQ32022,exceptforChina(Q22022).Thesizeofthebubbledenotestherelativeamountofeacheconomy’snetinternationalreservesinUSdollars.Figure1.42.ASEAN+3:ReserveAssets(Percentoftotalexternalassets)020406080100CNHKJPKRKHIDMYPHSGTHPlus-3ASEANReserveassetsOtherexternalassetsSource:IMFviaHaverAnalytics.Note:DataareuptoQ32022exceptforMyanmar(Q32020).DataforBrunei,LaoPDR,andVietnamarenotavailable.CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand.Chapter1.MacroeconomicProspectsandChallenges29Figure1.43.ASEAN-4andKorea:CapitalFlowsatRisk(Probabilitydensity)AsofJune2022AsofDecember2022ModeMediumMeanAveragenonresidentportfoliocapitalflows(percentofGDP)-2024685percentCfaR:–1.2percentofGDP0.40.30.20.10.0ModeMediumMeanAveragenonresidentportfoliocapitalflows(percentofGDP)024685percentCfaR:–0.1percentofGDP0.40.30.20.10.0Source:AMROstaffestimates.Note:Thepredictedprobabilitydensityofcapitalflowssixmonthsforward(basedoninformationuptotheendofDecember2022)suggestsanaveragevolumeofcapitalinflowsinASEAN-4andKoreaof2.4percentofGDP.Usingthe5percentcapitalflowsatrisk(CfaR)threshold,theaveragevolumeofcapitaloutflowsinASEAN-4andKoreaisforecasttobeatleast0.1percentofGDP(downfromtheforecastbasedoninformationuptotheendofJune2022of1.2percentofGDP).II.RiskstotheOutlookTheoutlookfortheASEAN+3regionisbesetbyuncertainty.ThekeyriskfactorsconfrontingtheregionaresummarizedinAMRO’sRegionalRiskMap(Figure1.44).FalloutfromtheUkrainecrisisonglobalenergypricesposesthemostimmediaterisktotheoutlookforASEAN+3growth.Inparticular,therecouldbetemporarysupplyshortageswhichcouldtriggeranotherglobalenergypriceshock.AlthoughASEAN+3generallyfaredbetterthanotherregionsduringtheenergypriceshockinearly2022,anothershocktoglobalenergyprices—inconjunctionwithaglobaleconomicslowdown—wouldbeamajorblow.Asmosteconomiesintheregionarenetenergyimporters,asustainedhikeinenergypriceswouldexacerbatethecurrentcost-of-livingcrisisanddragdownprivateconsumption,whichisanimportantdomesticgrowthengine.TheUSeconomycouldexperienceahard(er)landing.WithinflationintheUnitedStatesstillwellaboveits2percenttarget,theUSFederalReserveiscommittedtomaintainingatight(er)monetarypolicystanceforaslongasisnecessarytobringinflationdown—whichmayinducearecessionintheprocess.SustainedhighborrowingcostsandtighterfinancialconditionscouldtriggeramuchsharperUSslowdownthancurrentlyenvisaged.Shouldthiscometopass,spilloverstotheglobaleconomywillbesignificant.ASEAN+3wouldfacemuchlowerexternaldemandandhigherassetprice/capitalflowvolatilityduetoincreaseduncertaintyabouttheUSmonetarypolicystance.NewandmorevirulentCOVID-19variantscouldemergeintheshortterm.Newvirusvariantsorsubvariantsarecontinuouslybeingdiscovered,suchasthefast-spreadingOmicronsubvariantsXBB1.5(Kraken)andBQ.1.1(Cerberus),whichaccountformostofcurrentCOVID-19casesintheUnitedStates.WhileavailableCOVID-19vaccineshaveremainedeffectiveatpreventingsevereillnesses,hospitalizations,anddeath,awaveofnewvaccine-resistantinfectionscouldpromptareintroductionofcontainmentmeasures,straintheregion’shealthcarecapacity,andderailitsprospectsforfulleconomicrecovery.ThepaceofrecoveryinChinawillalsobearcloseattention.WhiletheinfectionsurgefollowingtheliftingofCOVID-19restrictionsattheendoflastyearhaslargelysubsided,voluntarymobilityrestrictionstoavoidcontractingtheviruscouldconstraintherecoveryindomesticdemand,particularlyprivateconsumption.Anextendedperiodofweaknessintherealestatesectorwouldweighonconsumerandinvestorconfidenceandpotentiallyhindertheeconomy’srecovery,draggingdownregionalgrowth.TheincreasinglyacrimoniousstrategicrivalrybetweentheUnitedStatesandChinaisthebiggestthreattotheregion’sgrowthoverthemediumterm.AstheUnitedStateshassetouttocontainChina’sriseandtechnologicaldevelopment,regional—especiallyASEAN—economiesarecaughtinbetweenthetwoglobalsuperpowersandareunderpressuretochoosesides.Iftensionsboilover,30ASEAN+3RegionalEconomicOutlook2023Figure1.44.RegionalRiskMap,March2023LowMediumHighShortTerm(upto2years)MediumTerm(2to5years)LongTerm(>5years)Legend:LowimpactHighimpactLikelihoodImminencePerennialRisks➢Climatechangetransition➢Naturaldisasters➢CyberattacksMorevirulentCOVID-19variantSharperslowdowninUSHeightenedgeopoliticaltensionsSlower-than-expectedrecoveryinChinaMediumimpactSpikeinenergypricesSource:AMROstaff.Note:TheRegionalRiskMapcharacterizesthekeyriskfactorsfacingtheASEAN+3regioninthreedimensions:(1)thelikelihoodoftheriskmaterializing—low,medium,orhigh—alongtheverticalaxis;(2)theimminenceoftherisk—shortterm(uptotwoyears),mediumterm(twotofiveyears),orlongterm(morethanfiveyears)—alongthehorizontalaxis;and(3)thegrowthimpactshouldtheriskmaterialize—low,medium,orhigh—denotedbythecolorofthecircle.Perennialrisks—i.e.,recurringrisks,theimpactofwhicharenoteasilygauged—areidentifiedinthedottedcircleonthetoprightcorner.theresultcouldbeglobalfragmentationintoideologicalblocs,whichwillhaveramificationsforregionaltradeandinvestment.Therecouldbefurthersegmentationoftrade,withfar-reachingconsequencesforglobalsupplychains.Thiscouldhurttheregion’slong-termgrowthprospects(Box1.4).Climatechange,naturaldisastersandcyberattacksareperennialrisks:•Liketherestoftheworld,theregionfacestheriskofmorefrequentand/orextremeweathereventsduetoclimatechange.Respondingtoclimate-related(andnon-climaterelated)naturaldisastersentailsadirectfiscalburden.Nationalcommitmentstoadapttoandmitigateclimatechangewillalsohavehugeeconomicimpactsandlong-lasting,multigenerationalconsequences(Chapter2).•Astheregionisincreasinglyinterconnectedthroughdigitalplatforms,risksofcyberattacksoncriticalinfrastructuresuchashealthsystems,governmentagencies,andeducationalinstitutions,areincreasinginfrequencyandseverity.AccordingtoCheckPoint(2023),theglobalvolumeofcyberattacksincreasedbyalmost40percentin2022relativetothepreviousyear,withtheAsia-Pacificregionexperiencingalmost1,700weeklyattacksperorganization.Absentsufficientsafeguards,abacklashagainstdigitalizationcouldoccur,withnegativeimplicationsforproductivitygainsandlongertermgrowth.31Chapter1.MacroeconomicProspectsandChallengesBox1.4:TugofWar:RisingGeopoliticalRisksandASEAN+3TheUkrainecrisishashighlightedthesignificantroleofgeopoliticalrisksinshapingeconomicgrowth.WhilethemainimpactoftheconflicthascenteredonEurope,itsconsequenceshaverippledaroundtheworld—intheformofrisingcommodityprices,supplychainbottlenecks,anddisruptiontopeoplemovement,financialflows,andcross-borderinvestment.AlthoughASEAN+3hasrelativelyfewdirecttradeandinvestmentlinkswithRussiaandUkraine,andtheconflict’sinitialimpactsonglobalinflationandsupplychainsappeartohaveeasedsomewhat(Figure1.19),aprolongedconflictlastingwellbeyondthisyearcouldshaveabout1percentagepointofftheregion’sGDPgrowthin2023(AMRO2022a).Geopoliticalrisksarehighernowthaninthelastdecadeandwillincreasinglybeafactorintheregion’sgrowthoutlook(Figure1.4.1).ASEAN+3economies,withtheirdeepcross-borderlinkages,areparticularlyexposedtogeopoliticaltensionsthatdisruptglobaltradeandsupplychains.TherepeatedescalationintheUS-ChinatradeconflictduringtheTrumpadministration,whichsawtariffsimposedonoverUSD500billionworthofgoodsinbotheconomies,isoneexample(AMRO2020).BetweenSeptember2018andDecember2019—beforetheso-calledPhaseOnedealwasannounced—totalexportsfromtheregioncontractedsignificantlyinvalue,aftergrowingatanaveragerateof10percent(year-on-year)inthepreviouseightmonths.RecentpoliciesbytheUSBidenadministration—includingtheCreatingHelpfulIncentivestoProduceSemiconductors(CHIPS)andScienceActandtheInflationReductionAct,bothpassedlastyear,aswellasexpandedexportcontrolsonChinesehigh-techfirms—haveratcheteduptensions,creatingnegativespilloverstootherASEAN+3exportersandforcing“like-mindedallies”toannouncesimilarpolicies.1IntensifyingtensionsintheMiddleEast,oranescalationoftheUkrainecrisisthatinvolvesmorepartiescouldcausepricesofkeycommoditiestospikeonceagain.IncreasedorthreatenedmilitaryactionelsewherecouldalsoupendASEAN+3cross-bordertradeandeconomicactivity,especiallyiftheyleadtoprolongedorseveredisruptionstomajorshippinglanesorairspaces(Figure1.4.2).Geopoliticaltensionsleadtoeconomicfragmentationandheightenedpolicyuncertainty,whicherodesmarketconfidence,lowersinvestment,andhurtstheregion’slong-termgrowthprospects.WhilesilverliningscouldemergefromtheUkrainecrisisandUS-Chinastrategicrivalryinthelong-term—intheformofreinvigoratingtheglobalshiftawayfromfossilfueldependenceandfast-trackingChina’sclimbtowardself-sufficiencyincriticaltechnologies—thecostsofgeopoliticaltensionsfaroutweighanyperceivedbenefits,especiallyfortheASEAN+3region.Reconfigurationofexistingsupplychainsiscomplex,costly,andtime-consuming,anditincreasestradeandlogisticscostsforallpartiesinvolved(AMRO2021).Uncertaintyabouttradepolicyinducesa“wait-and-see”approachthatpostponesnewinvestmentorexpansionplans,leadingtolowerFDIflowsandemploymentcreationthatcanstagnateforyears,asshowninFigure1.4.3andFigure1.4.4(Cerdeiro,Kothari,andRedl2022).Geopoliticaltensionsandtheirattendantuncertaintyalsostifleinnovation,reducingknowledgeexchangeandproductivity(Astvansh,Deng,andHabib2022).The2022USexportcontrolshavealreadysloweddownthepaceofnewsemiconductorplantconstructionandexpansionsinChina,andareimpedingaccesstoadeeppoolofhighlyskilledChinese-Americanresearchers,engineers,andscientists,withadvancedexpertiseobtainedfromyearsofworkingintheUnitedStates(Box1.2)(BloombergNews2022).Inthecurrentgeopoliticalcontext,ASEAN+3needstoremaincommittedtofreetradeandcloserregionalintegrationnowmorethanever.EconomicresiliencefortheASEAN+3meansstrengthening—ratherthanshyingawayfrom—linkageswithone1/TheInflationReductionActincludesanelectricvehicle(EV)taxcreditofuptoUSD7,500perpurchase,providedfinalassemblyisdoneinNorthAmerica—whichweakensthecompetitivenessofEVmakersinothercountries,notablyKorea.TheActalsoplacesrestrictionsonsourcingmineralsusedinbatteriesfromChinaandother“foreignentitiesofconcern”andrequiresqualifyingEVbatteriestohave100percentNorthAmericancontentby2028(Forbes2022).ThisboxwaswrittenbyMartheM.HinojalesandHongyanZhao.32ASEAN+3RegionalEconomicOutlook2023Figure1.4.1.World:GeopoliticalRisk(Index,100=1985–2019)Figure1.4.3.World:TradeUncertainty(Index)Figure1.4.4.ASEAN+3:MonthlyFDIAnnouncements(Number;billionsofUSdollars)Figure1.4.2.ASEAN+3:SourcesofGeopoliticalRisksandKeyChannelsofImpacttoGrowth0100200300400500Jan-00Oct-05Jul-11Apr-17Jan-239/11attacksIraqWarRussia'sannexationofCrimeaUSandNorthKoreatensionsUkrainecrisis020406080Q12015Q32016Q12018Q32019Q12021Q32022UnitedStatesChinaWorldtradeuncertaintyNewroundofUStariffscalledoffinanticipationofatradedealAseriesoftariffsbytheUSandChinagoesintoeffectNewsaboutsemiconductortraderestrictionsbytheUSonChinaemerge01020300200400600Jan-18Aug-18Mar-19Oct-19May-20Dec-20AnnouncedprojectsCapitalexpenditureofannouncedprojects(rightaxis)UStariffsonmorethanUSD125billionworthofgoodsfromChinabegin;ChinaannouncesplannedtariffsTruceagreedatG20PhaseOnetradedealsignedUSincreasestariffongoodsfromChinaworthUSD200billionSource:CaldaraandIacoviello(2022).Note:Datarefertothethree-monthmovingaverageoftheindex,whichisbasedonacountofnewspaperarticlesthatdiscussgeopoliticaltensions.Thehighertheindex,thehigherthemeasureofgeopoliticalrisk.Source:Ahir,Bloom,andFurceri(2022).Note:Q=quarter.Theworldtradeuncertaintyindexisconstructedbycountingthenumberoftimes“uncertainty”ismentionedinproximitytoawordrelatedtotradeinEconomistIntelligenceUnit(EIU)countryreports.ItisequallyweightedaverageandscaledbytotalnumberofwordsintheEIUcountryreports,multipliedby100,000.Source:OrbisCrossborder;AMROstaffcalculations.Note:Datarefertosix-monthmovingaverages.Source:AMROstaff.•Trade--especiallyinelectronicsandtechnologyproducts;foreigndirectinvestmentinaffectedsectors;reconfigurationofexistingsupplychains•Inflation--fromoilsupplyshocks•Inflation--fromenergyandcommoditysupplyshocks;supplychainbottlenecks,disruptiontopeoplemovementandfinancialflows•Trade--fromlowerimportdemandinkeytradepartnersaffectedbytheescalationoftheconflict•Trade,transportandlogistics,travelandtourismactivitiesUS-Chinatechrivalry,strategiccompetitionMiddleEasttensionsUkrainecrisisMilitaryactioninkeyterritoriesanotherandtherestoftheworld.Thethreatofclimatechangerequiresacoordinatedglobalandregionalapproach(Chapter2),whileincreasedregionalcooperationandcoordinationisneededtomakethemostofmanyoftheASEAN+3’spost-pandemicgrowthdriversandopportunities:digitalization,modernservices,cross-borderpaymentsandsettlements,aswellasregionalsupplychainsecurity(AMRO2022b).Strongpolicysignalsthatreaffirmtheregion’sdeepandlong-standingcommitmenttofreetradeandopennesswillhelpdecreasemarketuncertainty,reducenewsourcesoftension,andensurethatall—especiallyemerginganddevelopingeconomies—cancontinuetoreaptheeconomicandsocialbenefitsofglobalization.Chapter1.MacroeconomicProspectsandChallenges33Theglobaleconomyisprojectedtoexpandatamoremoderatepacein2023asgrowthslowsintheUnitedStatesandtheeuroarea.Tighterfinancialconditionsfollowingsuccessivemonetarypolicytighteningroundsin2022willweighonconsumptionandinvestmentintheadvancedeconomies.Whileglobalfoodandcommoditypriceshavepeaked,inflationremainshigh.TheUSFederalReserveisthereforelikelytocontinueraisingthefederalfundsratein2023,albeitbysmalleramountsandataslowerpace.TheUkrainecrisisisexpectedtopersist.Onthepositiveside,globalsupplychainpressureseasedconsiderablyinthesecondhalfof2022andarelikelytoimprovein2023.TherelaxationofCOVID-19containmentpolicies,includingtheremovalofcross-bordertravelrestrictionsbyChinainJanuary2023,shouldstimulateregionaltravelandtourismactivity.However,outboundtourismfromChinawillnotrecoverimmediatelyascautioustouristsmayoptnottoleavethecountryfornow.Thepaceofrecoverywillalsobeaffectedbycapacityconstraintsininternationalairtravelandinthehospitalityandtourismsectorsofreceivingeconomies.Travelandtourismactivityisconsequentlyprojectedtoremainbelowpre-pandemiclevelsuntil2024.AMROstaffexpecttheASEAN+3regiontogrowatafasterpaceof4.6percentin2023,despitethechallengingglobalenvironment.Theimprovementintheregion’sgrowthmainlyreflectstheexpectedeconomicrecoveryinthePlus-3economies,wheregrowthisforecasttopickupfrom2.6percentin2022to4.5percentin2023.GrowthintheASEANregionisexpectedtomoderatefrom5.6percentin2022to4.9percentin2023(Table1.1).•Plus-3.ChinaandHongKongareexpectedtoleadthereboundwiththeremovalofCOVID-19containmentmeasuresandthefullreopeningoftheireconomies.ThesurgeininfectionsacrossChinafollowingtheremovalofcontainmentmeasureswillsubsideandtheeconomyisexpectedtoreboundstronglybythesecondquarter.ThereopeningofthelandborderbetweenmainlandChinaandHongKongwillprovideastrongboosttoHongKong’sexportsofgoodsandservices.GDPgrowthinJapanisexpectedtoimproveslightly,whileGDPgrowthinKoreaisexpectedtocomedown,mainlyduetoweakerexternaldemand.•ASEAN.GDPinIndonesia,Malaysia,thePhilippines,Singapore,andVietnamisforecasttogrowataslowerpaceduetoweakerexternaldemandasaresultoftheeconomicslowdownintheUnitedStatesandEurope.Thenegativeoutlookformerchandiseexportswillbepartiallycounterbalancedbytherecoveryoftravelandtourism.ThereturnofChinesetouristsisexpectedtogiveregionaltourismamajorboostin2023,particularlyinCambodiaandThailand.GrowthinBruneiandMyanmarwillbedrivenmainlybydomesticconsumptionandarevivalofinvestmentspending.Theregion’sGDPgrowthisforecasttobesustainedat4.5percentin2024.GrowthinthePlus-3economiesislikelytobeslowerthanin2023,at4.3percent,mainlyonaccountofthenormalizationofgrowthinChinaandHongKong.However,ASEANisprojectedtoexpandatafasterrateof5.2percent,comparedto4.9percentin2023,ascontinuedstrengtheningofdomesticdemandissupplementedbyanexpectedrecoveryinexternaldemand,whichshouldprovideaboosttotheregion’smanufacturingexportsandtourismearnings.Tocomplementthebaselineforecast,AMROstaffsimulatedadverseandupsidescenariostoillustratethepotentialimpactoftheriskfactorspresentedintheRegionalRiskMap(Figure1.44).ThesimulationswererunusingOxfordEconomics’GlobalEconomicModel(GEM),whichcoversallASEAN+3economieswithanunderlyingdatasetthatisupdatedeverymonth.3AMROstaff’sadversescenarioputstheregion’sGDPgrowthat3.9percentin2023and3.6percentin2024(Figure1.45andFigure1.46).Thisispremisedonariseinglobalinflation,asharpgrowthslowdownintheUnitedStatesandweaker-than-expectedrecoveryinChina,andtheemergenceofamorevirulentCOVID-19strainintheregion.IftheUkrainecrisisescalates,globalenergypricescouldsurgeinthesecondhalfof2023.Theriseinenergypriceswouldspillovertoothercommoditiesthroughincreasedtransportationandproductioncosts,leadingtohigherinflationglobally.IntheUnitedStates,aninflationIII.AMROStaffMacroeconomicForecastsfor2023–243/ThemodelconsistsofasystemofequationswithmacroeconomicvariablesthatincludeGDPanditscomponents,prices,exchangerates,andinterestrates.TheGEMisessentiallyanerror-correctionmodelthatestimateshowquicklyavariablereturnstoitsequilibriumstateafterashock;hence,itestimatesboththeshort-termandlong-termeffectsoftheshockonthevariable.Intheshortterm,themodelassumesstickyfactorpricesandaggregatedemand-determinedoutput.Inthelongterm,themodelassumesthatpricesadjustfully,andtheequilibriumisdeterminedbysupplyfactorssuchasproductivity,labor,andcapital.Forthisexercise,onlytheshort-termestimatesarepresented.34ASEAN+3RegionalEconomicOutlook2023Table1.1.ASEAN+3:AMROStaffGrowthandInflationEstimatesandForecasts,2023–24(Percent,year-on-year)Source:NationalauthoritiesviaCEICandHaverAnalytics;andAMROstaffestimatesandforecasts.Note:Myanmar’sgrowthnumbersarebasedonitsfiscalyear,whichrunsfrom1Octoberto30September.e=estimates;f=forecast.spikecouldprompttheFederalReservetohikeinterestratesfurther,causinganevensharperslowdownintheeconomyandfurtherdepressingexportdemandforASEAN+3goodsandservices.TheemergenceofamorevirulentCOVID-19variantintheregionwouldleadtogreatercautionamonghouseholdsandbusinessesanddiscourageprivatesectorspending.ThiscouldalsoimpactoutboundtourismfromChina,animportantsourceofrevenuefortherestoftheASEAN+3region.AMROstaff’supsidescenarioputstheregion’sGDPgrowthat5.2percentin2023and5.3percentin2024.Inthisscenario,globalinflationcontinuestomoderate.Dissipatinginflationpressure,alongsidefirmwagegrowthandastill-highstockofsavings,allowsUSconsumerstoincreasespending,providingaboosttoexportsofgoodsandservicesfromASEAN+3.ExistingvaccinesremaineffectiveagainstnewsubvariantsofCOVID-19,supportingastableresumptionofeconomicactivitieswithintheregion.Figure1.45.ASEAN+3:GDPGrowthForecastsunderAMROStaffScenarios(Percent,year-on-year)ASEAN+3Plus-3ASEAN3.93.65.25.36.13.24.64.50246820212022e2023f2024f3.83.35.25.16.82.64.54.30246820212022e2023f2024f4.24.55.25.83.15.64.95.20246820212022e2023f2024fSource:NationalauthoritiesviaHaverAnalytics;OxfordEconomicsGlobalModel;AMROstaffestimates.Note:e=estimates;f=forecast.EconomyGDPGrowthInflation2022e2023f2024f2022e2023f2024fASEAN+33.24.64.56.54.73.0Plus-32.64.54.32.92.32.1China3.05.55.22.02.02.5HongKong-3.54.33.01.92.32.5Japan1.01.21.12.51.51.1Korea2.61.72.35.13.32.2ASEAN5.64.95.27.95.73.4Brunei-1.22.82.63.72.51.7Cambodia5.05.96.75.43.33.1Indonesia5.35.05.34.24.63.0LaoPDR4.04.15.023.011.44.2Malaysia8.74.25.23.33.21.9Myanmar1.22.22.818.214.08.0Philippines7.66.26.55.85.93.8Singapore3.62.02.66.15.83.7Thailand2.64.14.36.12.82.1Vietnam8.06.87.13.23.02.5Chapter1.MacroeconomicProspectsandChallenges35Figure1.46.ASEAN+3:ProjectedGDPGrowthRanges,2023–24(Percent,year-on-year)Source:OxfordEconomics;AMROstaffestimates.Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MY=Malaysia;MM=Myanmar;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.02468VNPHKHCNIDHKLATHMYBNMMSGKRJP2023-adverse2023-upside2024-adverse2024-upsideHeadlineinflationinASEAN+3isprojectedtobe4.7percentin2023,lowerthanin2022.ExcludingLaoPDRandMyanmar—whicharelikelytocontinueexperiencinghighinflationonaccountofcurrencydepreciation—inflationintherestoftheregionisexpectedtobeamoremoderate3.4percentin2023(Table1.1).Mosteconomiesintheregionshouldseelowerinflationcomparedtolastyear,asglobalcommodityandfoodpricescomedownwithsofterglobaldemand.OnlyHongKong,Indonesia,andMyanmarareexpectedtoseehigherinflationin2023,duetostrongerdemandpressures(HongKong);priceincreasesforseveraltypesofsubsidizedfuel(Indonesia);andsustainedcurrencydepreciation(Myanmar).Inflationisexpectedtonormalizetowarditslong-termtrendin2024giventhatglobalenergyandfoodpricesareprojectedtostabilize.Supplybottlenecksarelikelytoeaseasproductionactivityresumesfollowingthefullreopeningofeconomies.Cost-pushinflationpressuresarethereforelikelytodissipateby2024.Lookingahead,climatechangemitigationcommitments,suchascarbonpricingandeffortstoshiftawayfromfossilfuels,mayplacemoreupwardpressureoninflationinthemediumterm(Chapter2).AseconomicrecoveryinASEAN+3gainstraction,theregion’spolicymakershavelargelyendedtheextraordinarystimulusmeasuresintroducedduringthepandemicandareshiftingtorestoringpolicybuffers.Risinginflationandalesssupportiveglobaleconomiclandscapehavecompelledtheauthoritiesinsomeeconomiestotightenmonetarypolicywhilemaintainingtargetedfiscalsupporttosafeguardgrowth.ASEAN+3authoritieswillcontinuetofacesharppolicytradeoffsanddifficultpolicydecisionsintheyearahead.Acalibratedpolicymixdrawingonarangeofpolicytoolswillbeessentialtofulfillmultiplepolicyobjectives.FiscalspaceinASEAN+3hasgenerallynarrowed.Publicdebt-to-GDPratioshaverisenacrosstheregion,asauthoritiesinsomeeconomiesraisedthepublicdebtceiling(MalaysiaandThailand)ortemporarilysuspendedthebudgetdeficitceiling(Indonesia)inordertoaccommodateadditionalfiscaloutlaysin2020–22.Althoughgrowthimprovedin2022,thehigherdebtburden—reflectinghigherinterestpaymentsandamortization—translatedintohighergrossfinancingneeds(Box1.5).AMROstaff’sassessmentisthatfiscalspaceremainsmoderatetoampleinmostASEAN+3economies,butcontinuestobelimitedinJapan,LaoPDR,andMyanmar(Table1.2).Inlightofrisinginflation,mostcentralbanksintheregionstartedtorebuildmonetarypolicyspacebyraisingpolicyinterestratesin2022.Somecentralbanks(KoreaandthePhilippines)wentfurthertotightenmonetarypolicy—raisingthepolicyrateaboveitsneutrallevel—toreinininflationandanchorinflationexpectations.Inothereconomies(Indonesia,Malaysia,andThailand),policyinterestrateshavebeenraisedbutoverallmonetaryconditionsremainaccommodative,givenexistingeconomicslack.AMROstaff’sassessmentisthatattheendof2022,monetarypolicyspacewasmoderateinmostASEAN+3economiesandlimitedinCambodia,Japan,LaoPDR,andMyanmar(Box1.6).IV.PolicyConsiderationsPolicySpace36ASEAN+3RegionalEconomicOutlook2023Table1.2.ASEAN+3:AssessmentofPolicySpace,2023Source:AMROstaff,basedonPoonpatpibulandothers(2020).Note:Thisframeworkdoesnottakeintoaccounttheabilityandcapacityofmonetaryauthoritiestoundertakeunconventionalmonetarypolicy.PolicyspaceFiscalAmpleModerateLimitedMonetaryAmpleModerateSingaporeChinaIndonesiaKoreaMalaysiaPhilippinesThailandVietnamLimitedBruneiHongKongCambodiaJapanLaoPDRMyanmar37Chapter1.MacroeconomicProspectsandChallengesBox1.5:FiscalStressinASEAN+3Governmentdebt-to-GDPratiosjumpedduringthepandemicandhavecontinuedtoriseinmostoftheregion’seconomies(Figure1.5.1).Debtaccumulationoverthepastthreeyearswasdrivenmainlybysizeableprimarydeficits.Off-budgetstimulusspendingalsocontributedtoincreasinggovernmentdebtinThailand,whileexchangeratedepreciationinflatedthedebtratioinlocalcurrencytermsineconomieswithhighexternaldebtexposuresuchasLaoPDR(Figure1.5.2).Insomeeconomies,substantialfiscaladjustmentswouldbeneededtostabilizethedebtratio(Figure1.5.3).Grossfinancingneedshavecorrespondinglyincreased.Thesumofbudgetdeficitsandfundsrequiredtorolloverdebtmaturingin2023haverisen(Figure1.5.4andFigure1.5.5).Interestrateincreaseswouldfurtheraddtoexistingdebtburdens(Figure1.5.6),whiledepreciationagainstcreditorcurrenciessuchastheUSdollarwouldincreasethecostburdenforeconomieswithlargeexternalobligations.Thesedevelopmentshavebroughttotheforetheimportanceofassessingfiscalsustainabilityrisksacrosstheregion.Variousfactorscanaffectfiscalsustainabilityrisks,including:•Fiscalvulnerabilities.Largefiscaldeficitsandhighgovernmentdebtmayraiseconcernsaboutfiscalsustainability.Sizeablefinancingneedsmaycausefinancingstress,especiallywhenmarketconditionsarenotfavorable.Suboptimaldebtstructure(e.g.,ahighshareofexternaldebtandshort-termdebt)wouldincreasevulnerabilitytorollover,exchangerate,andinterestraterisks.•Externalsectorvulnerabilities.Externalshockscouldpropagatetofiscalsustainabilityrisksineconomieswithweakcurrentaccounts,highexternaldebt,andnarrowexternalbuffers.•Domesticmacroeconomicandfinancialconditions.Economicrecessionmaywidentherealinterestrate-growthratedifferentialandjeopardizedebtsustainability.Asharpdepreciationofthelocalcurrencywouldinflatethenominalvalueofexternaldebtandincreasethedebtserviceburdenforeconomieswithhighexternaldebtobligations.•Globaleconomicsituation.Globaleconomicandfinancialmarketdevelopmentscouldtriggerfiscalsustainabilityrisksineconomiesthatareexposedtotheglobaleconomythroughrealandfinancialchannels.ThedegreeoffiscalstressinASEAN+3economiescanbeassessedusingtheshort-termfiscalsustainability(FSS)indicator.FollowingBaldacciandothers(2011),fiscalcrisiseventsaredefinedasepisodesofoutrightfiscaldistress(e.g.,publicdebtdefaultorrestructuring,needforlarge-scaleIMFsupport,hyperinflation)andextremefinancingproblems(e.g.,spikesinsovereignbondspreads).Inthesecases,fiscalsolvencyisendangeredandthegovernmentisforcedtoalteritspoliciestoregainfiscalsustainability.TheFSSindicatorisbasedonasetof27indicatorsthathavebeenproventoperformwellindetectingupcomingsituationsoffiscalstress,includingthefiscalbalance,governmentdebt,grossfinancingneeds,externaldebt,realGDPgrowth,inflation,exchangeratedepreciation,commoditypriceindex,andtheChicagoBoardOptionsExchangevolatilityindex(AMRO,forthcoming).AMROstaffassessmentusingtheFSSindicatorsuggeststhatfiscalstresshasriseninmorethanhalfofASEAN+3economiessincetheonsetofthepandemic.TheFSSindicatorsforBrunei,Cambodia,China,HongKong,Japan,Korea,LaoPDR,andSingaporeroseabovethethresholdin2022.Thisdoesnotnecessarilymeanthatafiscalstresseventisimminent,onlythatclosemonitoringandcarefulmacro-fiscalmanagementarerequiredtoreducetheriskofonein2023(Figure1.5.7).Reasonsfortheincreaseinfiscalstresscanbetracedtounfavorableglobalconditionsin2022,whichincludedeconomicslowdown,commoditypricehikes,andvolatilefinancialmarketconditions(HongKong,Japan,Korea,andSingapore);largefiscaldeficits(China);domesticmacroeconomicweakness(Brunei);andweakexternalpositions(CambodiaandLaoPDR).ThisboxwaswrittenbyByunghoonNam.38ASEAN+3RegionalEconomicOutlook2023Figure1.5.1.ASEAN+3:GovernmentDebt(PercentofGDP)Figure1.5.4.ASEAN+3:GrossFinancingNeeds(PercentofGDP)050100150200250JPSG020406080100KHCNHKIDKRLAMYMMPHTHVNFY2019FY2020FY2021FY2022e-505101520BNKHCNHKIDJPKRLAMYMMPHSGTHVNFY2019FY2020FY2021FY2022eSource:NationalAuthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:Bruneiisnotshownasithasvirtuallyzerogovernmentdebt.CN=China;e=estimate;FY=fiscalyear;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:GrossfinancingneedsforLaoPDR(LA)includeitsoriginaldebtserviceamountwithoutdebtrestructuring(thegovernmenthasbeenindebtrestructuringnegotiationswithbilateralcreditorssince2021).BN=Brunei;CN=China;e=estimate;FY=fiscalyear;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR:MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Figure1.5.2.ASEAN+3:ContributiontoChangeinGovernmentDebtRatio,FY2019–22(PercentofGDP)Figure1.5.3.SelectedASEAN+3:PrimaryBalanceandNeededFiscalAdjustment(PercentofGDP)-20-1001020304050KHCNHKIDJPKRLAMYPHSGTHVNPrimarydeficitRealGDPgrowthExchangerateOtherChangesingovernmentdebt-8-6-4-2024KHCNIDJPKRLAMYPHTHVNPrimarybalanceinFY2015-FY2019PrimarybalanceinFY2022Debt-stabilizingprimarybalanceinFY2023FiscaladjustmentneededinFY2023Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:Bruneiisexcludedasthereisvirtuallyzerogovernmentdebt.CN=China;FY=fiscalyear;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:Thedebt-stabilizingprimarybalanceinFY2023istheprimarybalancethatwouldmaintainthedebtratioattheendofFY2022.ThefiscaladjustmentneededinFY2023isdefinedasthedifferencebetweentheactualprimarybalanceinFY2022andthedebt-stabilizingprimarybalanceinFY2023,whichcaptureshowmuchtheprimarybalanceshouldchangeinFY2023comparedtoFY2022tostabilizethedebtratio.CN=China;FY=fiscalyear;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MY=Malaysia;PH=Philippines;TH=Thailand;VN=Vietnam.39Chapter1.MacroeconomicProspectsandChallengesFigure1.5.5.ASEAN+3:ContributiontoChangeinGrossFinancingNeedsfromFY2019–22(PercentofGDP)Figure1.5.7.ASEAN+3:Short-TermFiscalSustainabilityIndicatorFSSContributiontoFSSFigure1.5.6.SelectedASEAN+3:AdditionalInterestPaymentsdueto2022PolicyRateHikes,FY2023(PercentofGDP)-10-50510KHCNHKIDJPKRLAMYMMPHSGTHVNPrimarybalanceInterestpaymentsPrincipalpaymentRealGDPgrowthGDPdeflatorChangeinGFN0.00.20.40.60.81.01.2201020152020Japan201020152020Korea201020152020Singapore201020152020HongKong0.00.10.2IDKRMYPHTHSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimatesNote:ForBrunei,thereisnoissuanceofdebttofinancefiscalneeds;CN=China;GFN=grossfinancingneeds;HK=HongKong;FY=fiscalyear;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:Forsimulationpurposes,thepolicyratesin2023areassumedtoremainthesameasinJanuary2023.Bondcouponratesareassumedtomoveinparallelwiththepolicyrates.FY=fiscalyear;ID=Indonesia;KR=Korea;MY=Malaysia;PH=Philippines;TH=Thailand.0.00.20.40.60.81.01.22019202020212022Cambodia2019202020212022LaoPDR2019202020212022Myanmar2019202020212022VietnamFiscalPositionFinancingConditionDebtProfileExternalPositionMacroSituationGlobalEconomyFSSFSSThreshold0.00.20.40.60.81.01.22019202020212022Japan2019202020212022Korea2019202020212022Singapore2019202020212022HongKong40ASEAN+3RegionalEconomicOutlook2023FSS0.00.20.40.60.81.01.2201020152020Brunei201020152020China201020152020Indonesia201020152020Malaysia201020152020Philippines201020152020ThailandContributiontoFSSContributiontoFSSFSS0.00.20.40.60.81.01.2201020152020Cambodia201020152020LaoPDR201020152020Myanmar201020152020Vietnam0.00.20.40.60.81.01.22019202020212022Brunei2019202020212022China2019202020212022Indonesia2019202020212022Malaysia2019202020212022Philippines2019202020212022Thailand0.00.20.40.60.81.01.22019202020212022Cambodia2019202020212022LaoPDR2019202020212022Myanmar2019202020212022VietnamFiscalPositionFinancingConditionDebtProfileExternalPositionMacroSituationGlobalEconomyFSSFSSThresholdSource:Nationalauthorities,IMF,WorldBankviaHaverAnalytics;AMROstaffestimates.Note:Theshort-termfiscalsustainabilityindicator(FSS)isacompositeindicatorbasedon27indicatorsreflectingthefiscalposition,externalposition,macroeconomicandfinancialmarketconditions,aswellasglobaleconomicconditions.Theoptimalthresholdsareindicatedbythehorizontaldottedlines.Ahigher(lower)valueofFSS(relativetothethreshold)implieshigher(lower)short-termriskofafiscalstressevent.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.41Chapter1.MacroeconomicProspectsandChallengesBox1.6:MonetaryPolicyFrameworksinASEAN+3ASEAN+3economieshaveadoptedawiderangeofmonetarypolicyframeworkstoachievetheirprice,financial,andexternalstabilityobjectives(Table1.6.1).BruneiandHongKonghaveahardexchangeratepegsimilartoacurrencyboardsystem;hence,theyhavenomonetarypolicyautonomy.Cambodia,China,LaoPDR,andVietnamhavedefactosoftexchangeratepegs,withanexplicitorimplicitexchangerateanchorformonetarypolicy.SingaporecentersitsmonetarypolicyontheSingaporedollarnominaleffectiveexchangerate.CambodiaandLaoPDRarehighlydollarizedeconomies.Fiveeconomies—Indonesia,Japan,Korea,thePhilippines,andThailand—haveaninflation-targetingframeworkformonetarypolicy,whileMalaysiahasnoexplicitlystatednominalanchorandmonitorsvariousindicatorsinconductingmonetarypolicy.MonetarypolicyspaceisassessedbyAMROstaffbasedonafour-blockapproachthataccountsfor:(1)thedegreeofmonetarypolicyautonomy;(2)thedistanceoftheprevailingmonetarypolicyratefromthezerolowerbound;(3)externalsustainabilityandreservebufferstodealwithshocks;and(4)financialimbalancesandtheabilitytoaddressthemusingmacroprudentialtools(Poonpatpibulandothers2020).ForCambodia,LaoPDR,Myanmar,andVietnam,theassessmentofmonetarypolicyspacealsotakesintoaccountthelevelofdollarizationanddatalimitationsinkeyfinancialstabilityindicators.Table1.6.1.ASEAN+3:MonetaryPolicyFrameworksSource:IMFAnnualReportonExchangeArrangementsandExchangeRestrictions(AREAER)database;Poonpatpibulandothers(2020);AMROstaffcompilation.Note:n.a.=notapplicable.“Othermanagedarrangement”(Myanmar)referstoanexchangeratearrangementthatdoesnotmeetthecriteriaforanyoftheAREARcategories;arrangementscharacterizedbyfrequentshiftsinpoliciesmayfallintothiscategory.ThisboxwaswrittenbyAnthonyChiaKiatTan.EconomyDeFactoExchangeRateClassificationMonetaryPolicyFrameworkPolicyInterestRate(s)BruneiCurrencyboardExchangerateanchoragainsttheSingaporedollarn.a.HongKongCurrencyboardExchangerateanchoragainsttheUSdollarn.a.CambodiaStabilizedarrangementExchangerateanchoragainsttheUSdollarn.a.SingaporeStabilizedarrangementExchangerateanchoragainstabasketofcurrenciesn.a.VietnamCrawl-likearrangementExchangerateanchoragainsttheUSdollarStateBankofVietnamrefinancingrate,discountrate,overnightlendinginterestrateininterbankelectronicpayment.LaoPDRCrawl-likearrangementOthermonetaryframework(defactoexchangerateanchoragainsttheUSdollar)PhilippinesFloatingInflationtargetingBangkoSentralngPilipinasovernightreverserepurchaserateChinaOthermanagedarrangementMonetaryaggregatetarget(defactoexchangerateanchoragainstabasketofcurrencies)People’sBankofChinareporate,reversereporate,loanprimerate,standinglendingfacility,andmedium-termlendingfacilityrates.MyanmarOthermanagedarrangementMonetaryaggregatetarget(reservemoney)IndonesiaFloatingFlexibleinflationtargetingBankIndonesiaseven-dayreversereporateKoreaFloatingInflationtargetingBankofKoreabaserateMalaysiaFloatingOthermonetaryframeworkBankNegaraMalaysiaovernightpolicyrateThailandFloatingFlexibleinflationtargetingBankofThailandone-daybilateralrepurchasetransactionrateJapanFreefloatingInflationtargetingBankofJapanshort-termpolicyinterestrateand10-yearJapanGovernmentBondyield42ASEAN+3RegionalEconomicOutlook2023Table1.3summarizesAMROstaffassessmentsandrecommendationsregardingthepolicystanceinASEAN+3economies.Withfiscalspacesignificantlysmaller,mostauthoritiesintheregionareplanningtoshifttowardfiscalconsolidationin2023.Fiscaldeficitswidenedinhalfoftheregion’seconomiesin2022andnarrowedintheotherhalf(Figure1.47).Thevariationlargelyreflecteddifferencesinthespeedofeconomicrecovery,unwindingofspendingonpandemicsupport,andrestructuringofspendingprograms,aswellasidiosyncraticfactorssuchascommoditypricewindfalls(BruneiandIndonesia).Fiscalbalancesarebudgetedtoimproveinmosteconomiesin2023,inanticipationofrobustrevenuegrowthandwithdrawalofpandemic-relatedspending(Figure1.48).Asaresult,thefiscalstancein2023isassessedtobecontractionaryinhalfoftheregion'seconomies.(Figure1.49).Thespeedandmagnitudeoffiscalconsolidationwoulddependoncountry-specificeconomiccircumstances,policypriorities,andconstraints.Inthenearterm,someeconomiesstillneedcontinuedfiscalsupport,especiallywhererisinginflationhassubstantiallyincreasedthecostoflivingorwheretherehasbeenaresurgenceofCOVID-19andeconomicrecoveryhasnotfullytakenhold.Economicrecoveryisoftenuneven,andvulnerablegroupsandsectorsmaystillrequiresupport.Atthesametime,althoughsomefiscalpolicyspaceremainsinmosteconomies,itiscrucialtorebuildfiscalbufferstoprepareforfutureshocksandtoaddressmedium-andlonger-termchallenges(Box1.7).Fornon-reservecurrencyeconomiesheavilyreliantonexternalfinancing,asoundfiscalpositionisespeciallycriticalfortheirsovereigncreditrating,whichaffectsfinancingcostsofnotonlythegovernmentbutalsotheprivatesector.Fiscalconsolidationshouldbeaddressedfirstthroughresourcereallocationandsupportedbyfiscalreform.Fiscaladjustmentshouldstartbytaperingbroad-basedemergencymeasuresbasedonthestrengthoftheeconomicrecoveryandtheabatementofthepandemic.Expandedsocialsafetynetsshouldprovidecontinuedsupporttovulnerablegroupsandsectorslaggingintherecovery,whiletime-bound,targetedsupportcouldbeemployedtofillgapsinsocialprotectioncoverage.Fiscalpolicyshouldstandreadytotaketheleadindealingwitheconomicdifficultiesifdownsiderisksmaterialize,especiallywherelimitationsonmonetarypolicyapply.Inanycase,thesupportshouldbetemporaryandselective,andeffortstorebuildthefiscalbuffershouldberesumedoncetheriskfactorssubside.PolicyPositionsFiscalpolicyFigure1.47.ASEAN+3:FiscalBalancesSource:NationalAuthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:Fiscalyear(FY)isApriltoMarchforBrunei,HongKong,Japan,andSingapore;OctobertoSeptemberforThailandandMyanmar;JanuarytoDecemberfortheothereconomies.BN=Brunei;CN=China;e=estimate;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.-20-15-10-50BNKHCNHKJPKRIDLAMYMMPHSGTHVNFY2019FY2020FY2021FY2022eChapter1.MacroeconomicProspectsandChallenges43Figure1.48.SelectedASEAN+3:ContributiontotheChangeinFiscalBalance,FY2023(PercentofGDP)Figure1.49.SelectedASEAN+3:FiscalImpulse,FY2023(PercentofGDP)Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:BudgetdataareunavailableforMyanmar.ThefiscalbalanceforSingaporeisbasedontheoverallbudgetsurplus/deficit,excludingcapitalizationanddepreciationofnationallysignificantinfrastructurefromtheoverallfiscalposition.BN=Brunei;CN=China;FY=fiscalyear;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR,MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimate.Note:AMROdefinesfiscalimpulseastheestimatedchangeinthestructuralprimarybalance.Anegativefiscalimpulseimpliesacontractionaryfiscalstance.Thechangeinprimaryexpenditureisdefinedastheannualdifferenceinexpenditureexcludinginterestpayments,asapercentageofGDP.AnegativesignimpliesthatprimaryexpendituregrowsslowerthannominalGDP.BudgetdataareunavailableforMyanmar.BN=Brunei;CN=China;FY=fiscalyear;HK=HongKong;JP=Japan;KH=Cambodia;KR=Korea;ID=Indonesia;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.-16-12-8-4048BNKHCNHKIDJPKRLAMYPHSGTHVNContributionofGDPdeflatorContributionofrealGDPgrowthContributionofexpendituredecreaseContributionofrevenueincreaseChangeinfiscalbalance-6-4-2024KHCNHKIDJPKRLAMYPHSGTHVNFiscalimpulseChangeinprimaryexpendituretoGDPratio44ASEAN+3RegionalEconomicOutlook2023Box1.7:FiscalPolicyintheMediumTermAcrosstheregion,fiscaldeficitsareenvisagedtograduallyreturntopre-pandemiclevelsinthemediumterm(Figure1.7.1).Governmentdebt-to-GDPratioswillplateauorslightlydeclineovertime(Figure1.7.2).Theplannedrestorationoffiscalspacewillenablefiscalpolicytoplayabiggerroleinsupportinggrowthagainstshocks,minimizingthescarringeffectsofthepandemic,andaddressingexistingandemergingstructuralchallenges—e.g.,populationaging,infrastructuregaps,climatechange,anddigitalization.•Inthenext10years,severalASEAN+3economiesareprojectedtobecomeso-calledpost-aged(orsuper-aged)societies,withmorethan20percentofthepopulationabovetheageof65(Figure1.7.3).Theadditionalfiscalcostsforhealthcarespendingin2032comparedto2022areestimatedtorangefromunder1percentofGDP(inChina,Japan,andThailand)toover2percentofGDP(inHongKong,Korea,andSingapore).•AsnotedinthethematicchapteroftheASEAN+3RegionalEconomicOutlook2022,theregion’semerginganddevelopingeconomiesfacesizeableinvestmentneedsforbothtraditionalandnewinfrastructure(AMRO2022b).Theinfrastructuregapisestimatedtobe0.3–0.9percentofGDPinemerging-marketeconomies,and1.1–4.2percentofGDPinlow-incomeeconomies,onaverage,in2023–40(Figure1.7.4).ASEAN+3authoritiesshouldprepareclearmedium-termfiscalconsolidationplans.Foraccountabilityandcredibility,specifictargets—forthefiscaldeficitand/orthegovernmentdebtratio—shouldbepresentedtogetherwithrealisticmacroeconomicprojectionsandfeasiblepolicymeasurestoachievethem.Thetargetsandmeasuresshouldbealignedwithcountry-specificeconomicandfiscalcircumstances.Forexample,economieswithlowtax-to-GDPratiosmayputmoreemphasisonimprovingrevenuecollectionintheirmedium-termconsolidationplan.Tosafeguardgrowthmomentum,revenue-enhancingmeasuresshouldprioritizestrengtheningtaxadministrationandcompliancebeforeintroducingnewtaxesorraisingtaxrates.Expendituremeasures,suchasrationalizingdistortionarysubsidiesandimprovingtheefficiencyofspendingprograms,wouldalsobeimportantaspectsoffiscaladjustment(AndriansyahandHong2022).Governmentsshouldalsoconsiderreinstatingfiscalrulesrelaxedduringthepandemicorintroducingnewfiscalrulestoguidethefiscalconsolidationtargets.1Post-pandemicfiscalpolicynormalizationwillprovidetheopportunitytorevisitoverallresourceallocationacrossdiversepolicypriorities.Restructuringofspendingprogramsshouldbebasedonrigorousassessmentofexistingandnewprograms,whichwouldhelpredirectresourcestowardhigh-priorityprogramswhilestrengtheningrole-sharingbetweenthepublicandprivatesectorstobettermobilizeavailableresources.1/Indonesiahasreinstateditsbudgetdeficitceilingof3percentofGDPafterrelaxingitforthreeyearsfrom2020to2022.Thailandincreaseditspublicdebtceilingfrom60percentofGDPto70percentin2021.Malaysiaincreaseditspublicdebtceilingfrom55percentofGDPto60percentin2020,and65percentin2021;inaddition,theMalaysiangovernmenthascreatedaspecialaccountfortheCOVID-19fund,whichallowsittobypassthegoldenruleofgovernmentspendingandborrowforthisaccount.Meanwhile,Koreahasproposedafiscalrulelimitingthefiscaldeficitexcludingsocialsecurityfundstobelow3percentofGDP.ThisboxwaswrittenbyByunghoonNam.45Chapter1.MacroeconomicProspectsandChallengesFigure1.7.1.SelectedASEAN+3:Medium-TermFiscalBalanceProjections(PercentofGDP)Figure1.7.3.ASEAN+3:Old-agePopulation(Percentoftotalpopulation)Figure1.7.4.SelectedASEAN+3:InfrastructureInvestmentGap,2023–40(PercentofGDP)Figure1.7.2.SelectedASEAN+3:Medium-TermGovernmentDebtProjections(PercentofGDP)-10-8-6-4-2024HKIDJPKRMYPHFY2022FY2023FY2024FY2025FY2026FY2027FY2028FY2015−FY2019(actual)051015202530354045JPKRHKSGTHCNVNBNIDMYPHKHLAMM2023203320432053AgingSocietyAgedSocietyPost-agedSociety02468SGJPKRIDCNMYTHPHVNKHMMCurrenttrendInvestmentneedInvestmentgap1902002102203040506070FY2019aFY2021aFY2023FY2025FY2027IDKRPHJP(rightaxis)Source:Nationalauthorities;AMROstaffestimates.Note:Fiscalbalanceprojectionsareasannouncedbyauthorities.FY=fiscalyear;HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines.DataforFY2022−28areAMROstaffestimates.Source:UnitedNations;AMROstaffestimates.Note:Old-agepopulationreferstothoseofages65yearsandabove.Aneconomyisclassifiedasanagingsocietyiftheshareofold-agepopulationinthetotalpopulationis7percentto14percent,anagedsocietyiftheshareis15percentto19percent,andapost-agedsocietyiftheshareis20percentandabove.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:GlobalInfrastructureOutlook;AMROstaffcalculations.Note:Theinvestmentgapisdefinedasthedifferencebetweentheinfrastructureinvestmentprojectedfor2023–40,basedoncurrenttrendsandtheinfrastructureinvestmentneededtomatchtheperformanceofthebest-performingpeers.CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:Nationalauthorities;AMROstaffestimates.Note:Debtratioprojectionsareasannouncedbyauthorities.a=actual;FY=fiscalyear;ID=Indonesia;JP=Japan;KR=Korea;PH=Philippines.46ASEAN+3RegionalEconomicOutlook2023Monetarypolicyshouldremaintightineconomieswhereinflationisabove-target.InKoreaandSingapore,arapidlynarrowingoutputgapandfirminglabormarketpromptedmorepreemptivemonetarypolicytighteningtoreinininflationpressuresin2022.TheBankofKoreatightenedpolicyatamoreaggressivepace,raisingitspolicy(“base”)ratewellabovepre-pandemiclevels(Figure1.50).TheMonetaryAuthorityofSingaporeactedpreemptivelyandhasprogressivelyrecenteredthemid-pointandraisedtheslopeoftheSingaporedollarnominaleffectiveexchangeratepolicybandsinceOctober2021.Whileinflationpressureshavelargelyeased,headlineinflationremainshigherthanthepre-pandemicaverageinthesetwoeconomies(Figure1.51).InthePhilippines,thecentralbankraiseditspolicyratetocurbrisinginflationandtheemergenceofsecond-roundeffects.Giventhesethreeeconomies’mid-andlate-cyclepositions(asshowninSectionI),AMROstaffrecommendsthattheircentralbanksmaintainatightmonetarypolicystanceuntilinflationpressuressubside.Monetaryconditionscanremainaccommodativeineconomieswithnegativeoutputgaps.Asnotedearlier,Indonesia,Malaysia,andThailandhaveraisedtheirpolicyinterestrates,butwithinflationgenerallyundercontrolandinlightoftheslackintheireconomies,theauthoritieshavebeenabletokeepmonetaryconditionssupportiveofgrowth,i.e.,thepolicyinterestrateisbelowtheneutralrate.AMROstaffrecommendsthattheauthoritiesstandreadytofurthernormalizemonetarypolicyintandemwiththeimprovementinthegrowthtrajectoryand/orifupsideriskstoinflationmaterialize.Macroprudentialpoliciesremainlargelyneutral—whichisappropriatetosupportgrowth.Asthepandemicrecedesandeconomicactivitiesresume,mosteconomieshavebeguntotapermacroprudentialaccommodation,butnottotheextentoftighteningpolicies.Measuresaimedatincreasingthespaceforbankstosupportborrowers—suchastemporarysuspensionofminimumliquiditycoverageratios(Malaysia)andtemporaryreductioninreserverequirementratios(Indonesia)—arebeingallowedtoexpire.KoreaandSingapore,whichbothsawarobustpropertymarketrecovery,tightenedrulesforhousingloanstoensureprudentborrowingamidrisinginterestrates(althoughKoreasubsequentlyliftedproperty-relatedregulationsinDecember2022amidfallinghomeprices).Creditpoliciesshouldcontinuetobenormalized.Emergencydebtmoratoriums,whichwererolledouttogivestrugglinghouseholdsandbusinessesareprievefrommeetingtheirdebtobligationsduringthepandemic,aregraduallybeingliftedinmanyeconomies.Banksintheregionhavealsobeencloselymonitoringtheirloanqualityandbuildingupprovisionsinanticipationoftheunwindingofregulatoryforbearance.Givensectoraldisparitiesintheeconomicrecovery,however,targetedsupportforhard-hitbutviablebusinessesinlaggingsectorsshouldremain,alongsidecarefulmonitoring.MonetarypolicyMacroprudentialandcreditpoliciesFigure1.50.SelectedASEAN+3,UnitedStatesandEuroArea:PolicyInterestRates(Percent)Figure1.51.SelectedASEAN+3:HeadlineConsumerPriceInflation(Percent,year-on-year)Source:NationalauthoritiesviaHaverAnalytics.Note:DataareuptoFebruary2023.Policyratesrefertoseven-dayreversereporate(Indonesia);baserate(Korea);overnightpolicyrate(Malaysia);overnightreversereporate(thePhilippines);one-dayrepurchaserate(Thailand);refinancingrate(Vietnam);federalfundsrate(upperrange)(UnitedStates);anddepositfacilityrate(euroarea).Source:NationalauthoritiesviaHaverAnalytics.Note:China,Malaysia,Singapore,andVietnamarenotinflation-targetingeconomies.CN=China;HK=HongKong;ID=Indonesia;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.-202468Jan-18Jan-19Jan-20Jan-21Jan-22Jan-23IndonesiaMalaysiaPhilippinesThailandUnitedStateseuroareaVietnamKorea-202468HKCNVNMYIDKRPHSGTH2020202120222022inflationtarget(ormid-pointofthetargetrange)Chapter1.MacroeconomicProspectsandChallenges47Table1.3.ASEAN+3PolicyMatrix:AMROStaffAssessmentofCurrentPolicyStanceandRecommendations2022Policystance2023Policystance2023PolicyspaceRecommendedpolicydirectionCurrentmonetarycondition2023PolicyspaceRecommendedpolicydirectionCurrentpolicystanceRecommendedpolicydirectionCurrentpolicystanceRecommendedpolicydirectionBruneiAmpleLimitedCambodiaModerateLimitedChinaModerateModerateHongKongAmpleLimitedIndonesiaModerateModerateJapanLimitedLimitedKoreaModerateModerateLaoPDRLimitedLimitedMalaysiaModerateModerateMyanmarLimitedLimitedPhilippinesModerateModerateSingaporeAmpleModerateThailandModerateModerateVietnamModerateModerateLegend:FiscalPolicyMonetaryPolicyPrudentialPolicyMacroprudentialPolicyCreditPolicyTightenmoreTightenlessMaintaintighteningTightenExpansionary/AccommodativeNeutralContractionary/TightAMRO'sassessmentofcurrentpolicystanceExpandmore/moreaccomodativeExpandless/lessaccomodativeMaintaincurrentexpansionExpandAMRO'srecommendationNeutralTighteningbiasEasingbiasMaintainneutralSource:AMROstaffestimates.Note:Asterisk()denotesfiscalyearfrom1Aprilto31March.Fiscalpolicystanceisassessedbythefiscalimpulsebasedonstructuralprimarybalance.Thefiscalpolicystancein2022isbasedon2022estimates,whilethefiscalstancein2023isbasedonthe2023budget.ForBruneiandHongKong,whichhaveacurrencyboardarrangement,thecurrentmonetarystancereferstocurrentmonetaryconditions.“Creditpolicy”referstopoliciesrelatingtocreditextendedtotherealandpropertysectors,aswellastoregulatoryforbearanceforbanks.48ASEAN+3RegionalEconomicOutlook2023Appendix:SelectedKeyMacroeconomicandFinancialIndicators20212022e2023f2024fBruneiDarussalamRealGDPgrowth(percent,year-on-year)–1.6–1.22.82.6Headlineinflation(periodaverage,percent,year-on-year)1.73.72.51.7Currentaccountbalance(percentofGDP)11.212.89.97.1Governmentfiscalbalance(percentofGDP)–5.20.5–1.3–1.6CambodiaRealGDPgrowth(percent,year-on-year)3.05.05.96.7Headlineinflation(periodaverage,percent,year-on-year)2.95.43.33.1Currentaccountbalance(percentofGDP)–45.7–32.7–18.2–11.0Governmentfiscalbalance(percentofGDP)–8.5–5.4–5.2–3.4ChinaRealGDPgrowth(percent,year-on-year)8.43.05.55.2Headlineinflation(periodaverage,percent,year-on-year)0.92.02.02.5Currentaccountbalance(percentofGDP)1.82.31.20.8Governmentfiscalbalance(percentofGDP)–3.8–4.9–5.2–4.5HongKong,ChinaRealGDPgrowth(percent,year-on-year)6.4–3.54.33.0Headlineinflation(periodaverage,percent,year-on-year)1.61.92.32.5Currentaccountbalance(percentofGDP)11.86.66.05.2Governmentfiscalbalance(percentofGDP)0.0–7.3–3.9–1.0IndonesiaRealGDPgrowth(percent,year-on-year)3.75.35.05.3Headlineinflation(periodaverage,percent,year-on-year)1.64.24.63.0Currentaccountbalance(percentofGDP)0.31.0–0.5–1.3Governmentfiscalbalance(percentofGDP)–4.7–2.4–2.2–3.0JapanRealGDPgrowth(percent,year-on-year)2.11.01.21.1Headlineinflation(periodaverage,percent,year-on-year)–0.32.51.51.1Currentaccountbalance(percentofGDP)3.92.11.82.0Governmentfiscalbalance(percentofGDP)–5.9–9.4–4.7–4.4KoreaRealGDPgrowth(percent,year-on-year)4.12.61.72.3Headlineinflation(periodaverage,percent,year-on-year)2.55.13.32.2Currentaccountbalance(percentofGDP)4.71.51.82.0Governmentfiscalbalance(percentofGDP)–4.4–5.1–2.6–2.6Chapter1.MacroeconomicProspectsandChallenges4920212022e2023f2024fLaoPDRRealGDPgrowth(percent,year-on-year)3.54.04.15.0Headlineinflation(periodaverage,percent,year-on-year)3.823.011.44.2Currentaccountbalance(percentofGDP)2.7–0.3–0.81.3Governmentfiscalbalance(percentofGDP)–1.3–1.0–2.2–1.8MalaysiaRealGDPgrowth(percent,year-on-year)3.18.74.25.2Headlineinflation(periodaverage,percent,year-on-year)2.53.33.21.9Currentaccountbalance(percentofGDP)3.82.63.64.4Governmentfiscalbalance(percentofGDP)–6.4–5.6–5.1–4.2MyanmarRealGDPgrowth(percent,year-on-year)–18.71.22.22.8Headlineinflation(periodaverage,percent,year-on-year)3.618.214.08.0Currentaccountbalance(percentofGDP)–0.2–4.3–2.3–1.2Governmentfiscalbalance(percentofGDP)–7.7–6.7–6.2–5.8PhilippinesRealGDPgrowth(percent,year-on-year)5.77.66.26.5Headlineinflation(periodaverage,percent,year-on-year)3.95.85.93.8Currentaccountbalance(percentofGDP)–1.5–5.3–3.8–2.5Governmentfiscalbalance(percentofGDP)–8.6–7.3–6.1–5.5SingaporeRealGDPgrowth(percent,year-on-year)8.93.62.02.6Headlineinflation(periodaverage,percent,year-on-year)2.36.15.83.7Currentaccountbalance(percentofGDP)18.019.315.515.7Governmentfiscalbalance(percentofGDP)0.3–0.3–0.10.2ThailandRealGDPgrowth(percent,year-on-year)1.52.64.14.3Headlineinflation(periodaverage,percent,year-on-year)1.26.12.82.1Currentaccountbalance(percentofGDP)–2.1–3.40.22.0Governmentfiscalbalance(percentofGDP)–5.2–3.6–3.1–2.9VietnamRealGDPgrowth(percent,year-on-year)2.68.06.87.1Headlineinflation(periodaverage,percent,year-on-year)1.83.23.02.5Currentaccountbalance(percentofGDP)–1.10.32.94.0Governmentfiscalbalance(percentofGDP)–3.4–4.4–2.6–2.3Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:NumbersinredareAMROstaffestimatesandforecasts.Datarefertocalendaryear,exceptforgovernmentfiscalbalances,andMyanmar.Datafor2022refertoAMROstaffestimates,fordatareleasesthatarenotyetavailable.GovernmentfiscalbalancereferstobalanceofthecentralandlocalgovernmentsforCambodia;generalgovernmentforJapan;andcentralgovernmentforallothereconomies.e=estimates;f=forecasts.Appendix:SelectedKeyMacroeconomicandFinancialIndicators50ASEAN+3RegionalEconomicOutlook2023ReferencesAgenceFrance-Presse.2022.“Omicron:HongKongLeaderSaysCity‘Overwhelmed’byFifthWave,HealthFacilitiesOverloadedbyCovid-19Infections.”14February.Ahir,Hites,NicholasBloom,andDavideFurceri.2022.WorldUncertaintyIndex.https://worlduncertaintyindex.com/Andriansyah,andSeungHyun(Luke)Hong.2022.“RebuildingFiscalBuffersinthePost-PandemicEra:FiscalNormalization,Consolidation,andStructuralReform.”AMROPolicyPerspectivesPaperPP/22-02.ASEAN+3MacroeconomicResearchOffice,Singapore,May.https://www.amro-asia.org/rebuilding-fiscal-buffers-in-the-post-pandemic-era-fiscal-normalization-consolidation-and-structural-reform/AntaraNews.2022.“ForeignTouristVisitsuntilOctober2022SurpassedTarget:Minister.”7December.ASEAN+3MacroeconomicResearchOffice(AMRO).2020.“MacroeconomicProspectsandChallenges.”Chapter1.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/full-report-asean3-regional-economic-outlook-2020/ASEAN+3MacroeconomicResearchOffice(AMRO).2021.“MacroeconomicProspectsandChallenges.”Chapter1.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/asean3-regional-economic-outlook-2021-full-report/ASEAN+3MacroeconomicResearchOffice(AMRO).2022a.“ASEAN+3GrowthStrategyinthePandemic’sWake.”Chapter2.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/areo2022/ASEAN+3MacroeconomicResearchOffice(AMRO).2022b.“MacroeconomicProspectsandChallenges.”Chapter1.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/areo2022/ASEAN+3MacroeconomicResearchOffice(AMRO).Forthcoming.“Indicator-basedDebtSustainabilityAnalysisforASEAN+3MemberEconomies.”AMROWorkingPaper.Astvansh,Vivek.WesleyDeng,andAdnanHabib.2022.“WhenGeopoliticalRiskRises,InnovationStalls.”HarvardBusinessReview,3March.Baldacci,Emanuele,andothers.2011.“AssessingFiscalStress.”IMFWorkingPaperWP/11/100,InternationalMonetaryFund,Washington,DC.Blanchard,Ben,andSarahWu.2022.“TSMCCutsCapexonToolDelays,DemandWoes;CautiousonOutlook.”Reuters,13October.BloombergNews.2022.“BanonUSTalentatChinaChipFirmsThwartsXi’sKeyAmbition.”17October.Caldara,Dario,andMatteoIacoviello.2022.GeopoliticalRisk(GPR)Index.https://www.matteoiacoviello.com/gpr.htmCerdeiro,Diego,SiddharthKothari,andChrisRedl.2022.“AsiaandtheWorldFaceGrowingRisksfromEconomicFragmentation.”IMFBlog,27October.https://www.imf.org/en/Blogs/Articles/2022/10/27/asia-and-the-world-face-growing-risks-from-economic-fragmentationCha,Sangmi.2022.“HowOneCountryIsBeatingCovidDespite600,000NewCasesaDay.”Bloomberg,17March.ChannelNewsAsia(CNA).2022.“SouthKoreaPlanstoAddSmallHospitalsasCOVID-19CasesSurge.”28January.CheckPoint.2023.“CheckPointResearchReportsa38%Increasein2022GlobalCyberattacks.”CheckPointBlog,5January.https://blog.checkpoint.com/2023/01/05/38-increase-in-2022-global-cyberattacks/ChinaDaily.2023.“DomesticTouristIndustryNeedstoRaiseItsBar.”30January.EconomistIntelligenceUnit(EIU).2022.“TheChip4AlliancewillStruggletoFindCohesionin2023.”8December.EuropeanCommission.2022.RemarksbyCommissionerGentiloniatthe2022AutumnEconomicForecastPressConference,Brussels,11November.Forbes.2022.“InflationReductionActBenefits:ElectricVehicleTaxIncentivesforConsumersAndUSAutomakers.”7September.GlobalInfrastructureOutlook.2017.“GlobalInfrastructureOutlook:InfrastructureInvestmentNeeds–50Countries.”OxfordEconomics.Hufbauer,GaryClyde,andMeganHogan.2022.“Commentary:USWon’tChipAwayatChina’sMilitarywithSemiconductorSanctions.”EastAsiaForum,11December.Kharpal,Arjun.2021.“HowAsiaCametoDominateChipmakingandWhattheUSWantstoDoAboutIt.”CNBC,11April.Chapter1.MacroeconomicProspectsandChallenges51Kho,Catharine,andHongyanZhao.2022.“FuelingInflationinASEAN+3:TheRisingPriceofEnergy.”AMROAnalyticalNote,ASEAN+3MacroeconomicResearchOffice,Singapore,15September.https://www.amro-asia.org/fueling-inflation-in-asean3-the-rising-price-of-energy/Koc,Cagan,andJennyLeonard.2023.“BidenWinsDealwithNetherlands,JapanonChinaChipExportLimit.”Bloomberg,28January.Koumelis,Theodore.2022.“PhilippinesLiftstheStringentTravelRestrictions.”TravelDailyNewsAsia-Pacific,28October.Markit.2022.“GlobalManufacturingDownturnIntensifiesasFirmsCutCapacityinLinewithSlumpingDemand.”SeekingAlpha,3December.McMorrow,Ryan,QianerLiu,andNianLiu.2022.“China’sYMTCAsksCoreUSStafftoLeaveDuetoChipExportControls.”FinancialTimes,24October.Nellis,Stephen,KarenFreifeld,andAlexandraAlper.2022.“U.S.AimstoHobbleChina'sChipIndustrywithSweepingNewExportRules.”Reuters,10October.Poonpatpibul,Chaipat,andothers.2020.“AFrameworkforAssessingPolicySpaceinASEAN+3EconomiesandtheCombatAgainstCOVID-19Pandemic.”AMROWorkingPaperWP/20-03.ASEAN+3MacroeconomicResearchOffice,Singapore,October.https://www.amro-asia.org/a-framework-for-assessing-policy-space-in-asean3-economies-and-the-combat-against-covid-19-pandemic/Reuters.2022.“Factbox:ChineseCompaniesAddedtoU.S.EntityList.”16December.Sangwongwanich,Pathom.2022.“RussianTouristsReturntoThailandonCharteredFlights.”Bloomberg,3December.Silva,Joana,MichaelWeber,andKevwePela.2022.“WhatWe’reReadingaboutEmploymentinTimesofMultipleCrises.”WorldBankBlogs,17September.https://blogs.worldbank.org/jobs/what-were-reading-about-employment-times-multiple-crisesSingaporeTourismBoard(STB).2022.“Singapore’sMICEIndustrySettoPostaStrongRecovery.”Mediarelease,1June.Strangio,Sebastian.2022.“PhilippinesFullyOpenstoForeignVisitorsAfterNearly2Years.”TheDiplomat,10February.Tan,AnthonyC.K.2022.“LocalStressIndexandCapitalFlowsatRiskinASEAN-4andKorea.”AMROWorkingPaperWP/22-06.ASEAN+3MacroeconomicResearchOffice,Singapore,December.https://www.amro-asia.org/local-stress-index-and-capital-flows-at-risk-in-asean-4-and-korea/Tan,Anthony,ChiangYong(Edmond)Choo,andMeganWenXiChong.2022.“FeedingInflationinASEAN+3:TheRisingPriceofFood.”AMROAnalyticalNote,ASEAN+3MacroeconomicResearchOffice,Singapore,14September.https://www.amro-asia.org/feeding-inflation-in-asean3-the-rising-price-of-food/Tan,Mindy.2022.“‘RevengeTravel’toSustainSector’sRobustRecoveryinComingMonths.”TheBusinessTimes,2December.Tanakasempipat,Patpicha.2022.“ThailandHitsTourismGoalasForeignArrivalsTop10Million.”Bloomberg,10December.Tang,AlexLiyang.2022.“IntroductiontotheLarge-ScaleAMROGlobalMacro-Financial(DSGE)Model.”AMROWorkingPaperWP/22-05.ASEAN+3MacroeconomicResearchOffice,Singapore,July.https://www.amro-asia.org/introduction-to-the-large-scale-amro-global-macro-financial-dsge-model/TheStraitsTimes.2023.“NoSpikeinChina’sCovid-19CasesSoFarDespiteChineseNewYearTravelRush.”8February.TheWhiteHouse.2022.“FactSheet:CHIPSandScienceActWillLowerCosts,CreateJobs,StrengthenSupplyChains,andCounterChina.”BriefingRoom.9August.Varas,Antonio,andothers.2021.StrengtheningtheGlobalSemiconductorSupplyChaininanUncertainEra.BostonConsultingGroupandSemiconductorIndustryAssociation,April.Whalen,Jeanne.2020.“U.S.RestrictsTechExportstoChina’sBiggestSemiconductorManufacturerinEscalationofTradeTensions.”TheWashingtonPost,26September.Whalen,Jeanne,andEllenNakashima.2020.“U.S.BansTechnologyExportstoChineseSemiconductorandDroneCompanies,CallingThemSecurityThreats.”TheWashingtonPost,18December.Xinhua.2022.“China'sCOVIDMeasurestoFacilitateCross-borderTravel,Int'lExchanges:Spokesperson.”29December.Xinhua.2023.“CountryRemainsMagnetforLong-termInvestment.”10January.Chapter2.OntheRoadtoNetZeroChapter2.OntheRoadtoNetZero53Highlights•Climatechangemitigation—avoidingandcurtailinggreenhousegasemissionstopreventglobalwarming—isamongthemostcriticalissuestoconfrontpolicymakersaroundtheworld.TheglobalcommitmentundertheParisAgreementof2015toreducetheEarth’stemperatureincreasetowellbelow2degreesCelsiuscarriessignificantlong-termgrowthconsequencesfortheASEAN+3region,whichitselfishometosomeoftheworld’slargestemittersofgreenhousegases.•Thetransitiontonetzero—wheretheamountofcarbondioxide(themaingreenhousegas)producedisbalancedbytheamountremovedfromtheatmosphere—bythe2050goalsetbytheParisAgreementimpliesacompletetransformationofhowtheASEAN+3regionproduces,consumes,andallocatesexistingresources.Shiftingfromfossilfuelusewilldemandanunprecedentedpublicandprivateinvestmentandimpacteconomies’macroeconomicfundamentals.•Thekeytoclimatechangemitigationistoputanappropriatepriceoncarbonemissions.However,withASEAN+3economiesrelyingmainlyonfossilfuelsforenergy,doingsowouldseesustainedpressureonmedium-tolong-terminflationifalternativeenergysuppliesarenotavailableataffordableprices.Yet,notdoingsocouldreducetheregion’scompetitivenessifmajortradingpartnerswithmorestringentcarbonpricingpoliciesimposeborderadjustmentstoequalizethepriceofcarbonembeddedintheirdomesticproductsandimports.Deepandrapidadjustmentsawayfromuseoffossilfuelsalsomeanthatsomeeconomiesintheregionfacesubstantialriskstofinancialstabilityifpolicyactionstopromotethenetzerotransitionsparkasuddenanddisorderlyadjustmentinmarketexpectations.•Thesoonerthatscalable,reliable,andaffordablelow-carbonalternativesbecomeavailableforASEAN+3,thelesspainfulandcostlytheshiftfromfossilfuelswillbe.Indeed,theroadtonetzeroisrichinopportunity.Abundantrenewableenergyresources,carbonstoragepotential,andcriticalmineralsprovideASEAN+3economiesanenormousadvantageinmeetinggrowingglobaldemandforcleanenergy,low-emissionproducts,carbon-removaltechnologies,andcarbonoffsets,amongothers.Manyofregion’seconomiesarealreadywell-placedtoleveragetheircomparativeadvantageintechnology,manufacturing,naturalresources,andfinancialservicestoreapeconomicbenefitsfromthetransition.•MobilizingprivatecapitalwillbekeyfortheASEAN+3regiontorealizetheeconomicgainsfromthetransitiontonetzerowhileminimizingitsnegativeimpactongrowth.Financialmarketsareincreasinglyadoptingnewinstrumentsandpracticestoaccelerategreenandtransitionfinanceactivity,buttheregionremainsconfrontedbyahugefundinggap.Developmentofcomparablestandards,frameworks,andtaxonomiesacrosstheregionforsustainablefinanceinstrumentswillbecrucialinaccessingmuch-neededfinancing.•Theregionmustemploywell-designedfiscal,financial,andmonetarypolicytoolstobringaboutanorderlytransitionwhilemanagingclimate-relatedriskseffectively.Moreimportant,regionallycoordinatedactionwillachieveagreaterimpactthaneconomiesactingalone.EnhancedcooperationandexchangeamongtheASEAN+3economies—especiallyincross-borderenergytrade,innovationandnewtechnology,andgreenfinancialnetworks—wouldexpediteandsmoothentheregion’sjourneytowardnetzero.54ASEAN+3RegionalEconomicOutlook2023I.IntroductionClimatechangehasemergedasoneoftheforemostmacro-criticalissuesforpolicymakersaroundtheworldinthecomingyearsanddecades.Climatescientistsattributetheincreaseinglobaltemperatureoverthepastfewdecadestothegreenhousegases(GHGs)thathumanshavebeenaddingtotheatmospheresincetheIndustrialRevolutionofthe1700s.Continuedwarminghaspotentialtocausesignificantphysicaldamageandeconomicharmbydisruptingoceanicpatternsandacceleratingglacialmelting,causingradicalchangestoweathersystems,extremeheatandhumidity,morewildfires,moredestructivestorms,risingsealevelsandflooding,oceanacidification—andthelistgoeson.TheASEAN+3regionishometothreeofthe10largestGHGemittersintheworld(China,Indonesia,andJapan)andaccountsforoverone-thirdofglobalGHGemissions.Onaper-capitabasis,theregion’sannualGHGemissionsareabovetheworldaverage,althoughthereissubstantialvarianceacrosseconomies(Figure2.1andFigure2.2).ThemostimportantGHGfromthestandpointofclimatechangeiscarbondioxide.ThatisbecausecarbondioxideremainslongerintheatmospherethanotherGHGsandisamajorpartofemissionsfromhumanactivities(mainlytheburningofcarbon-richfossilfuelslikecoalandoil).OtherimportantGHGsaremethane(themainpartofnaturalgas),nitrousoxide(fromtheuseofnitrogen-basedfertilizers),andhalocarbons(chemicalsusedinsolvents,fire-fightingagents,refrigerants,andthelike).AllASEAN+3economieshavecommittedtocontributingtoclimateactionundertheParisAgreementof2015(Box2.1).Thecentralgoalofthe2015ParisAgreementistolimitglobalwarmingtowellbelow2degreesCelsius—preferablyto1.5degrees—by2050,comparedtopre-industrialglobalaveragetemperatures.Toachievethislong-termtemperaturegoal,countrieswouldneedtoreachglobalpeakingofGHGemissionsassoonaspossible(before2030)torealizeaclimate-neutralworldbytheAgreement’s2050goal.Approachesfordealingwithclimatechangefallintotwocomplementarycategories:(1)mitigation—curtailingtheemissionsofGHGsand/ortakingGHGsoutoftheatmosphere;and(2)adaptation—learningtolivewiththeconsequencesofclimatechange.1AlmostallASEAN+3economieshavesetorareconsideringatargetofreducingGHGemissionstonetzeroaroundmid-century(Figure2.3).NetzeromeanscuttingGHGemissionstoasclosetozeroaspossible,withanyremainingemissionsreabsorbedfromtheatmospherebyoceansandforests,forinstance.Carbonneutralityreferstonetzerocarbondioxideemissions.SincecarbondioxideisthemainGHGcausingclimatechange,theterms“netzero”and“carbonneutrality”areoftenusedinterchangeably.Transitioningtoanetzeroemissionsworldwillrequireacompletetransformationofhowtheregionproduces,consumes,andmovesabout.Transitionpolicieswillimpacteconomies’fiscalpositions,tradeflows,andassetprices,amongotheraspects.Whilethetransmissionmechanismsandexpectedimpactswilldifferacrossindividualeconomies,therewillbeimplicationsforthelong-termmacroeconomicandfinancialdevelopmentoftheASEAN+3regionasawhole.ThischapterwaswrittenbyMartheM.HinojalesandLingHuiTan(co-anchors),withcontributionsfromAndriansyah,DianadelRosario,ThanhThiDo,AzizDurrani,SuanYongFoo,SeungHyun(Luke)Hong,VanneKhut,JadeVichyanond,andFanZhai.1/AthirdapproachseekstoactivelycounterGHG-inducedwarming.Solarradiationmodification/management—sometimesreferredtoasgeoengineering—aimstobringdowntemperaturesbymanagingthenetamountofsolarradiationabsorbedbytheEarth(IPCC2021).However,thisapproachiscontroversial(Rohling2022).Figure2.1.ASEAN+3andSelectedEconomies:GreenhouseGasandCarbonDioxideEmissionsGreenhouseGasEmissions,2019(Percentofworldtotal)CarbonDioxideEmissions,2021(Percentofworldtotal)Source:Ritchie,Roser,andRosado(2020);AMROstaffestimates.Note:Totalgreenhousegasemissionsarethesumofemissionsofvariousgases:carbondioxide,methane,nitrousoxide,andsmallertracegasessuchashydrofluorocarbonsandsulfurhexafluoride;emissionsfromlandusechange(whichcanbepositiveornegative)aretakenintoaccount.Carbondioxideemissionsincludeallemissionsfromenergyproduction(fromcoal,oil,gas,andflaring)plusdirectindustrialemissionsfromcementandsteelproduction;andexcludeemissionsfromlandusechange.A+3exHK=ASEAN+3excludingHongKong.BN=Brunei;BR=Brazil;CA=Canada;CN=China;DE=Germany;HK=HongKong;ID=Indonesia;IN=India;IR=Iran;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;RU=Russia;SA=SaudiArabia;SG=Singapore;TH=Thailand;US=UnitedStates;VN=Vietnam.40.230.913.57.34.72.92.01.81.81.71.70.90.80.70.40.100.090.090.060.050.03ASEAN+3CNUSINRUJPIRDESAIDKRVNTHMYPHMMSGHKLAKHBNTop1035.724.211.66.83.93.92.92.31.81.61.51.30.880.880.800.490.480.140.140.080.02A+3exHKCNUSINIDRUBRJPIRCASAKRVNTHMYMMPHKHSGLABNTop10Chapter2.OntheRoadtoNetZero55Figure2.2.ASEAN+3andSelectedEconomies:GreenhouseGasandCarbonDioxideEmissionsperCapitaGreenhouseGasEmissionsperCapita,2019(Tonsofcarbondioxideequivalent)CarbonDioxideEmissionsperCapita,2021(Tons)Source:Ritchie,Roser,andRosado(2020);AMROstaffestimates.Note:Totalgreenhousegasemissionsarethesumofemissionsofvariousgases:carbondioxide,methane,nitrousoxide,andsmallertracegasessuchashydrofluorocarbonsandsulfurhexafluoride;emissionsfromlandusechange(whichcanbepositiveornegative)aretakenintoaccount.Carbondioxideemissionsincludeallemissionsfromenergyproduction(fromcoal,oil,gas,andflaring)plusdirectindustrialemissionsfromcementandsteelproduction;andexcludeemissionsfromlandusechange.BN=Brunei;CN=China;EU=EuropeanUnion;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;US=UnitedStates;VN=Vietnam.06121824BNKRMYSGJPCNIDTHLAVNMMKHPHEUUSASEAN+3exHKWorld06121824BNKRJPCNMYSGHKTHVNLAIDPHKHMMEUUSASEAN+3exHKWorldFigure2.3.ASEAN+3:NetZeroTargetsNonetzerotargetPhilippinesBy2040Myanmar:Netzeroemissionsfromforestryandotherlanduseby2040Brunei:Netzeroby2050Cambodia:Carbon-neutraleconomyby2050HongKong:Carbonneutralitybefore2050Japan:Netzeroby2050Korea:Nationalcarbonneutralityby2050LaoPDR:NetzeroGHGemissionsby2050Malaysia:Netzeroemissionsby2050attheearliestSingapore:Netzeroemissionsby2050Thailand:Carbonneutralityby2050,netzeroemissionsby2065Vietnam:Carbonneutralityby2050China:Carbonneutralitybefore2060Indonesia:Netzeroemissionsin2060orsoonerBy2050orsoonerBy2060orsoonerInpolicydocumentInlawDeclaration/pledgeAspirationaltargetSource:Langandothers(2022);AMROstaffcompilation.PastissuesoftheASEAN+3RegionalEconomicOutlook(AREO)haveconsistentlyidentifiedclimatechangeasa“perennialrisk”totheregion’smacroeconomicoutlook.•AMRO(2018)highlightedtheimpactofnaturaldisastersintheASEAN+3region,includingoneconomicgrowthandfiscalpositions,andstressedtheimportanceofbuildingsufficienteconomicbuffersinanticipationoftheseshocks.•AMRO(2020)notedthattheriskofclimatechangeandnaturaldisasterscouldspillovertothefinancialsystem,magnifyingitsimpactontherealeconomy.Withmorefrequent,intense,andwidespreaddisasters,thebalancesheetsofinsurersandreinsurerswouldbecomeincreasinglyexposed,andbankswouldfacerisingcreditdefaultsascollateralvaluesareeroded.Inadditiontophysicalrisks,ASEAN+3financialsectorswouldalsoneedtoprepareagainsttransitionrisks,includingstrandedassets(i.e.,assetsthathavesufferedfromunanticipatedorprematurewrite-downs,devaluation,orconversiontoliabilities)andrebalancingoftheirlendingoperationsawayfromcarbon-emittingprojectstowardcleanandgreeninvestments.56ASEAN+3RegionalEconomicOutlook2023•AMRO(2022a)pointedtoanumberofmedium-andlong-termregional-andcountry-specificactionsandpoliciesintheASEANregiontoadapttoclimatechange.However,manyinitiativestomitigatetherisksfromclimatechangeremainconceptual—yettobetranslatedintopoliciesandactionplans.ThisthematicchapterfocusesonthetransitiontonetzerointhecontextofstructuraltransformationandgrowthinASEAN+3economies.Itdiscussesthreebroadquestionsfromtheperspectiveoflong-termgrowthinASEAN+3economies:•Whatarethemacro-financialimplicationsoftransitioningoutofahigh-carboneconomy?•Whataretheopportunitiesfortransitioningintoacarbon-neutraleconomy?•(How)Canfinancefacilitatethetransition?57Chapter2.OntheRoadtoNetZeroTable2.1.1.ASEAN+3:NationallyDeterminedContributionsSource:UnitedNationsFrameworkConventiononClimateChange(UNFCCC)NationallyDeterminedContributionsRegistry.Note:Greenhousegasestargetedincountries’NationallyDeterminedContributionsvary.Theymayinclude,inadditiontocarbondioxide,hydrofluorocarbons,methane,nitrogentrifluoride,nitrousoxide,perfluorocarbons,andsulfurhexafluoride.FY=fiscalyear;MtCO2e=milliontonsofcarbondioxideequivalent.Box2.1:ASEAN+3MitigationTargetsundertheParisAgreementAllASEAN+3economieshavesignedontotheParisAgreementof2015,theframeworkgoverninginternationaleffortstoreducecarbonemissions.TheParisAgreementrecognizestwoobjectives:(1)keepingtemperatureincreasestowellbelow2degreesCelsius;and(2)enhancingadaptivecapacity,strengtheningresilience,andreducingvulnerabilitytoclimatechange.AttheheartoftheagreementaretheNationallyDeterminedContributions(NDCs)underwhichalleconomiescontributetargetsforemissionsin5or10years(Table2.1.1).Theseareunilateralandvoluntary,asisthemetriconwhichtheyarebased:someeconomiesmakepledgesintermsofabsoluteemissions,someintermsofreductions,someforemissionsrelativetoGDP,andsoon.Somedevelopingeconomieshavebothconditionalandunconditionalpledges,withthemoreambitioustargetsbeingconditionedonreceivingneededclimatefundingfromadvancedeconomies.EconomiesareexpectedtoraisetheirambitionsbysubmittingrevisedNDCseveryfiveyears.TheNDCsarealsoalignedwithnationaladaptationplans,whichsetouthoweconomiesintendtoimprovetheirclimateresilience.EconomyLatestSubmissionTarget(s)for2030Brunei31December2020Reducegreenhousegas(GHG)emissionsby20percentrelativetoprojectedbusiness-as-usuallevelin2030.Cambodia31December2020ReduceGHGemissionsby41.7percentrelativetoprojectedbusiness-as-usuallevelin2030(targetismostlyconditionaloninternationalsupport).China28October2021Reducecarbonintensity(carbondioxideemissionsperunitofGDP)byover65percentfrom2005levelandachievepeakcarbondioxideemissionsbefore2030.HongKong28October2021(AnnexIinChina’sNDCsubmission)Reducecarbonintensityby65percentto70percentfromits2005level(equivalenttoanabsolutecarbonemissionreductionof26percentto36percent).Indonesia23September2022ReduceGHGemissionsby32percentrelativetoprojectedbusiness-as-usuallevelin2030(additionalreductionofupto11percentconditionaloninternationalsupport).Japan22October2021ReduceGHGemissionsby46percentfromlevelinFY2013(ending31March2014)to760MtCO2e.Korea23December2021ReduceGHGemissionsby40percentfrom2018levelto727.6MtCO2e.LaoPDR11May2021ReduceGHGemissionsby60percentrelativetoprojectedbaselinelevelin2030(additionalreductionsconditionalonincreasedfinancialsupportfromadvancedeconomies).Malaysia30July2021ReduceGHGemissionsperunitofGDP(emissionintensity)by45percentfrom2005level.Myanmar3August2021Reduce/avoidcarbondioxideemissionstotaling244.5MtCO2eover2021–30(totalreductionof414.8MtCO2econditionaloninternationalfinancialandtechnicalsupport).Philippines15April2021ReducecumulativeGHGemissionsby2.7percentcomparedtoprojectedcumulativebusiness-as-usualemissionsover2020–30(additionalreductionof72.3percentconditionalonsupportorthemeansofimplementationundertheParisAgreement).Singapore4November2022ReduceGHGemissionstoabout60MtCO2ein2030afterpeakingemissionsearlier.Thailand2November2022ReduceGHGemissionsby30percentcomparedtoprojectedbusiness-as-usuallevelin2030(additionalreductionof10percentconditionalonadequateandenhancedaccesstotechnologydevelopmentandtransfer,financialresources,andcapacity-buildingsupport).Vietnam8November2022ReduceGHGemissionsby16percentrelativetoprojectedbusiness-as-usuallevelin2030(additionalreductionof27percentconditionaloninternationalsupport).ThisboxwaswrittenbyMartheM.HinojalesandLingHuiTan.58ASEAN+3RegionalEconomicOutlook2023Thekeytoclimatechangemitigation—limitingglobalwarming—isasubstantialreductioninfossilfueluse.AccordingtotheIntergovernmentalPanelonClimateChange(IPCC),carbondioxideemissionsarethedominantcauseofglobalwarming(IPCC2021).Over90percentofglobalcarbondioxideemissionscomefromtheenergysector(Figure2.4),andelectricityandheatgenerationisitslargestemittingsubsector.Transportationandmanufacturingfollowasemitters(Figure2.5).Fossilfuels—coal,oil,andnaturalgas—supplyover80percentoftheworld’senergy(Figure2.6).Coal—the“dirtiest”fossilfuel—putsoutthemostcarbondioxideperunitofenergyandisthesinglelargestsourceoftheglobaltemperaturerise.Oilisnext,followedbynaturalgas,whichisconsideredthecleanest-burningfossilfuelofthethree.ASEAN+3economiesrelymainlyonfossilfuelsforenergy—thoughtovaryingdegrees,giventheirdiverseeconomicandgeographicsizeandstructure.TheenergysectoristhemainsourceofcarbonemissionsformostASEAN+3economiesexceptCambodia,Indonesia,andMyanmarwhereforestryandland-usedominate(Figure2.4).Thecarbonintensityoftheenergymix(measuredbycarbondioxideemissionsperunitofprimaryenergy)alsovaries,withChina,LaoPDR,andVietnamatthehighendofthescaleandwellabovetheworldaverage,andBrunei,Cambodia,Myanmar,andSingaporeatthelowendandwellbelowtheworldaverage(Figure2.7).Thisdiversityiscorrelatedwiththeshareoffossilfuels,particularlycoal,inenergyconsumption(Figure2.6).Liketherestoftheworld,ASEAN+3economieshavecommittedtoreducingtheirrelianceonfossilfuelstoachievetheiremissiontargets.2Almostalltheeconomiesoftheregionhavesettargetsorpledgedtoreducetheuseofcoalpower(Table2.1).Brunei,Indonesia,Korea,thePhilippines,Singapore,andVietnamwereamongthe44countriesthatfullyorpartiallyendorsedtheGlobalCoaltoCleanPowerTransitionStatementatthe26thUnitedNationsClimateChangeConferenceoftheParties(COP26)inNovember2021.Whataretheimplicationsofreducingfossilfueluseformedium-andlong-termgrowthandstabilityinASEAN+3economies?Thefollowingsubsectionsdiscussfourkeyquestions:(1)Whatwillhappentopricesandinflationasfossilfuelsarephasedout?(2)Willtheregion’sexportgrowthbeaffectedbyasymmetricregionalandglobalcarbonpricingpolicies?(3)Willstrandedassetscausehugefinanciallossesandfinancialinstability?Andmostimportantly:(4)Willeconomicdevelopmentandgrowthbestuntedduetoinsufficientreliableenergysupply?II.OutwiththeOld:MacroeconomicImplicationsofMovingAwayfromFossilFuels2/The2021–25ASEANPlanofActionforEnergyCooperationdidnotincludeafossilfuelphaseout—instead,itenvisaged“growingcapacityadditionsfromcoalinthecomingyears”—butdidaspireforrenewableenergytoreach23percentofthebloc’stotalprimaryenergysupplyand35percentofitsinstalledpowercapacityby2025(ASEANCentreforEnergy2020).Figure2.4.ASEAN+3andWorld:CarbonDioxideEmissions,bySector,2019(Percentoftotalcarbondioxideemissions)Figure2.5.ASEAN+3andWorld:CarbonDioxideEmissions,byEnergySubsector,2019(Percentoftotalenergysectorcarbondioxideemissions)Source:ClimateWatch(2022);AMROstaffcalculations.Note:Energysectorreferstoemissionsgeneratedfromtheuseofenergyandincludeselectricityandheatgeneration,buildings,transportation,manufacturing,fugitiveemissions,andotherfuelcombustionprocesses.BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:ClimateWatch(2022);AMROstaffcalculations.Note:FugitiveemissionsareGHGemissionsthatarenotproducedintentionallybyastackorvent,e.g.,leaksfromindustrialplantsandpipelines.BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.-20104070100KRJPSGCNBNPHTHVNMYLAIDKHMMWorldEnergyIndustrialprocessesLand-usechangeandforestry020406080100LASGMYVNIDCNTHBNPHKRKHJPMMWorldOtherfuelcombustionFugitiveemissionsBuildingsManufacturingandconstructionTransportElectricityandheatChapter2.OntheRoadtoNetZero59Figure2.6.SelectedASEAN+3andWorld:ShareofFossilFuelsinPrimaryEnergyConsumption,2021(Percentoftotalprimaryenergyconsumption)Figure2.7.ASEAN+3andWorld:CarbonIntensityofEnergyMix,2021(Tonsofcarbondioxideperterajoule)Source:BPStatisticalReviewofWorldEnergy(2022);AMROstaffcalculations.Note:Primaryenergyconsumptionismeasuredinexajoulesandincludesinternationalmarineandaviationfuelconsumption.CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.DatanotavailableforBrunei,Cambodia,LaoPDR,andMyanmar.Source:AMROstaffcompilation.Source:InternationalEnergyAgency(2022f);AMROstaffcalculations.Note:Carbonintensityofenergymixisdefinedascarbondioxideemissionsfromfuelcombustionperunitoftotalenergysupply(includingfossilandnonfuelformsofenergy,biofuels,aswellasheatandelectricity).Totalenergysupplyiscalculatedas:production+imports-exports-internationalmarinebunkers-internationalaviationbunkers±stockchanges.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.020406080100HKSGTHMYPHIDJPKRCNVNWorldCoalOilGas020406080WorldSGMMKHBNTHKRPHIDJPMYHKCNLAVNTable2.1.ASEAN+3:CommitmentstoReduceRelianceonCoalEconomyCommitment(s)Brunei•Transitionfromunabatedcoalpowergenerationinthe2040s(orassoonaspossiblethereafter).Stopissuingnewpermitsfornewunabatedcoal-firedpowergenerationprojects,stopnewconstructionofunabatedcoal-firedpowergenerationprojects,andendnewdirectgovernmentsupportforunabatedinternationalcoal-firedpowergeneration.Cambodia•Nonewcoalgenerationcapacitybeyondalreadycommittedprojectsasof2019.China•Acceleratethepaceofcoalreductionduringthe14thFive-YearPlanperiod(2021–25).Promotecleanend-useenergybyreplacingcoalwithnaturalgas,electricity,andrenewableenergy.Stopbuildingnewcoal-firedpowerprojectsabroad.HongKong•Phaseoutcoalasapowergenerationsourceby2035.Indonesia•Transitionfromunabatedcoalpowergenerationinthe2040s(orassoonaspossiblethereafter).Reducetheshareofcoalinthepowergenerationmixto38percentby2050(from59percentin2019).Japan•Reducetheshareofcoalinthepowersupplyto19percentby2030.Endgovernmentsupportforunabatedcoalpowerprojectsoverseas.Korea•Transitionfromunabatedcoalpowergenerationby2050.Stopissuingpermitsfornewunabatedcoal-firedpowergenerationprojects.Lowerrelianceonfossilfuelimportstounder70percentby2030.LaoPDR•Nostatedtargetsorpledges.Malaysia•Stopbuildingnewcoalpowerplants.Graduallyretireexistingplantswithabout7GWofcoal-firedgenerationcapacityby2033attheendoftheirrespective25-yearpowerpurchaseagreements.Myanmar•Decreasetheshareofcoalintheelectricitygenerationmixto20percentby2030(11percentconditionaloninternationalsupport).Philippines•Transitionfromunabatedcoalpowergenerationinthe2040s(orassoonaspossiblethereafter).Moratoriumonnewcoal-firedpowerplantsinOctober2020.Singapore•Phaseoutunabatedcoalpowergeneration.Stopissuingpermitsfornewunabatedcoalpowerstationsby2040.Thailand•Nostatedtargetsorpledges.Vietnam•Transitionfromunabatedcoalpowergenerationinthe2040s(orassoonaspossiblethereafter).Stopissuingnewpermitsfornewunabatedcoal-firedpowergenerationprojects;stopnewconstructionofunabatedcoal-firedpowergenerationprojects;andendnewdirectgovernmentsupportforunabatedinternationalcoal-firedpowergeneration.Restrictthedevelopmentofcoal-firedpowerplantsandreducetheshareofcoalpowerto13percentby2045.60ASEAN+3RegionalEconomicOutlook2023Figure2.8.SelectedASEAN+3:FossilFuelSubsidies,2021(Percent,averagesubsidizationrate)Source:IEA(2022i).Note:TheIEAusestheprice-gapapproachtoestimatesubsidiestofossilfuelsthatareconsumeddirectlybyend-usersorconsumedasinputstoelectricitygeneration.Thisapproachcomparestheaverageend-userpricepaidbyconsumerswithareferencepricethatcorrespondstothefullcostofsupply:Subsidy=(Referenceprice-End-userprice)×Unitsconsumed.WillInflationGoUp?“…[F]ossilflation,anditsbroaderrepercussionsonotherinputandoutputprices,islikelytoremainanimportantcontributortoheadlineandunderlyinginflationintheforeseeablefuture.”IsabelSchnabelEuropeanCentralBankExecutiveBoardMemberMarch2022Thekeytoreducingfossilfueluseiscarbonpricing—makingthoseresponsibleforcarbonemissionspayapricethatreflectstheirexternal(“social”)cost.Whenproducersandconsumershavetopayforeachtonofcarbondioxidetheydirectlyorindirectlyemit,theywouldhaveanexplicitpriceincentivetoshiftawayfromfossilfuels.Thus,policiestodisincentivizetheuseoffossilfuelsusuallyinvolveraisingenergyandenergy-relatedpricestoreflectthedamagedonebyemissions.AccordingtotheInternationalMonetaryFund(IMF),increasingfuelpricestotheir“sociallyefficient”levelswillreduceprojectedglobalcarbondioxideemissionsby36percentbelowbaselinelevelsin2025andputtheworldontracktocontainglobalwarmingtotheParisAgreementgoalof1.5–2degreesCelsius(Parry,Black,andVernon2021).Fossilfuelsubsidiescanbeconsiderednegativecarbonpricing,andASEAN+3economieswillneedtophasethemout.TheInternationalEnergyAgency(IEA)identifiessevenASEAN+3economiesthatsubsidizeatleastonefossilfuel(Figure2.8).InBrunei,China,Indonesia,Malaysia,andThailand,certaintypesofoilaresoldatbelow-marketretailprices.CoalpricesremainsubsidizedinKoreaandVietnam.TheaveragesubsidizationrateishighestinBruneiandIndonesia,atover30percent.ThesesevenASEAN+3economiesareamongeconomiesworldwidethatadoptedthe2021GlasgowClimatePact,callingfor“acceleratingeffortstowardthe…phase-outofinefficientfossilfuelsubsidies”(UNFCCC2021).Phasingoutfossilfuelsubsidieswillraisedomestic(fossilfuel)energypricesbutneednotraiseinflation.Thedirectimpactoffuelsubsidyreformisanincreaseinenergypricesforhouseholdsandfirms—particularlylow-incomehouseholdsandstate-ownedelectricitycompanies,whichtendtobethemainbeneficiariesofthesubsidies.Indeed,somecountrieshavehaddifficultyreformingfuelsubsidiesbecausetheresultingpricerisesledtowidespreadpublicprotests.Theindirectimpactoffuelsubsidyreformisanincreaseinpricesofothergoodsiffirmspassonhigherenergycoststoconsumers.Buttheeffectoninflationshouldbetemporaryaslongasappropriatemacroeconomicpoliciesareinplacetoforestallexpectationsoffurtherincreasesinpricesandwages.3Globalexperiencesuggeststhataphasedapproachhelpsreducetheimpactofsubsidyreformoninflationasitgiveshouseholdsandenterprisestimetoadjustandgivesthegovernmenttimetoestablishsupportingsocialsafetynetsandimprovetheefficiencyofstate-ownedenergyproducers(Clementsandothers2013).USD0.17USD36.58USD34.04USD92.57USD46.27USD89.24USD662.39CoalOil,electricityOil,gas,coalOilOil,electricity,gas,coalOil,electricityOil,electricity0.014.65.28.911.531.938.0010203040506070KoreaChinaThailandMalaysiaVietnamIndonesiaBruneiSubsidizedproductsSubsidypercapita3/Theextenttowhichhigherenergycostsresultinapersistentlyhigherinflationwilldependonthestrengthofsecond-roundeffectsonwagesandthepricesofotherinputs.Thismayespeciallybeaconcernforeconomiesthathavedifficultyanchoringinflationexpectations.Chapter2.OntheRoadtoNetZero61ASEAN+3economiesarepresentlyatdifferentstagesofconsideringandimplementingcarbonpricing.Carbonpricinggoesbeyondeliminatingfuelsubsidiestopositivelytaxingthecarboncontentoffossilfuelsortheircarbondioxideemissions.Thetwomainapproachestocarbonpricingareacarbontaxandacap-and-tradeprogramoremissionstradingscheme/system(ETS).Acarbontaxworksbydirectlysettingapriceforemissions.4AnETSworksbyrestrictingthevolumeofemissionsandlettingthemarketdeterminetheirprice.5Table2.2summarizesthecurrentstateofcarbonpricinginASEAN+3economies.OnlyJapanandSingaporehaveimplementedacarbontax(Box2.2),andonlyChina,Japan,andKoreahaveETSs(Box2.3).Carbonpricingcanalsobeachievedimplicitly,e.g.,throughregulatorylimitsonemissions.Inthiscase,theimplicitcarbonpriceisbasedonhowmuchacompanyspendstoreduceemissionstocomplywithgovernmentregulations.4/Inadditiontodirectcarbontaxes,whicharebasedoncarbonemissions,indirectcarbontaxesincludefuelexcisetaxes,whichareleviedonthesourceofGHGemissionsratherthandirectlyontheemissions.5/UnderanETS,thegovernmentplacesalimitontotalemissionsandallocatesrights(allowances)toemitGHGstoregulatedentities(firms),eitherfreeofchargeorviaauction.Firmsmustholdallowancessufficienttocovertheiremissions.Tocomplywiththeiremissionquotas,firmscaneitherimplementinternalabatementmeasuresoracquireallowancesinthecarbonmarket.Bycreatingsupplyanddemandforallowances,anETSestablishesamarketpricefor(excess)GHGemissions.EconomyCarbonPricingPolicyStatusCarbontaxETSBruneiUnderconsiderationUnderconsiderationTheNationalCarbonClimatePolicystatesthatBruneiwillintroducecarbonpricing(eitheranETSoracarbontax)applicabletoallindustrialfacilitiesandpowerutilitiesby2025.ChinaRegionalETSsimplementedin2013,2014,and2016.NationalETSimplementedin2021IndonesiaUnderdevelopmentUnderdevelopmentIndonesiawillhaspledgedtoimplementacarbontaxby2025.LawNo.7/2021,passedinOctober2021,introducedaso-calledcap-and-trade-and-taxscheme(combininganETSwithacarbontax)tobeinitiallyimposedoncoal-firedpowergenerationplants.TheIndonesiaStockExchangeissettingupacarboncredittradingplatformfordomesticcarbontrading.JapanImplementedin2012RegionalETSsimplementedin2010and2011.NationalETSunderconsiderationKoreaImplementedin2015LaoPDRUnderconsiderationUnderconsiderationAsmandatedbytheNationalGreenGrowthStrategy,LaoPDRwillutilizecarbonpricing(eitheranETSoracarbontax)tostimulateefficientandeconomicalenergyusage.MalaysiaUnderconsiderationUnderdevelopmentAsindicatedintheBudget2023speech,thegovernmentintendstointroduceacarbontaxregimeandisstudyingthefeasibilityofacarbonpricingmechanism.MalaysiaintroducedvoluntarycarbontradingatthedomesticlevelinDecember2022asafirststepbeforetransitioningtoadomesticETS.PhilippinesUnderconsiderationUnderconsiderationAsmandatedbytheLowCarbonEconomyAct,thePhilippineswillestablishacap-and-tradesystemfortheindustrialandcommercialsectors.TheDepartmentofFinanceisreportedlystudyingtheviabilityofacarbontax.SingaporeImplementedin2019ThailandUnderconsiderationUnderdevelopmentTheExciseDepartmentisstudyingacarbontaxforindustrialsectors.FollowingapilotvoluntaryETSin2015–20,ThailandisdevelopinganETSintheEasternEconomicCorridorregionanddraftingtheETSlegalframework.VietnamUnderdevelopmentDecreeNo.06/2022/ND-CPissuedinJanuary2022providesdetailsfortheestablishmentanddevelopmentofacarbonmarketunderthe2020LawonEnvironmentalProtection.Apilotsystemwillstartby2025andbefullyimplementedby2028.Table2.2.SelectedASEAN+3:StatusofCarbonPricingPoliciesSource:AndriansyahandHong(2022);WorldBank(2022a);AMROstaffcompilation.62ASEAN+3RegionalEconomicOutlook2023Current(explicit)carbonpricesintheASEAN+3region—wheretheyexist—arelowerthaninotherpartsoftheworldandtoolowtobeeffectiveformitigatingclimatechange(Figure2.9).Theeffectivenessofcarbonpricinginreducingemissionsdependstoalargeextentonthepriceofemissions(i.e.,thecarbontaxrateortheETSmarket-clearingprice).Thismustbehighenoughtoincentivizefirmstoshiftawayfromfossilfuels.AccordingtotheIMF,carbonpricesneedtorisefromthecurrentglobalaverageofUSD6pertonofcarbondioxide(tCO2)toUSD75pertCO2by2030inordertolimitglobalwarming(Black,Parry,andZhunussova2022).Othermodels,however,suggestthatamuchhighercarbonprice—closertoUSD200pertonofcarbondioxideequivalent(tCO2e)in2030—wouldbeneededtoincentivizeatransitiontowardnetzeroby2050(NGFS2022).6Largehikesinthepriceofcarboncouldincreaseinflation,especiallyifsuddenor“disorderly.”Alargehikeincarbonpriceswouldincreasecosts,particularlyintheenergysectorwhich,asnoted,stillreliesheavilyonfossilfuels.Thus,itcanbeconsideredanadversesupplyshock.Theimpactofacarbonpriceincreaseonenergypriceinflationwoulddependonthetransitionperiodofthepolicy(i.e.,thetimegivenforindustriestoadapttocarbonpricingandmaketheswitchoutoffossilfuels)andtheavailabilityofgreentechnologyandalternativefuelsourcesforindustriestoswitchinto.Ifpowergenerationcompanies—whichnormallyarethefirsttofaceahighercarbonprice—areunabletoadaptquicklybyadoptingdecarbonizationornewlower-emissiontechnologies,theywillpassonsomeoftheburdenthroughincreasedelectricitytariffs.Iflow-emissionpowergenerationalternatives(suchassolar,wind,ornuclearenergy)arenotyetwidelyavailable,energypricescouldbesignificantlyhigherinthemediumtermuntilresourcesarereallocatedandthetransitiontocleanenergyiscomplete.76/NGFS(2022)estimatesthecarbonpriceasthemarginalabatementcostnecessarytoreachaspecifictemperatureincrease.Theestimatedpricereflectsthestringencyofpolicyaswellashowtechnologycostswillevolve—forexample,ittendstobelowerineconomieswherethereareagreaternumberoflow-costabatementoptionsavailable.7/EmpiricalstudiesofthehistoricaleffectsofcarbonpricingoninflationmainlyfocusonEurope,wherethesepolicieswerefirstimplemented.Känzig(2022)findsthatrestrictivecarbonpolicyshocksintheEUETS(2005–18)ledtopersistentincreasesineuroareaheadlineinflation.McKibbin,Konradt,andWederdiMauro(2021)findthatcarbontaxesimplementedintheeuroarea(1985–2020)hadpositiveeffectsonheadlineinflationespeciallyinthefirsttwoyears,buttheeffectswerecontainedafterthreeyears.Theeffectsontheproducerpriceindexwerelarger,suggestingthatproducersabsorbedmostofthecarbontaxratherthanpassingitontoconsumers.KonradtandWederdiMauro(2022)findthattheresponseofheadlineinflationseemedespeciallymutedineconomieswithrevenuerecyclingschemesandmonetarypolicyregimesthatcouldaccommodatethecarbontax(i.e.,thoseoutsidetheeuroarea).ResultsforCanada(2000–19)evenpointtoslightlydeflationaryresponsesassociatedwithputtingapriceoncarbon.Moessner(2022)findsthatETSallowancepricesin35OECDeconomies(1995–2020)hadasmallpositiveeffectonheadlineinflationbutcarbontaxeshadnosignificanteffectsonheadline,core,orenergyinflation.Source:WorldBank(2022a).Note:Subnationalcarbontaxratesarenotshown.Nominalpriceson1April2022.Pricesarenotnecessarilycomparablebetweencarbonpricinginitiativesbecauseofdifferencesinthenumberofsectorscoveredandallocationmethodsapplied,specificexemptions,anddifferentcompensationmethods.AR=Argentina;CA=Canada;CH=Switzerland;CL=Chile;CN=China;CO=Colombia;DE=Germany;DK=Denmark;EE=Estonia;ES=Spain;FI=Finland;FR=France;IE=Ireland;IS=Iceland;JP=Japan;KR=Korea;KZ=Kazakhstan;MX=Mexico;LI=Lichtenstein;LU=Luxembourg;LV=Latvia;NL=theNetherlands;NO=Norway;NZ=NewZealand;PL=Poland;PT=Portugal;RGGI=RegionalGreenhouseGasInitiative;SE=Sweden;SG=Singapore;SI=Slovenia;UA=Ukraine;UK=UnitedKingdom;US=UnitedStates;UY=Uruguay;ZA=SouthAfrica.Figure2.9.SelectedEconomies:CarbonPrices,2022(USdollarspertonofcarbondioxideequivalent)CarbonTaxETS137.3129.9129.9129.987.685.149.346.145.343.340.034.226.626.423.719.116.616.69.85.05.05.03.73.72.42.21.00.1UYSELICHNOFIFRNLIELUCAISDKPTUKSILVESZACOCLARMXSGJPEEUAPL99.086.564.252.640.040.040.040.040.033.232.030.830.823.120.018.713.912.59.39.27.26.55.74.44.43.81.81.10.60.5UKEU,NO,IS,LICHNZAlberta(CA)CANewBrunswick(CA)NewfoundlandandLabrador(CA)Saskatchewan(CA)DEOntario(CA)Quebec(CA)California(US)NovaScotia(CA)BritishColumbia(CA)KRRGGI(US)GuangdongexShenzhen(CN)Shanghai(CN)CNHubei(CN)Beijing(CN)Chongqing(CN)Tokyo(JP)Tianjin(CN)Saitama(JP)Fujian(CN)KZShenzhen(CN)Massachusetts(US)Chapter2.OntheRoadtoNetZero63Thesameappliestoimplicitcarbonpricingthroughregulationssuchasrestrictionsoncoaluseforpowergeneration,energyintensitylimits,andcompulsorystandardsandtechnologicalperformancerequirements.InChina,forexample,wheretheregulatoryapproachisoftenusedtotargetemissionreductionsatthesectoralandregionallevel,limitationsonenergyusecontributedtopowercrunchesinseveralregionsthatcurbedproductionanddroveuptheproducerpriceindexinthefallof2021(AMRO2022a).Indeed,akeyconsiderationforChina’scarbonneutralityroadmapishowtoallocatethecarbonbudgettosmooththeadjustmentcostsfrontieracrossthetransitionalperiod(ZhaiandFoo2022).8/Energypriceshocksaregenerallyseenasreflectingshiftsinrelativepriceswithinabasketofgoods,ratherthanasustainedriseininflationthatrequiresmonetarypolicyaction.Butwhenshocksfeedthroughonlyslowly—forinstance,asthecarbonpriceisraised—inflationexpectationsmaychange,forcingcentralbankstoreact.Figure2.10.SelectedASEAN+3:InflationProjectionsunderTransitionScenarios(Percentchangefrombaseline)-1.00.01.02.03.0202220272032203720422047China-1.00.01.02.0202220272032203720422047HongKongDelayedtransitionNetZero2050-0.50.00.51.0202220272032203720422047Japan-0.50.00.51.0202220272032203720422047Korea-0.50.00.51.0202220272032203720422047Indonesia-1.00.01.02.0202220272032203720422047Singapore-1.00.01.02.0202220272032203720422047Vietnam-1.00.01.02.03.0202220272032203720422047China-1.00.01.02.0202220272032203720422047HongKongDelayedtransitionNetZero2050-0.50.00.51.0202220272032203720422047Japan-0.50.00.51.0202220272032203720422047Korea-0.50.00.51.0202220272032203720422047Indonesia-1.00.01.02.0202220272032203720422047Singapore-1.00.01.02.0202220272032203720422047Vietnam-1.00.01.02.03.0202220272032203720422047China-1.00.01.02.0202220272032203720422047HongKongDelayedtransitionNetZero2050-0.50.00.51.0202220272032203720422047Japan-0.50.00.51.0202220272032203720422047Korea-0.50.00.51.0202220272032203720422047Indonesia-1.00.01.02.0202220272032203720422047Singapore-1.00.01.02.0202220272032203720422047VietnamSource:InternationalInstituteforAppliedSystemsAnalysis(IIASA)NGFSClimateScenariosDatabase(October2022vintage).Note:Thebaselineisahypotheticalscenariowithnophysicalortransitionrisks.The(orderly)“NetZero2050”transitionscenarioassumesthatoptimalcarbonpricesinlinewitheconomies’long-termtargetsareimplementedimmediatelyafter2020andglobalnetzerocarbondioxideemissionsisachievedin2050.The(disorderly)“delayedtransition”scenarioassumesthatannualemissionsdonotdecreaseuntil2030,andstrongpoliciesarethenneededtokeepglobalwarmingbelow2degreesCelsiusin2100.Achievingan“orderly”transitionrequiresgovernmentstocommunicateaclearandpredictablepathforfuturetighteningofcarbonemissionpoliciesandtoacceleratestructuralchangestowardaffordablecleanenergyoptions.EarlysimulationsbytheNetworkfortheGreeningoftheFinancialSystem(NGFS)suggestthattheimplementationofcarbonpricestoachievenetzerotargetswillcauseinflationtoincreaseonlymildlybeforereturningtopriortrends(Figure2.10).8However,theglobalenergycrisistriggeredbytheUkrainecrisishasprovidedanexampleofwhatcouldhappentoinflationunderamoredisorderlytransitionthanonemodeledbytheNGFS(Schnabel2022;KhoandZhao2022).Atthesametime,thecrisiscouldalsoprovideaddedimpetusforpoliciestodriveanincreaseincleanenergyinvestmentsintheregion(SectionIII).64ASEAN+3RegionalEconomicOutlook2023Box2.2:CarbonTaxesinJapanandSingaporeJapanJapanwasthefirstASEAN+3economytointroduceacarbontaxinOctober2012.Theso-calledspecialtaxforclimatechangemitigationisappliedtocrudeoilandpetroleumproducts,naturalgas,andcoal,ontopofexistingtaxesontheseproducts(Figure2.2.1).ThetaxratewasincreasedgraduallyoverthreeandahalfyearstoreachJPY289(USD2.60)pertonofcarbondioxideequivalent(tCO2e).Revenuefromthetaxisusedtosupportrenewableenergyprojectsandenergy-savingmeasures,yieldinga“budgeteffect”intheformofloweremissions.Thecarbontaxwascalibratedtoavoidputtinganexcessiveburdenonhouseholdsandbusinesses.TheestimatedpriceincreasesduetothetaxrangefromJPY0.76–0.78perliterforgasoline,kerosene,andliquefiedpetroleumgastoJPY0.11perkilowatt-hourforelectricity,althoughsubstantialregionalvariationexistsintheextentofpass-throughtoelectricityprices(Ding2022).Therearealsoseveralexemptionsandrefundmeasuresforspecificproductsusedincertainindustries,suchasimportedcoal,lightoilusedforagriculture,forestryandfishing,andheavyandlightoilusedfordomesticcargoandpassengershipsandrailways(JapanMinistryoftheEnvironment2012).Thetaxalonewasexpectedtoachieveonlymodestemissionreductions.Atthetimeofintroduction,its“priceeffect”wasestimatedtoachievea0.2percentemissionreductionandthe“budgeteffect”a4.2percentemissionreductionbetween2013and2030(JapanMinistryoftheEnvironment2013).SingaporeSingaporeintroducedacarbontaxinJanuary2019.ItisappliedonfacilitiesthatdirectlyemitThisboxwaswrittenbyAndriansyah.atleast25,000tCO2eofgreenhousegas(GHG)emissionsannually—inall,about50facilitiesinthemanufacturing,power,waste,andwatersectors,accountingfor80percentoftheeconomy’stotalGHGemissions.ThetaxissetatalowinitialrateofSGD5(USD3.55)pertCO2euntil2023toprovideanadjustmentperiodforemitters.ThecarbontaxwillberaisedoverthenextfewyearstoreachSGD50–80pertCO2eby2030(SingaporeNCCS2022)(Figure2.2.2).Thepre-announcedcarbontaxtrajectoryismeanttogivebusinessescertaintyandimpetustoplantheirtransition,e.g.,byinvestinginlow-carbontechnologiesandcarbonmarkets.Thetaxincreasewillberevenue-neutralinthesensethattherevenuewillbeusedtosupportdecarbonizationeffortsandtocushiontheimpactonbusinessesandhouseholds.Companieswillbeallowedtooffsetupto5percentoftheirtaxableemissionswithhigh-qualityinternationalcarboncreditsstartingin2024.Companiesinemission-intensivetrade-exposedsectorswillbegiventransitoryallowancesforpartoftheiremissionsbasedoninternationallyrecognizedefficiencybenchmarks,whereavailable,oronthefacilities’decarbonizationplans.Thetaxisnotexpectedtohaveabigimpactonhouseholdutilitybills(andconsequentlyonconsumerbehavior)inthenearterm.TheSGD5pertCO2etaxisestimatedtoresultina1percentincreaseintotalelectricityandgasexpensesforhouseholds,whichisoffsetbyrebatesforeligiblehouseholds(TanandToh2018).TheSGD25pertCO2etaxin2024–25isestimatedtoleadtoanincreaseofaboutSGD4permonthinutilitybillsforanaveragehouseholdlivinginafour-roomHousingandDevelopmentBoardflat,butadditionalrebateswillbeprovidedtoeligiblehouseholdstocushiontheimpact(Tan2022).65Chapter2.OntheRoadtoNetZeroFigure2.2.1.Japan:CarbonTaxFigure2.2.2.Singapore:CarbonTax(Singaporedollarspertonofcarbondioxideequivalent)JPY2,040/kLJPY1,080/tonJPY700/tonCrudeoilandpetroleumproductsGaseoushydrocarbonsCoalExistingtaxSpecialtaxforclimatechangemitigationJPY289/tCO2e=JPY780/tonPetroleumandcoaltaxJPY289/tCO2e=JPY760/kLJPY289/tCO2e=JPY670/ton201920212023202520272029SGD5SGD25SGD45SGD80SGD50Source:JapanMinistryoftheEnvironment(2012).Note:kL=kiloliter.Source:SingaporeNCCS(2022).66ASEAN+3RegionalEconomicOutlook2023Box2.3:EmissionsTradingSchemesinthePlus-3JapanJapanhastwosubnationalemissionstradingsystems(ETSs):theTokyoCap-and-TradeProgram(since2010)andtheSaitamaTargetSettingETS(since2011).BothETSscoverenergyuse-relatedcarbondioxideemissionsfromtheindustry,power,andbuildingssectors,foracombinedtotalcoverageof21milliontonsofcarbondioxideemissions.TheTokyoETScoversabout1,200facilitiesandtheSaitamaETSabout600facilitieswithanannualenergyusageequivalentto1,500kilolitersormoreofcrudeoil.TheETSsareso-calledbaseline-and-creditsystemsthatsetmandatoryemission-reductiontargetsforlargebuildingsandfactories.Eachregulated(“covered”)facilityhasitsowncap,whichservesasthebaselinefromwhichitmustachieveitsreductiontarget.Theabsoluteemissionbaselineforeachfacilityisdeterminedbythehistoricalemissionsassociatedwiththeirtotalenergyconsumptionandanemission-reductiontarget(“compliancefactor”)basedonthetypeoffacilityandfactorssuchasexpectedenergyefficiencygainsandtheextenttowhichtheyconsumeenergysuppliedbyotherfacilities.Coveredfacilitiesthatachieveemissionsbelowtheirbaselineearn“excessemissionreductioncredits.”Thesecanbesoldtoothercoveredfacilitiesorbebankedforfuturecompliance(i.e.,topayforfutureemissionsthatexceedthebaseline).Coveredfacilitiescanalsouseeligibleoffsetstomeettheircomplianceobligations.Eligibleoffsetsincludecreditsgeneratedfromdomesticrenewableenergyprojectsandemissionreductionsincertainnoncoveredfacilitiesinoroutsidethetwojurisdictions.ThetwoETSsarelinked,meaningthatTokyoandSaitamacreditsareofficiallyeligiblefortradebetweenthetwojurisdictions.PricesforexcessemissionreductioncreditsintheTokyoETShavebeendecreasingsince2011(Figure2.3.1).Therehasbeenlittleactivetradinginthemarket.AccordingtoAbeandArimura(2022),some85to90percentofregulatedfacilitiesachievedtheiremission-reductiontargetsthroughinternalabatementeffortswithoutmakinguseofemissionstrading.Thissuggeststhatemissioncapswerenotlowenoughtogeneratedemandforemissioncreditsortobringaboutasignificantreductioninenergy-useinregulatedfacilities.KoreaKoreawasthefirstASEAN+3economytolaunchanationwidemandatoryETSinJanuary2015.Korea’sETScoversdirectemissionsofsixgreenhousegases(GHGs)aswellasindirectemissionsfromelectricityconsumptionfrom684largeemittersinthewaste,domesticaviation,buildings,industry,andpowersectors,accountingfor591milliontonsofcarbondioxideequivalent(MtCO2e)ofGHGemissions.TheKoreaETSisacap-and-tradesystemwherebyacapissetonthetotalamountofGHGemissionsandregulatedentitiesareissuedemissionallowances,eachrepresenting1tonofcarbondioxideequivalent(tCO2e).Regulatedentitiesmustmeasuretheirannualemissionsandsurrenderallowancestocovertheirresponsibility;thosethatemitlessthantheirallocationcanselltheirexcessallowances,whilethosethatdonothaveenoughallowancestocovertheirannualemissionsneedtobuythem.AnnualGHGemissioncapsrangedfrom540MtCO2eto593MtCO2einthefirsttwophasesofimplementation(2015–20).Forthethirdimplementationphase,thecapsare589MtCO2efor2021–23and567MtCO2efor2024–25.Regulatedentitiescanusecarbonoffsetcreditsfromeligibledomesticandinternationalprojectstomeetupto5percentoftheircomplianceobligations.MostsectorsreceivefreeallowancesbasedontheirhistoricalaverageGHGemissions.Auctioningwasintroducedinthesecondimplementationphasefor3percentoftheallocationto26subsectorssuchaselectricity,domesticaviation,woodenproducts,andmetalfoundry;theauctionsharewasincreasedto10percentandthenumberofsubsectorsincreasedto41inthethirdphase.Theauctionvolumefor2022was22.8MtCO2e(allowances).AuctionstakeplaceontheKoreaExchange,whichalsomanagestheplatformforspotsecondarymarkettransactionsinallowancesandoffsetcredits.ThisboxwaswrittenbyAndriansyah.67Chapter2.OntheRoadtoNetZeroTheallowancepriceevolvedasthemarketdeveloped.ThepricestartedataboutKRW8,500(aboutUSD6.5)pertCO2eandrosemoreorlesssteadilyforfiveyears,reachingKRW40,900pertCO2eattheendof2019(Figure2.3.2).PricechangeshavebeendrivenbyrevisedclimatetargetsandETSrules,aswellasdemandfrommarketparticipantsandspeculators.Allowancepricesdippedin2020asCOVID-19reducedeconomicactivity.Pricesroseinthemiddleof2021whenthegovernmentproposedatighteningofthecountry’s2030emissiontargetandattheendof2021when20financialinstitutionswereallowedintothemarkettobolsterliquidity(WorldBank2022b).Marketstabilizationmeasuresareinplacetodealwithpersistentsupply-demandimbalances,includingauctioningofallowancesfromthereserve,imposingbankinglimitations,changingtheborrowinglimits,changingtheoffsetrestrictions,andtemporarilysettingapricefloororceiling.ChinaChinaimplementedanationalETSinJuly2021.Beforethat,eightsubnationalETSswerepiloted:inBeijing,Guangdong,Shanghai,Shenzhen,andTianjinin2013;ChongqingandHubeiin2014;andFujianin2016.SectoralcoverageofthesubnationalETSsvariesbutmainlycomprisestransport,buildings,industry,anddomesticaviation.Emissioncoveragerangesfrom13MtCO2e(Shenzhen)to259MtCO2e(Guangdong).ThenationalETScurrentlycoversonlythepowersector,butitisalreadytheworld’slargestintermsofcoveredemissions—4,500MtCO2frommorethan2,100regulatedentities.EntitiesregulatedunderthenationalsystemdonotfacecomplianceobligationsunderthesubnationalETSs.UnlikeETSselsewherewithafixedcaponemissionsthatwoulddeclineovertime,thecaponChina’snationalETScangoupordownfromyeartoyear.Eachregulatedentityreceivesa“verifiedallowance”equaltotheamountofcarbondioxideitisallowedtoemit,whichisbasedonitshistoricaloutputandthecorrespondingintensitybenchmark.Theflexiblecapisthesumofverifiedallowancesforallregulatedsites.InthepilotsubnationalETSs,thetotalemissionallowanceisdeterminedthroughatop-downapproach(e.g.,inBeijing),abottom-upapproachbasedonreportedemissionsdata(e.g.,inFujian),oracombinationofboth.AllregulatedentitiesinthenationalETSandmostexistingentitiesinthesubnationalETSsaregiventheirallowancesforfree;asmallportionofallowancesareauctionedinsomesubnationalETSs(e.g.,Beijing,Guangdong,andShanghai).Regulatedentitiescanthenbuyorsellpermits(eachpermitrepresenting1tCO2eofemissions)asneededtomeettheircomplianceobligations.Theyarealsoallowedtouseeligibledomesticproject-basedoffsetstomeetaportionoftheircomplianceobligations:upto5percentinthenationalETS,andrangingfrom1percent(Shanghai)to10percent(Guangdong,Hubei,Shenzhen,andTianjin)inthesubnationalETSs(SectionIIIgoesintomoredetailoncarbonoffsets).PricesforemissionallowancesinthenationalandsubnationalETSsvarywidely.TradingonthenationalETShasbeenlimitedsofar—atotalof194MtCO2eofallowanceschangedhandsduringthefirst12monthsofoperation,andtheemissionallowancesclosedatCNY58.24pertCO2eon15July2022,comparedtoCNY51.23pertCO2eonitsfirsttradingdayayearearlier(Xue2022).AllowancepricesinthepilotsubnationalETSsrangedfromaboutCNY30pertCO2einChongqing,Fujian,andTianjintoaboutCNY120pertCO2einBeijingbytheendof2022(Figure2.3.3).TheETSshavecontingencymeasuresinplacetoensuremarketstabilization,includingmarketsuspension,additionalallowanceauctionsandbuy-backoptions(althoughnomarketstabilizationactionshavereportedtodate).ThesubnationalETSswillgraduallybeintegratedintothenationalETS.SectoralcoverageofthenationalETSwillexpandtoincludesixadditionalindustries:ironandsteel,aluminum,cement,chemicals,papermaking,andcivilaviation.68ASEAN+3RegionalEconomicOutlook2023Figure2.3.1.Japan:TokyoETSExcessEmission-ReductionCreditPrices(Yenpertonofcarbondioxideequivalent)Figure2.3.3.China:DailyEmissionAllowancePrices(Yuanpertonofcarbondioxideequivalent,30-daymovingaverage)Figure2.3.2.Korea:ETSAllowancePrices(Wonpertonofcarbondioxideequivalent)Source:FujitsuResearchInstitute(2020).Source:InternationalCarbonActionPartnership(2022).Source:InternationalCarbonActionPartnership(2022).03,0006,0009,00012,000Dec-2011Mar-2014Jun-2016Sep-2018Dec-2020010,00020,00030,00040,00050,000Jan-2015Aug-2017Apr-2020Dec-2022Q22020COVID-19405060Jul-2021Apr-2022Dec-2022ChinaETS075150Jan-2014Jun-2018Dec-2022ShenzhenShanghaiBeijingGuangdong03570Jan-2014Jun-2018Dec-2022TianjinHubeiChongqingFujianChapter2.OntheRoadtoNetZero69WillExportsSuffer?“Thereisnodoubtthatclimateconcernswillleadtorestrictionsontrade.Thequestionishowandwhen.”HenriqueSchneiderChiefEconomistoftheSwissFederationofSmallandMedium-sizedEnterprisesNovember2022Carbonpricingcouldalsohaveimplicationsforexportcompetitiveness.Asnoted,carbonpricingcanincreaseproductioncosts,directly(byrequiringfirmstopayacarbontaxorpurchaseemissionallowances)andindirectly(byincreasingtheexplicitorimplicitcostofinputssuchasfuelsandelectricity).Byincreasingproductioncosts,carbonpricingcansubstantiallyreducetherelativecompetitivenessofaneconomy.Suchconcernsareparticularlyacuteforso-calledenergy-intensive,trade-exposedsectors(EITEs)—aluminum,cement,chemicals,iron,andsteel,plastics,andrefinedpetroleum,tonameafew—andineconomieswherethesesectorscontributesubstantiallytoeconomicactivityandemployment(Parryandothers2021).Furthermore,exportersinhigh-carbonsectorscouldseetheirmarketsharesshrinkifalowercarbonpriceforforeignproducersallowsthemtoexportatalowercost—aproblemreferredtoas“carbonleakage.”9Changesincross-countrytradeandcapitalflowsarisingfromdifferentiatedcarbonpricescouldresultinlossesinexportearnings,employment,andFDIforsomeeconomies,withimplicationsforproductivityandinnovationinthelongerterm(Venmans,Ellis,andNachtigall2020).Theempiricalliteraturefindsverysmallornegligibleeffectsofcarbonpricingpoliciesoncompetitivenessandcarbonleakage.Therecouldbevariousreasonsforthis,includingstill-lowlevelsofcarbonprices,alimitednumberofcarbonpricingschemesthathavebeenexamined(giventhatmostofthemarestillintheearlystagesofimplementation),protectionforat-risksectorssuchaslarge(over-)allocationsofemissionallowances,ortheabilityoffirmstopassontheadditionalcosttoconsumers(WorldBank2016;DechezleprêtreandSato2017;JoltreauandSommerfeld2019).Inaddition,carbonpricingpoliciesmaynotyetbeascriticalasotherdeterminantsofproductionandinvestmentdecisions,liketheavailabilityofskilledlabor,infrastructure,qualityofinstitutions,andmarketsize(AMRO2021).Studiesofcarbonleakagearealsofacedwithmethodologicalconstraints.Nonetheless,therehasbeenincreasinginterestintheideaofbordercarbonadjustments(BCAs)tocounterpotentiallossesincompetitivenessandcarbonleakageduetoasymmetriccarbonprices.Conceptually,BCAswouldaccompanydomesticcarbonpricingpoliciesandbeimposedonthe“embodiedcarbon”inaneconomy’simports—theseimportswouldbesubjecttofeesandotherchargesontheiremissionscontentasiftheywereproduceddomestically,thuslevelingtheplayingfieldbetweenlocalandforeignproducers.10AvariationofaBCAcanalsobeimplementedontheexportside,intheformofrebatesforexportersforallorpartofthedomesticcarbonpricepaidontheirexports.Accordingly,BCAswouldaddresstheproblemofcompetitivenesslossandcarbonleakagebyimposingacostonimportsfromforeignproducersfacingno(orlower)carbonpricesand/orprovidingoffsettingpayments(e.g.,rebates)forexportsofdomesticproducersthatpayhighercarbonprices.Inpractice,BCAsarecomplextodesignandimplement.Detailstobesortedoutincludethescopeofapplication(e.g.,whichsectorsandproductstobeincluded);themethodologyforcalculatingembeddedemissions;therateof(import)chargesor(export)rebatestoset;assessing“equivalency”amongexistingcarbonpricingsystems,orbetweenpricingandnon-pricingsystems;andalignmentwithinternationaltradelawsandagreements(SawyerandGignac2022).NonationalorsupranationaljurisdictionhasimplementedaBCAyet.ThemostadvancedistheEuropeanUnion’sCarbonBorderAdjustmentMechanism(CBAM),whichentersitspreliminarystageinOctober2023(Box2.4).BCAsarealsobeingexploredinCanadaandtheUnitedKingdom,whereexplicitcarbonpricesarerelativelyhigh,aswellasinJapanandtheUnitedStates,whereexplicitcarbonpricesarerelativelylow(Figure2.9).WidespreaduseofBCAsgloballywouldhavesignificantimplicationsforASEAN+3tradeandproduction.Basedonthelatestavailabledatain2018,ASEAN+3accountsfornearly38percentofcarbonemissionsembeddedinglobaltrade,morethanhalfofwhichisaccountedforbyChina(Figure2.11,leftpanel).Ofthetop20economiesintheworldwiththehighestcarbonemissionsembeddedintrade,sevenarefromASEAN+3(Figure2.11,rightpanel).Moreover,asnoted,explicitcarbonpricesintheregionaregenerallynon-existentormuchlowerthaninsomeofitsmajortradingpartners(Figure2.12).BCAsonembodied9/Carbonleakagereferstotheshiftinproductionfromajurisdictionwithstringentcarbonpoliciestoajurisdictionwithlessstringentpolicies.Whiletheformerreportsreducedemissionsasaconsequenceofitshighcarbonprice,theincreaseincarbon-intensiveactivityinthelatteroffsetsthisreduction,leadingtoincreasedglobalemissionsoverall,i.e.,“leakage.”10/Ifaccompanyingadomesticcarbontax,aBCAwouldfunctionasavalue-addedtaximposedattheborder.IfaccompanyinganETS,aBCAwouldmirrortherequirementsforpurchasesforemissionallowancesbydomesticproducers(Cosbey2021).70ASEAN+3RegionalEconomicOutlook2023carbonwillmaketheregion’sexportsmoreexpensive,whichcouldreduceexternaldemandandtradeflowsfortheaffectedgoods.FortheCBAM,forexample,thiswouldbethecaseforproducerswithhighercarbonfootprintsthantheirEUcounterpartswhereasthosewithloweremissionintensitiesthanEUproducersmightenjoyacostadvantage(Cosbey2021).IntheASEAN+3region,onlySingaporeappearstohavealoweremissionintensitythantheEuropeanUnion,althoughJapanisnotfarbehind(Figure2.13).MinimizingthenegativeconsequencesofBCAsonASEAN+3exportswillentailstrongpolicyandregulatoryadjustmentsatthedomesticlevel.ASEAN+3economieswithnocarbonpricingwouldneedtoadoptsomeformofit—eitheracarbontaxoranETS—inordertoreduceextrachargesleviedontheirexportsbyBCAs.Acarbontaxwouldhelptogeneraterevenuethatcouldbedirectedtowarddomestic“green”projectsorotherclimate-relatedpurposes,insteadofbeingchanneledtotheBCA-implementingtradingpartner(Parryandothers2021).Adoptingacarbonpricingpolicywouldalsoprovideastrongsignalonpolicydirection,evenifthecarbonpriceisinitiallylow(Venmans,Ellis,andNachtigall2020).Othertargetedpolicies,especiallyforEITEs,couldalsohelptolessentheimpactofBCAsandalleviatebusinessconcernsaboutcompetitiveness,particularlypoliciesthatincentivizeorassistdomesticexporterstoshifttooracceleratetheuseoflow-carbonandmoreefficientproductsandtechnologies(SectionIV).ThedegreeofadjustmentforeachASEAN+3economywilldependonitsrelianceoncarbon-intensiveproducts,thecarbonintensityofitstrade,anditsaccesstoresourcesandmeans(i.e.,technologyandfinancing)toreducecarbonuse.Figure2.11.ASEAN+3andSelectedEconomies:CarbonDioxideEmissionsEmbodiedinInternationalTrade,2018Figure2.12.SelectedEconomies:CarbonPricing,2021(Percentofworldtotal)(Milliontonsofcarbondioxide,top20economies)China,20.1RestofASEAN+3,17.8UnitedStates,6.3Russia,5.2India,5.0Germany,4.1Canada,2.9Restoftheworld,38.705001,0001,5002,000AustraliaPolandTurkeySpainUnitedKingdomMalaysiaFranceThailandVietnamMexicoTaiwanProvinceofChinaSingaporeCanadaJapanKoreaGermanyIndiaRussiaUnitedStatesChinaSource:OECD.Stat;AMROstaffcalculations.Source:OECD(2022).Note:Explicitcarbonpriceconsistsofemissionstradingsystem(ETS)permitpricesandcarbontaxes.CA=Canada;CN=China;DE=Germany;FR=France;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines;UK=UnitedKingdom;US=UnitedStates.Source:OECD.Stat;AMROstaffcalculations.ShareofGHGsSubjecttoExplicitCarbonPrice(Percent)AverageExplicitCarbonPrice(Real2021eurospertonofcarbondioxideequivalent)82.487.863.228.16.432.673.376.60.00.00.0020406080100CADEFRUKUSCNJPKRIDMYPH21.736.029.718.01.01.82.113.00.00.00.0010203040CADEFRUKUSCNJPKRIDMYPH21.736.029.718.01.01.82.113.00.00.00.0010203040CADEFRUKUSCNJPKRIDMYPHChapter2.OntheRoadtoNetZero71Figure2.13.ASEAN+3andSelectedEconomies:EmissionIntensity,2019(TonsofcarbondioxideequivalentpermilliondollarsofGDP)CanadaUSEUUKWorld09001,8002,7003,600MMKHLAIDVNMYCNTHBNPHKRJPSGSource:ClimateWatch(2022).Note:DatanotavailableforHongKong.BN=Brunei;CN=China;ID=Indonesia;KH=Cambodia;EU=EuropeanUnion;JP=Japan;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;UK=UnitedKingdom;US=UnitedStates;VN=Vietnam.72ASEAN+3RegionalEconomicOutlook2023Box2.4:WhatWilltheEuropeanUnion’sCarbonBorderAdjustmentMechanismMeanforASEAN+3Exports?InJuly2021,theEuropeanUnionproposedacarbonborderadjustmentmechanism(CBAM)forimportsfromnon-EUeconomies.ThestatedaimoftheCBAMistolimitcarbonleakagebyequalizingthecarbonpricebetweenEUandnon-EUproductsandencouragingtradingpartnerstoadoptcarbonpricing.TheCBAM,whichisnotyetfinalized,willinitiallycoverfiveindustrialsectors—aluminum,cement,electricitygeneration,fertilizers,andironandsteel—plushydrogen,indirectemissions(undercertainconditions),andcertainprecursorsanddownstreamproductsofthetargetedsectors.UndertheCBAM,EUimporterswouldberequiredtodeclarethetotalemissionsassociatedwiththeirannualimportsoftheseproductsandpurchasecarboncertificatescorrespondingtothecarbonpricethatwouldhavebeenpaidtoproducethegoodsintheEuropeanUnion—i.e.,theaveragetradingpriceofemissionallowancesontheEUEmissionsTradingSystem(EUETS).DuringthetransitionperiodstartingfromOctober2023,onlyemissionreportingwillberequired;nocarbonchargeswillbelevied.TheCBAMwillbephasedinasearlyas2027andbefullyoperationalafterfivetonineyears.AdeterminationwillbemadebeforetheendofthetransitionperiodaboutwhethertoextendtheCBAM’sscopetoothergoods,includingorganicchemicalsandpolymers.ThegoalistoincludeallgoodscoveredbytheEUETSby2030(EuropeanParliament2022).TheCBAM—underitsinitialscope—isexpectedtohavelimitedimpactonASEAN+3exports.TheEuropeanUnionisASEAN+3’ssecond-largestexportmarketoftheCBAM-coveredproductcategories,aftertheUnitedStates.Chinaistheregion’sbiggestexporterofCBAMproductstotheEuropeanUnion,followedbyKoreaandJapan(Figure2.4.1,leftpanel).However,giventhattheshareofCBAMexportsinASEAN+3’stotalexportsandGDPisrelativelysmall—at0.9percentin2019and0.22percentin2021—thetradeimpactoftheCBAMunderitscurrentscopemightnotbesevere(Figure2.4.1,centerandrightpanels).SimulationsbyAMROstaffusingaglobalcomputablegeneralequilibriummodel,followingHe,Zhai,andMa(2022),suggestthatexportstotheEuropeanUnioncoulddeclinebyabout0.1percentforChina,0.2percentforJapan,and0.12percentforASEANeconomiesin2030relativetothecounterfactualbaseline(absenttheCBAM).Withintheregion,VietnamandIndonesiaarelikelytofeelthegreatestimpact(Figure2.4.2,toppanel).Thatnoted,theCBAMcouldhaveasubstantialnegativeimpactonASEAN+3exportsifitsscopeisextendedtoincludeallproductsandservicesandallindirectemissionsfromupstreamvaluechains.Themodelsimulationssuggestthatundersuchan“extremecase”scenario,theCBAMwouldresultina11.4percentdeclineinChina’sexportstotheEuropeanUnionandshave0.12percentoffChina’sGDPin2030comparedtothebaseline.ASEANexportstotheEuropeanUnionwillbe9.7percentlower,andGDPwillbe0.2percentlower(Figure2.4.2,bottompanel).JapanandKoreawillnotbeimpactedasseverelyastherestoftheregion,mostlikelyduetotheirlowercarbonintensity,higherenergyefficiency(e.g.,accesstolesspollutingtechnologies),andexistingdomesticcarbonprices.TheconsequencesforASEAN+3tradewouldbeexacerbatedifothermajortradingpartnersimplementsimilarpolicies.TheCBAMcouldsetthetoneforfuturebordercarbonadjustments(BCAs)inCanada,theUnitedKingdom,andtheUnitedStates.ASEAN+3exportersarelikelytolosetheircostadvantageastheircarbonfootprintsexceedthoseofthesethreetradingpartners(Figure2.13).Thesemarketsaccountforanadditional12.5percentofASEAN+3exportsofCBAM-coveredproducts,orabout1.2percentoftheregion’stotalexports(Figure2.4.3,leftpanel).IfallothereconomiesfollowsuitandimposeBCAsonthesamegroupofcarbon-intensivegoods,thiswillaffectnearly10percentoftheregion’stotalexports,equivalenttoabout2.2percentofitsGDP(Figure2.4.3,rightpanel).Realistically,theimplementationofBCAsislikelytobegradual.Carbon-intensiveproductstendtohavecomplexvaluechainsandassuch,theinitialimpactislikelytobelimitedtorawmaterialsandprimaryproductsratherthantheoverallsupplychain(Darvell2022).Gradualimplementationwouldgivetheregion’seconomiestimetointroduceorrefinetheirowncarbonpricingschemes(Table2.2)andreducetheriskofasuddenshocktoexportsandeconomicactivity.ThisboxwaswrittenbyMartheM.HinojalesandFanZhai.73Chapter2.OntheRoadtoNetZeroFigure2.4.1SelectedASEAN+3:ExportsofCBAMProductstotheEuropeanUnion,2019–22AverageFigure2.4.2.ASEAN+3:EstimatedImpactofCBAMonGDPandExportstotheEuropeanUnion,2030Initialcoverage(Percentchangefrombaseline)(PercentagepointcontributiontoASEANaggregateimpact)Fullcoverage(Percentchangefrombaseline)(PercentagepointcontributiontoASEANaggregateimpact)(PercentoftotalCBAMexports;percentofASEAN+3CBAMexports)(Percentoftotalexports)(PercentofGDP)0.00.40.81.21.6BNHKPHTHMYVNIDJPSGCNKRA+30.01.51.80.80.22.19.315.83.458.56.6100.0051015BNTHMYHKPHIDJPKRVNCNSGA+30.00.51.0BNPHJPIDHKTHCNMYKRVNSGA+3Source:IHSMarkit;HaverAnalytics;andAMROstaffcalculations.Note:DataforCambodia,LaoPDR,andMyanmarnotavailable.Intheleftpanel,figuresinboxesrefertoeacheconomy’sshareoftotalASEAN+3exportsofCarbonBorderAdjustmentMechanism(CBAM)products.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;andVN=Vietnam.Source:AMROstaff.Note:ThebaselineisthecasewithouttheCarbonBorderAdjustmentMechanism(CBAM).“Initialcoverage”referstodirectemissionsfromthecoveredsectors(representedinthemodelbychemicals,electricity,ironandsteel,nonferrousmetals,andnonmetallicminerals).“Fullcoverage”referstoallexportsandbothdirectandindirectemissions.BothscenariosassumeacarbonpriceofUSD75pertonofcarbondioxideequivalent(tCO2e)embodiedinimportsoftheEuropeanUnionwhilethecarbonpricepertonforChinaisassumedtobeUSD9.2;forIndonesia,USD2.09;forJapan,USD3.39;forKorea,USD18.75;forSingapore,USD3.7;and0fortherestofASEAN.TheCBAM,whichadjustsfordifferencesbetweentheEUcarbonpriceandcarbonpriceinexportingeconomies,isassumedtobeimposedfrom2026.ThesimulationresultsshowthattheCBAMwillleadtoincreasesinimportcosts(measuredintariff-equivalents)ofCBAMproductsfromtheEUperspective,buttheestimatedtariff-equivalentswillvaryacrossexportingeconomies.Thus,whilemostexportingeconomiesareexpectedtoexperienceadeclineinexports,afew,suchasKoreainthe“initialcoverage”scenariocouldseeasmallincreasebecausetheircomparativelylowertariff-equivalentscouldproducesometradediversionintheirfavor.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.-0.010.000.01-0.60.00.6CN,HKJPKRASEANExports-0.020.000.02-0.140.000.14VNIDTHLAMYPHSGKHBNMMGDP(rightaxis)-0.05-0.030.00-3.0-1.50.0VNTHMYIDPHSGKHLABNMMGDP(rightaxis)-0.18-0.12-0.060.00-12.00-6.000.00CN,HKJPKRASEANExports74ASEAN+3RegionalEconomicOutlook2023Figure2.4.3.ASEAN+3:ExportsofCBAMProducts,2019–22ExportstoSelectedMarkets(PercentoftotalCBAMexports)ExportstoAllMarkets(Percentoftotalexports,GDP)0102030VNCNKRSGJPPHTHHKIDMYBNA+3Exportsto:CanadaUKUSEU2712.5061218HKPHVNSGTHMYCNJPIDBNKRA+3GDPExportsSource:IHSMarkit;HaverAnalytics;andAMROstaffcalculations.Note:DataforCambodia,LaoPDR,andMyanmarnotavailable.A+3=ASEAN+3;BN=Brunei;CN=China;EU27=27membersoftheEuropeanUnion;HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;UK=UnitedKingdom;US=UnitedStates;VN=Vietnam.Chapter2.OntheRoadtoNetZero75WhataboutStrandedAssets?“Noenergycompanywillbeunaffectedbycleanenergytransitions.”FatihBirolInternationalEnergyAgencyExecutiveDirectorJanuary2020Thetransitiontoalow-carboneconomycouldresultinstrandedassets.Hittingthenetzerogoalby2050requireseconomiesaroundtheworldtoundergodeepandrapidstructuraladjustments(UNEP2022).Inthiscontext,strandedassetswouldincludenaturalresources(fossilfuelreservesleftintheground)andinvestmentsininfrastructureorpropertiesthatwouldneverbefullyutilizedduetogovernmentregulation,technologicalchange,orevolvingsocietalnormsandconsumerbehavior.Inmacroeconomicterms,whenaprice—explicitorimplicit—issuddenlyputoncarbonemissionsthatusedtobefree,thiswilltriggeranacceleratedobsolescenceofexistingcapitalstockassociatedwithhighemissions,especiallyintheenergy,transportation,manufacturing,andbuildingsectors.11Forexample,oilandcoalreservesmighthavetoremaininthegroundas“unburnablecarbon”(strandedvolumes);coalpowerstationscouldbeprematurelyclosedduetopressureforfossilfueldivestment(strandedcapital);andoilandgascompanies—andthebanksthatfinancethem—couldseetheirprofitabilityplungewithchangingconsumerdemand(strandedvalue).12Potentialoutputcouldthereforedeclineintheshortterm.ASEAN+3economiesthatrelyonexportrevenuesfromfossilfuelsarelikelytofacerisksfromstrandedassets.Theriskisgreatestforeconomiesthatcurrentlydependonfossilfuelresourcesinthegroundand/orcarbon-intensivebuiltcapital,aswellasthosethatareexpectedtorelyoncarbon-intensiverentsandrevenuesasaresultoflargereservesandtheyoungageoftheircarbon-intensiveinfrastructure(Peszkoandothers2020).BruneiandVietnamareamongthetop10countriesmostexposedtostranded-assetrisk(Figure2.14).China,Indonesia,andMalaysiaarepotentiallyvulnerableduetothesignificantcontributionofthefuelextractiveand/orcarbon-intensivesectorstoeconomicgrowth(Figure2.15).Cambodia,likeVietnam,isvulnerablemainlybecauseofthelargeshareofyoungcoalpowerplantsinitspowergenerationmix(Figure2.16).Theregion’scoalresourcesfacethemostimmediateriskofbeingstranded,comparedtooilandnaturalgas(Figure2.17).Economiesthatrelyoncoalrentsarealsoatriskofrevenueshocks(Figure2.18).Thecreationofstrandedassetscouldalsohaveimplicationsfortheregion’sfinancialstability.13Mostoftheworld’sunburnablecarbon—theexcessofavailablefossilfuelsbeyondwhatcanbeburnedifglobalwarmingislimitedtobelow2degreesCelsius—isheldbycompanieslistedinglobalfinancialcenters(AllenandCoffin2022).Thismeansthatthefossilfuelassetsofthesecompaniesarenowovervalued.Theso-calledcarbonbubbleisestimatedtoreachbetweenUSD1trillionandUSD4trillionby2050(IPCC2022).Policyactiontopromotethetransitiontowardalow-carboneconomycouldsparkafundamentalreassessmentofprospectsandburstthecarbonbubble.Ifthebubbleburstssuddenlyratherthangraduallydeflatingoveraspanofdecades,itcouldtriggerafinancialcrisis—aclimateMinskymoment.Suddenrevaluationscouldtriggerfiresalesofcarbon-intensiveassets,whichcouldpotentiallydestabilizefinancialmarketsandsparkaprocyclicalcrystallizationoflossesandapersistenttighteningoffinancialconditions(Carney2015).Howseriousisthistransitionriskfortheregion?AccordingtoCarbonTracker,themajorityofembeddedemissionsarelistedonthestockexchangesofChina(andHongKong),theUnitedStates,India,Russia,andSaudiArabia(Figure2.19).However,intheshareofanexchange’smarketcapitalizationtakenbycompanieswithfossilfuelreserves,China’sfinancialcenters(HongKong,Shanghai,andShenzhen)havecomparativelylowequityexposuretofossilfuelreserves—lessthan10percent—andthesameistrueforBangkok,Jakarta,Seoul,andTokyo(AllenandCoffin2022).Ontheotherhand,AMROstaffresearchsuggeststhatasignificantshareofASEAN+3bankloanscouldbeaffectedbytransitionrisks(Figure2.20)(Wong,Gabriella,andDurrani2022).Infact,ChineseandJapanesebanksarethelargestfunders-underwritersofglobalcoalprojects,accountingfor61percentoftotalfundingduring2019–21(Urgewald2022).11/Obsolescenceofcapitalstockisarecurringandordinarilyseenfeatureofdynamiceconomicsystems.Assetscanbecomestrandedthroughcompetition,innovation,andeconomicdevelopment(BosandGupta2019;Semieniukandothers2022).Asold(“sunset”)industriesarereplacedbynew(“sunrise”)industriesasdriversofgrowth,evenprematurestrandingofoldassetsisnotnecessarilydetrimental.However,whileassetstrandingisacommoneconomicphenomenon,thespeedatwhichstrandedassetsaccumulatecanhavenegativerepercussionsontherealeconomy.12/Welsbyandothers(2021)estimatethatby2050,nearly60percentofoilandfossilmethanegasand90percentofcoalmustremainunextractedtoallowfora50percentprobabilityoflimitingglobalwarmingto1.5degreesCelsius.Furthermore,oilandgasproductionmustdeclinegloballyby3percenteachyearuntil2050.13/Transitionrisksareonechannelthroughwhichclimatechangecanaffectfinancialstability.Otherchannelsincludephysicalrisks,i.e.,theimpactoninsuranceliabilitiesandthevalueoffinancialassetsthatarisefromclimate-andweather-relatedevents,suchasfloodsandstormsthatdamagepropertyordisrupttrade;andliabilityrisks,i.e.,theimpactsthatcouldariseinthefutureifpartieswhohavesufferedlossordamagefromtheeffectsofclimatechangeseekcompensationfromthosetheyholdresponsible,suchascarbonextractorsandemittersandtheirinsurers(Carney2015).76ASEAN+3RegionalEconomicOutlook2023Figure2.14.ASEAN+3andSelectedEconomies:DegreeofExposuretoStranded-AssetRisk,2019(Index)Figure2.16.ASEAN+3:PowerGenerationfromFossilFuelsandEmissionIntensity(Percentoftotalgeneration;tCO2eperdollarofGDP)Figure2.17.World:UnextractableFossilFuelReservestoLimitGlobalWarmingby2050(Percentoftotalreserves)(PercentofGDP)(Percentofexportvalue)Figure2.15.ASEAN+3:FossilFuelExports,2020–210.150.290.300.310.340.430.450.470.530.700.740.750.790.870.870.890.900.971.00SingaporeJapanPhilippinesKoreaThailandMalaysiaIndonesiaChinaCambodiaVietnamNigeriaOmanSaudiArabiaKuwaitBruneiQatarKazakhstanLibyaIraq10mostexposedSource:Peszkoandothers(2020).Note:Theexposureindexisbasedonfourindicators:(1)currentrelianceonfossilfuel–exportrevenuesasapercentageofGDP,anindicatorofcurrentdependencyoncommodityexports;(2)futurerelianceonexpectedresourcerentsfromknownfossilfuelreservesasapercentageofcurrentgrossnationalincome,aforward-lookingindicatorofdependencyoncommodityrents;(3)currentcarbonintensityofmanufacturedexports,anindicatorofcurrentdependencyoncarbon-intensivemanufacturedgoodsandservices;and(4)committed(future)emissionsfrombuiltcapitalinthepowersectordividedbycurrentannualpowergeneration,aforward-lookingindicatorofdependencyoncarbon-intensivegoodsandservicesasafunctionoftheageandemissionsintensityofelectricitygeneration.Theindicatorrangesfrom0to1,where0isthelowestexposureand1isthehighestexposure.Source:UNComtrade;WorldDevelopmentIndicators,WorldBank;AMROstaffcalculations.Note:Dataintheleftchartrefertonetexports.Dataintherightchartrefertototalexports.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR:MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.-8-6-4-20246MYIDMMCNJPHKVNPHLAKRTHSGKHCoalGasOil-5051015202530BN0.80.80.30.10.0061218IDMMMYSGKRTHCNJPPHVNLACNKHCoalGasOil0306090BN01,0002,0003,0004,000020406080100MMKHVNKRCNPHJPIDMYTHSGHKBNOilGasCoalEmissionsintensity(rightaxis)01,0002,0003,0004,000020406080100MMKHVNKRCNPHJPIDMYTHSGHKBNOilGasCoalEmissionsintensity(rightaxis)Source:ClimateWatch;WorldDevelopmentIndicators,WorldBank.Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;andVN=Vietnam.Electricitygenerationdataasof2015;dataforLaoPDRarenotavailable.Emissionintensitydataasof2019;dataforHongKongarenotavailable.Source:Welsbyandothers(2021);BPStatisticalReviewofWorldEnergy(2022);AMROstaffcalculations.Note:Unextractablereservesreferstotheamountoffossilfuelsthatwouldneedtobeleftintheground,regionallyandglobally,toallowfora50percentprobabilityoflimitingglobalwarmingto1.5degreesCelsiusby2050.Chapter2.OntheRoadtoNetZero77Figure2.18.SelectedASEAN+3:FossilFuelRents,byFuelType,2020(PercentofGDP)Figure2.19.SelectedEconomies:EmbeddedEmissionsinFossilFuelReservesofListedCompanies,2022(Gigatonsofcarbondioxide)CoalNaturalGasOil0.00020.00070.010.020.020.040.220.350.7300.10.20.30.40.5JPKRMMMYTHPHVNCNID0.0020.0030.10.10.30.50.51.81.88.90123KRJPPHCNVNIDTHMYMMBN100.00020.0010.0030.10.20.30.40.60.71.68.00123KRJPPHMMKHCNTHIDVNMYBN100.80.00020.00070.010.020.020.040.220.350.7300.10.20.30.40.5JPKRMMMYTHPHVNCNID0.0020.0030.10.10.30.50.51.81.88.90123KRJPPHCNVNIDTHMYMMBN100.00020.0010.0030.10.20.30.40.60.71.68.00123KRJPPHMMKHCNTHIDVNMYBN100.80.00020.00070.010.020.020.040.220.350.7300.10.20.30.40.5JPKRMMMYTHPHVNCNID0.0020.0030.10.10.30.50.51.81.88.90123KRJPPHCNVNIDTHMYMMBN100.00020.0010.0030.10.20.30.40.60.71.68.00123KRJPPHMMKHCNTHIDVNMYBN100.8Source:WorldDevelopmentIndicators,WorldBank.Note:BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MM=Myanmar;MY=Malaysia;PH=Philippines;TH=Thailand;VN=Vietnam.Source:CarbonTracker(2022);AMROstaffcalculations.Note:Dataarebasedonprimarylistinglocationandincludelistedandpartiallylistedcompaniesandallsharetypes(restrictedandfreelytradeable).AU=Australia(Sydney);CA=Canada(Toronto);CN=China(ShanghaiandShenzhen);HK=HongKong;ID=Indonesia(Jakarta);IN=India(Mumbai);JP=Japan(Tokyo);KR=Korea(Seoul);MY=Malaysia(KualaLumpur);PH=Philippines(Manila);RU=Russia(Moscow);SA=SaudiArabia(Riyadh);SG=Singapore;TH=Thailand(Bangkok);UK=UnitedKingdom(London);US=UnitedStates(NewYork).050100150200250CN+HKUSINRUSAUKCAAUJPIDCoalOilGasTop10economies012345THKRMYSGPHFigure2.20.ASEAN+3:BankExposuretoTransitionRisks,2021ClimateChange-RelatedLoans,byEconomy(Percentoftotalbankloans)EmissionsperLoan,byEconomy(TonsofcarbondioxideperbillionUSdollars)Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Myanmar’sloansarebasedoninformationreportedin2020.AFOLU=agriculture,forestry,andotherlanduse;BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:NationalauthoritiesviaHaverAnalytics;AMROstaffcalculations.Note:Thecomputedsharesareweighted,derivedusingtheloanamountineacheconomyandsector.Emissionsarebasedoninformationreportedin2020.Myanmar’sloansarealsodependentoninformationreportedin2020.BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.020406080IDKRJPPHLAVNBNSGCNTHHKKHMMMYAFOLUDevelopmentandconstructionEnergysystemsIndustryMortgageloansTransport0246BNIDLAMMPHTHMYJPVNCNKHKRSGHK78ASEAN+3RegionalEconomicOutlook2023WillEconomicGrowthBeStunted?“Nocountryintheworldhasbeenabletoindustrializeusingrenewableenergy…”YemiOsinbajoVicePresidentofNigeriaMay202214/The2021pilottestcovered23majorbanks.InJune2022,thePBCannouncedplanstoexpanditsclimatestresstesttoassesstheimpactofclimaterisksinadditionalindustries,includingaviation,metals,andpetrochemicals,onthefinancialsector.15/Tobesure,achievingcarbonneutralitywillbenefiteveryonewithapreservedclimateinthelongtermbutthetransitiontoadecarbonizedsteadystatecouldseedeclinesinrealincomeandthestandardoflivinginsomeeconomiesundercertainscenarios.PilotstresstestsofclimateriskconductedbyASEAN+3centralbankssuggestthatbankswouldbeabletoabsorbthelosses.ThePeople’sBankofChina’s(PBC’s)pilottestin2021showedrisingdefaultrisksinthethermalpower,steel,andcementsectorsintheabsenceofalowcarbontransformation;nonetheless,bankswereabletomaintaincapitaladequacyratios(CARs)abovetheregulatoryrequirementunderthedifferentstressscenarios(Reuters2022a;ChinaBankingNews2022).14ResultsfromtheHongKongMonetaryAuthority’spilotclimateriskstresstestlikewiseshowedthatwhileCARsamongsystemicallyimportantbankswouldfallinadisorderlytransition,strongcapitalbufferswouldmitigatetheoverallimpact(HKMA2021).ApilotclimateriskscenarioanalysisbyJapan’scentralbankandfinancialregulatorconcludedthattheestimatedincreaseinannualcreditcostsduetoclimateriskswouldnotexceedtheaverageannualnetincomeofthesixmajorbanksandnonlifeinsurancecompaniesassessed(BankofJapanandFinancialServicesAgency2022).However,noneoftheclimateriskstresstestsconductedanywhereintheworldtodatefullycapturesrisksfromanabruptcorrectioninthepricesofassetsonbankbalancesheets(FinancialStabilityBoard2022).Overthelongterm,severalfactorsmaymitigatetheriskofstrandedassets.Carbonpriceadjustments,orregulatoryequivalents,neednotbesuddenandunexpected.Themoregradualtheriseinthepriceofcarbon,thelesscapitalwillhavetobediscardedbeforeitreachestheendofitseconomiclife.Clearandwell-communicatedpolicysignalsarethereforekey.Achangeinrelativepricesandatighteningofemissionstandardsshouldunleashanewwaveoftechnologicalprogressandthecostofdecarbonizationcouldfalldramaticallyonceendogenoustechnologicalchangeisconsidered(Acemogluandothers2012).New“sunrise”industriesarealreadybeginningtocomeuptoreplaceandreform“sunset”fossilfuel-relatedindustries,generatingdemandfornewresourcessuchascriticalmineralsandcreatingvalueforpreviouslyunpricednaturalresourcessuchasforestsandwildlifethatactascarbonsinks(SectionIII).Thetransitiontocarbonneutralitywilllikelybechallengingforgrowth,especiallyindevelopingeconomies.15TheimplicationsofthenetzerotransitionforgrowthcanbeunderstoodintermsoftheKayaidentity,wherecarbonemissionsareexpressedasaproductofpopulation,percapitaGDP,energyintensityofGDP,andcarbonintensityofenergy(Kaya1990):Theidentityimpliesthatareductionincarbonemissionscanbeachievedbyareductioninenergydemand(consumption),whichiscapturedbythefirstthreetermsontheright-handside,and/orareductionincarbonintensityofenergy(e.g.,throughtheadoptionofcleanersourcesofenergy).Inotherwords,economieswouldneedtoconsumelessenergyand/orchangetheirenergymixinordertomeettheiremissiontargets.IfaclosepositiverelationshipexistsbetweenenergydemandandGDP,andifasubstantialchangeintheenergymixisslowtomaterialize,thenaneconomymayhavetoforfeitsomeGDPgrowthtoreducetheconsumptionofprimaryenergy—andthus,emissions.TherelationshipbetweenenergydemandandGDP(incomelevel)isthoughttofollowanS-shapedcurve.Bogmansandothers(2020)findthatforlow-incomeeconomies,theincomeelasticityofenergydemandislowandincreasing;formiddle-incomeeconomies,theelasticitypeaksatapproximatelyunity;andforhigh-incomeeconomies,theelasticityisdecreasing.Thissuggeststhatreducingenergyconsumptiontoloweremissionswouldimplyagreatercosttogrowthforlow-andmiddle-incomeeconomiesthanforhigh-incomeeconomies.Reflectingthis,someeconomies,includingChina,HongKong,andMalaysiaamongtheASEAN+3,havecommittedtoreducetheiremissionsintensity(i.e.,theratioofemissionstoGDP)ratherthantheirabsolutelevelofemissions,whileothers,includingBrunei,Cambodia,Indonesia,thePhilippines,Thailand,andVietnam,havesetgoalstoreduceemissionsoffabusiness-as-usualgrowthscenario(Box2.1).PopulationGDPEnergyCarbonemissionsPopulationGDPEnergy×××Carbonemissions=Chapter2.OntheRoadtoNetZero79Energydemandintheregionisgenerallyexpectedtoremainonanuptrendoverthenextfewdecades.Theregion’seconomiesareindifferentstagesofeconomicdevelopment,butalmostallofthemhavemorethandoubledthesizeoftheireconomiessince2000.Economicgrowthhasbeenaccompaniedbyurbanizationandmotorization,whichhaveledtogreaterenergyconsumption(Figure2.21).Astheregion’seconomiescontinuetodevelop,theirenergydemandwillincreaseintandem.Ontheotherhand,energydemandisalsoafunctionofenergyintensity,whichcanbeloweredthroughmoreefficientenergyconsumption—ashasbeenthecaseoverthepasttwodecadesacrosstheregion(Figure2.22).Forenergydemandtodecline,futureenergyefficiencygains—e.g.,frommorestringentenergyperformanceandfuel-economystandards,buildingenergycodesandindustrytargets,andtechnologicaladvancesinenergymanagementintheindustrialandbuildingsectors—willneedtooutpacetheeffectofincomegrowthonenergyconsumption(Table2.3).IEAprojectionsindicatethatthisisnotlikelytohappenintheregion,exceptpossiblyinJapan(IEA2022a;IEA2021b).16Theimplicationofemissionreductionfortheregion’slong-termgrowthanddevelopmentthereforehingesonchangingtheenergymixawayfromfossilfuels.Asnotedearlier,almostallASEAN+3economieshavesettargetsorpledgedtoincreasetheshareofcleanorrenewableenergyintheirenergymixandtoreducetheuseofcoalpower(Table2.1).AsASEAN+3economiesprogressivelyincorporatenon-fossilfuelsourcesintotheirenergymix,theirenergycarbonintensityisprojectedtodecline.Accordingtonationalauthorities’policyroadmapsandIEAassessments,thedeclineincarbonintensitywilllikelybesufficienttobringdownabsoluteGHGemissionsby2050inthePlus-3,butnotinASEAN,whereenergydemandisexpectedtoremainrobustinthedecadestocome(IEA2021b;Lee2021).Thekeyquestion,therefore,iswhethertheregion’semergingmarketanddevelopingeconomieswillbeabletomeettheirfutureenergyneedswithoutrelyingasmuchoncoalandotherfossilfuels;itisworthnotingthateventheworld’sadvancedeconomiesarenotexpectedtoswitchsubstantiallyoutoffossilfuelsby2050(IEA2022h)(Figure2.23).Thenextsectiondiscussestheoutlookforreducingcarbonintensityintheregion.16/Basedoncountries’statedpolicies,IEA(2022h)forecaststhatenergydemandinadvancedeconomieswilldeclinebyabout0.5percentayearwhereasenergydemandinemergingmarketanddevelopingeconomieswillincreasebyover1.4percentayearovertherestofthisdecade.80ASEAN+3RegionalEconomicOutlook2023Figure2.21.ASEAN+3:PrimaryEnergyConsumptionversusGDPPerCapita(Terawatt-hours;ThousandsofUSdollarsinconstant2015prices)0204060800204060GDPpercapitaBrunei19802019020406080012GDPpercapitaCambodia19932019015,00030,00045,000051015GDPpercapitaChina19952021010020030040001020304050GDPpercapitaHongKong1965202101,0002,0003,0000246GDPpercapitaIndonesia1984202102,0004,0006,0008,000010203040GDPpercapitaJapan1965202101,0002,0003,0004,000010203040GDPpercapitaKorea196520210601201800123GDPpercapitaLaoPDR1984201905001,0001,500051015GDPpercapitaMalaysia196520210501001502000.00.51.01.52.0GDPpercapitaMyanmar19802019020040060001234GDPpercapitaPhilippines1965202104008001,200020406080GDPpercapitaSingapore1965202105001,0001,5002,00002468GDPpercapitaThailand1965202105001,0001,50001234GDPpercapitaVietnam19842021Primaryenergyconsumption0204060800204060GDPpercapitaBrunei19802019020406080012GDPpercapitaCambodia19932019015,00030,00045,000051015GDPpercapitaChina19952021010020030040001020304050GDPpercapitaHongKong1965202101,0002,0003,0000246GDPpercapitaIndonesia1984202102,0004,0006,0008,000010203040GDPpercapitaJapan1965202101,0002,0003,0004,000010203040GDPpercapitaKorea196520210601201800123GDPpercapitaLaoPDR1984201905001,0001,500051015GDPpercapitaMalaysia196520210501001502000.00.51.01.52.0GDPpercapitaMyanmar19802019020040060001234GDPpercapitaPhilippines1965202104008001,200020406080GDPpercapitaSingapore1965202105001,0001,5002,00002468GDPpercapitaThailand1965202105001,0001,50001234GDPpercapitaVietnam19842021PrimaryenergyconsumptionSource:OurWorldinData(2022a);WorldDevelopmentIndicators,WorldBank.Note:Primaryenergyconsumptionreferstothetotalenergydemandofaneconomy,includingfortheuseofelectricity,heating,andtransport.Dataincludesonlycommerciallytradedfuels(coal,oil,andgas)aswellasnuclearandmodernrenewablesexcepttraditionalbiomass.Chapter2.OntheRoadtoNetZero81Figure2.22.ASEAN+3:EnergyIntensityofGDP(Megajoulesperconstant2017internationaldollarsusingpurchasingpowerparityrates)Figure2.23.SelectedEconomies:ProjectedEnergySupplyandEnergyMix(Petajoules;percent)02468051015202519901994199820022006201020142018World(rightaxis)CN0246819901994199820022006201020142018DevelopedregionsHKJPKRSG0246819901994199820022006201020142018DevelopingregionsIDMYPHTH051015200246819901994199820022006201020142018DevelopingregionsBNLAVNKH(rightaxis)MM(rightaxis)02468051015202519901994199820022006201020142018World(rightaxis)CN0246819901994199820022006201020142018DevelopedregionsHKJPKRSG0246819901994199820022006201020142018DevelopingregionsIDMYPHTH051015200246819901994199820022006201020142018DevelopingregionsBNLAVNKH(rightaxis)MM(rightaxis)Source:InternationalEnergyAgency(IEA).Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:InternationalEnergyAgency(2022h);AMROstaffcalculations.Note:ProjectionsarebasedontheIEA’s“statedpoliciesscenario,”whichaccountsforpoliciesandimplementingmeasuresaffectingenergymarketsadoptedasoftheendofSeptember2022,togetherwithrelevantpolicyproposalsevenifspecificmeasuresneededtoputthemintoeffecthaveyettobefullydeveloped.010203040500408012016020020102021203020502010202120302050201020212030205020102021203020502010202120302050ChinaJapanSoutheastAsiaNorthAmericaEuropeRenewablesNon-renewablesShareofrenewables(rightaxis)82ASEAN+3RegionalEconomicOutlook2023Table2.3.ASEAN:EnergyAccessandEnergyEfficiencyTargetsSource:InternationalEnergyAgency(IEA);AMROstaffcompilation.EconomyEnergyAccessPoliciesandTargetsEnergyEfficiencyPoliciesandTargetsBrunei•Reducetotalenergyconsumptionby63percentfrombusiness-as-usual(BAU)levelsby2035.•InJune2021,theMinistryofEnergyannouncednewminimumenergyperformancestandardsforairconditioningsystemsandotherelectricalappliances.Thisplanisexpectedtoreduceenergyintensityby45percentfrom2005levelsby2035.Cambodia•Achievenear-universalelectrificationby2030.•Cutenergyconsumptionby20percentrelativetoBAUby2035.Indonesia•Achieve100percentelectrificationbytheendof2024.•Reduceenergyintensityby1percentayearto2025.LaoPDR•Achieveelectrificationrateof98percentby2025.•Reducefinalenergyconsumptionby10percentfromtheBAUlevelby2040.Malaysia•Achieve(rural)electrificationrateof99percentby2025.•Promoteenergyefficiencyintheindustryandbuildingssectorsandreduceoverallenergyintensityby2040throughmandatoryminimumefficiencyperformancestandards.Myanmar•Achieveelectrificationrateof100percentby2030.•Reduceprimaryenergydemandby8percentfromtheBAUlevelby2030.Philippines•Achieve100percentelectrificationby2028.•Reduceenergyintensityby40percentby2030from2010level.Decreaseenergyconsumptionby1.6percentayearby2030frombaselineforecasts.Reduceenergyintensityandtotalenergyconsumptionby24percentrelativetotheBAUlevelby2040Singapore•Improveenergyintensityby35percentfromthe2005levelby2030.Thailand•Reduceenergyintensityby30percentfromthe2010levelby2036.Vietnam•InJune2019,thegovernmentofficiallyapprovedtheVietnamScalingUpEnergyEfficiencyProjecttopromoteenergyefficiencyintheindustrialsector.TheprojectreceivedfundingfromtheWorldBankinMarch2021.III.InwiththeNew:GrowthOpportunitiesofMovingTowardCarbonNeutralityThetransitiontonetzeroisrichinopportunities,holdingouttheprospectofexpandingmarketsforrenewableenergy,low-emissionproducts,carbon-removaltechnologies,andcarbonoffsets,amongothers.TherearemanywaystoreducethebuildupofcarbondioxideandotherGHGsintheatmosphere.High-emittingfuelslikecoal,oil,andgascanbereplacedwithnearlycarbon-freealternatives,suchassolarpower,windpower,ornuclearpower.Carbondioxidecanbecapturedfromfossilfuelpowerandmanufacturingplantsandstoredunderground.Carbondioxidecanalsoberemovedfromtheatmospherebyreforestationandfarmingpracticesthatstoremorecarboninthesoil.ThissectiontakesstockofwhathasbeenachievedinASEAN+3inthisareasofar,highlightsthemostpromisingtransitionopportunitiesforitseconomiesgiventheirnatural,human,andtechnologicalresources,andexploreswhattheycandotomakethebestuseoftheseopportunities.CleanEnergy“Ensureaccesstoaffordable,reliable,sustainable,andmodernenergyforall.”UnitedNationsSustainableDevelopmentGoal7Cleanenergycomesfromzero-emissionsourcesthatdonotpollutetheatmosphere.Thisincludesrenewableenergy,derivedfromsourcesthatcanconstantlyreplenish,aswellasalternativeslikenuclearenergyandhydrogen.Cleanenergyisconsidered“green”ifitisgeneratedfromrenewablesourceslikethesun,wind,andwater.Hydrogen,forexample,isconsideredacleanfuelinthatitproducesnoemissions—onlywater—whenconsumedinafuelcell,buthydrogenisconsidered“green”onlyifitisproducedusingrenewableenergysources.Nuclearenergyisnotrenewablebymostdefinitions,butnuclearenergyproductiondoesnotreleaseGHGs,soitisacleanfuel.1717/Nuclearenergyisproducedwhenatomsaresplitapartduringnuclearfission.Themostcommonfuelusedfornuclearfissioninnuclearpowerplantsisuranium,whichisanon-renewableresource.Chapter2.OntheRoadtoNetZero83TheASEAN+3regionhasanabundanceofrenewableenergyresources.Sunlight,wind,andwaterareplentiful—atleastintheory.Inpractice,aneconomy’srenewableenergypotentialdependsnotjustonresourcepotential,butalsoontechnicalpotential(i.e.,theamountofenergythatcanbegeneratedgiventopographic,environmental,andland-useconstraints,amongothers)andeconomicandmarketpotential,whichistheamountofenergythatcanbeproducedviably,takingintoaccountmarketfactors(Brownandothers2016).Forexample,evenassolarenergyisabundant,itswidespreaddeploymentmaynotbefeasibleforeconomieslikeSingapore,withitslimitedlandareaandrooftopspace.18AndwhileJapanisendowedwithamplegeothermalresources,lackofsocialacceptancelimitstheiruseforenergygeneration(GRSJ2020).Yetevenafteradjustingforsuchfactors,theregionstillhassignificantrenewableenergypotentialtobetapped—accordingtoADB(2021),forexample,mostASEANeconomieshaveutilizedlessthan2percentoftheirsolarpotential.AllASEAN+3economiesincluderenewableenergytargetsamongtheirclimatechangeorsustainablegrowthstrategies;manyhavealsomadecommitmentsforspecifictypesofrenewableenergy(Table2.4).Ifthesetargetsaremet,theshareofrenewableenergyintotalelectricitygenerationandconsumptionwillincreasesubstantiallyoverthenextdecadeandahalf—drivenmainlybysolar,hydro,andwindenergy.Policymakersintheregionareemployingvariousmeasurestopromoterenewableenergy.Keypoliciesinclude:renewableenergyauctionswherebythegovernmentissuesacallfortenderstoinstallacertaincapacityofrenewableenergy-basedelectricity;feed-intariffsthatpayrenewableenergyproducerstotransferexcesselectricitytothegrid;19netmetering,anelectricitybillingsystemthatoffersacredittoresidentialandcommercialcustomersforsendingexcesselectricityfromtheirrenewableenergysources(e.g.,solarpanelsystems)tothegrid;aswellasgovernmentregulationsmandatingbiofuelblendingandrenewabletransportfuels(Table2.5).20Outrightfiscalsupportalongwithvarioustaxreductionsarealsousedtoincentivizesuppliersandhelpkeepend-userpriceslow.Renewableenergy18/SingaporealoneamongtheASEAN+3isasan“alternativeenergy-disadvantaged”economyduetoitsurbandensity,lowwindspeeds,limitedandrelativelyflatlandarea,andlackofgeothermalresources(SingaporeMinistryofSustainabilityandtheEnvironment2019).19/Feed-intariffsandpremiumstypicallyinvolvelong-termcontractsandcost-basedcompensation.Renewableenergyproducersreceiveafixed,above-marketelectricitypricefromtheserviceproviderorgridoperatorforeachunitofenergytheyproduceanddelivertothegridaspartofthisperformance-basedincentiveprogram.20/Abiofuelblendingmandatesetsarequirementonfuelsupplierstoblendacertainpercentageoffuelsderivedfrombiomass(e.g.,ethanolorpalmoil)withapetroleum-basedfuel(e.g.,diesel).Table2.4.ASEAN+3:CommitmentsonRenewableEnergySource:AMROstaffcompilationfromvariousgovernmentannouncements.Note:GW=gigawatt.EconomyCommitment(s)Brunei•Meet30percentofoverallpowergenerationmixwithrenewableenergyby2035,usingmainlysolarphotovoltaic.Cambodia•Increasetheshareofrenewableenergyinthepowergenerationmixto25percentby2030(ofwhich12percentwillcomefromsolarphotovoltaic)and35percentby2050.China•Meetmorethan50percentofadditionalelectricityconsumptionover2021–25withrenewablepowergeneration.Increasetheshareofrenewableenergyinfinalelectricityconsumption(by15percentforhydroand18percentfornon-hydrorenewables)by2025.Supply33percentofnationalpowerconsumptionwithrenewablesby2025.HongKong•Increasetheshareofrenewableenergyinthefuelmixforelectricitygenerationto7.5–10percentby2035andto15percentbefore2050.Indonesia•Increasetheshareofrenewablesinthepowergenerationmixto43percentby2050.Increasetheinstalledcapacityofrenewables(by10.4GWofhydropower,4.7GWofsolarphotovoltaic,3.4GWofgeothermal,1.3GWofothernewrenewables,0.6GWofbioenergyand0.6GWofonshorewind)in2021–30.Japan•Increasetheshareofrenewablesintheenergymixto36–38percent(ofwhich14–16percentsolar,11percenthydropower,5percentwind,5percentbiomass,and1percentgeothermal)by2030.Korea•Install70GWrenewableenergyoutofatotalof198GWcapacityby2030.LaoPDR•Increasetheshareofnonlargehydropowerrenewablesinthepowermixto30percentby2025.Malaysia•Increaserenewableenergygenerationto18GW(40percentofthecountry’senergysupply)by2035.Myanmar•Increasetheshareofrenewableenergy(hydro,solarandwind)inthetotalenergymixto39percentby2030(48percentconditionaloninternationalsupport).Philippines•Increasetheshareofrenewableenergyinthepowergenerationmixto35percentby2030and50percentby2040.Singapore•Increasesolarpaneldeploymenttoatleast2GW-peakby2030.Importupto4GWoflow-carbonelectricity,about30percentofelectricitysupply,by2035.Thailand•Increasetheshareofrenewableenergyinthefuelmixusedtoproduceelectricityto50percentby2040.Increasetheshareofbiomass,biogas,solar,andwindtoachievetherenewableenergytarget.Vietnam•Increasetheshareofrenewables(excludinghydropower)inthepowergenerationmixto52percentin2045.Increasegenerationofwindpowerto23.1GWby2030and122.4GWby2045;large-scalesolarpowerto11.2GWby2030and76.0GWby2045;biomassandotherrenewablesto1.2GWby2030and5.2GWby2045;andpumpedhydroelectricityandstorageto2.5GWby2030and29.0GWby2045.84ASEAN+3RegionalEconomicOutlook202321/LaoPDR,thePhilippines,andVietnamsawtheirsharesofrenewablesinelectricitygenerationdeclinebetween2000and2020.Thethreeeconomiesincreasedtheuseoffossilfuels—mainlycoal—forvariousreasons,e.g.,tosupplementvariablehydropowersupply,especiallyduringthedryseason(LaoPDR);asacheaperandmorereliableenergysource(thePhilippines);andtomeetsurgingenergydemanddrivenbyrapideconomicgrowth(Vietnam).Source:REN21(2022);AMROstaffcompilation.Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:InternationalRenewableEnergyAgency(IRENA);AMROstaffcalculations.Note:BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;andVN=Vietnam.Table2.5.ASEAN+3:RenewableEnergyPoliciesEconomyBNCNIDJPKHKRLAMMMYPHSGTHVNFeed-intariff/premiumpaymentElectricutilityquotaobligation/RenewableportfoliostandardsNetmetering/billingBiofuelblend,renewabletransportobligation/mandateRenewableheatobligationormandate,heatfeed-intariff,fossilfuelbanforheatingTradablerenewableenergycertificatesTenderingTaxreductionsInvestmentorproductiontaxcreditsEnergyproductionpaymentPublicinvestment,loans,grants,capitalsubsidiesorrebatesRegulatoryFiscalThesepolicies,togetherwithdecliningrenewableenergy-generationcosts,haveledtoarobustrolloutofrenewablescapacityinrecentyears(Figure2.24).AccordingtotheInternationalRenewableEnergyAgency(IRENA),theglobalweightedaveragelevelizedcostofelectricityofnewlycommissionedutilityscalesolarphotovoltaicprojectsdeclinedby88percentandthatofonshoreandoffshorewindprojectsbyatleast60between2010and2021(IRENA2022)(Figure2.25).RenewablesmakeupaboutaquarterofASEAN+3powergenerationonaverage,withthesharerangingfromashighas70percentinLaoPDRtolessthan1percentinHongKongandBrunei(Figure2.26).21Chinaleadstheregionininstalledcapacity,followedbyJapan,Vietnam,andKorea(Figure2.27)(Box2.5).Hydropower,(onshore)wind,andsolarphotovoltaicsaredominantsources,collectivelyaccountingformorethan90percentoftheregion’scurrentrenewableenergycapacityandmix(Figure2.28).Thesethreesourcesofrenewableenergyareconsideredtruly“zero”emissions,comparedtootherrenewablessuchasgeothermalenergy(lowemissions)andbiomass(neutralemissions).Theyprovideanespeciallyadvantageouspathwayfortheregiontoreduceitsdependenceonfossilfuels.Morecanbedoneintheregiontohitnationaltargetsontime(Figure2.29).Theuptakeofrenewableenergyremainsconstrainedbymassiveinvestmentneeds,administrativebottlenecks(e.g.,licensing,lengthycontractnegotiations)andtepidpublicsupport.Paralleleffortstoupgradeandmodernizenationalgrids,improvetheeaseofdoingbusiness,improveruralelectrification,andresolvelandacquisitionissuescanenticemuch-neededprivatesectorparticipationandresources.Regionalcooperationwillhavearoletoplay,giventhesubstantialinvestmentsneededforscalinguprenewables.Figure2.24.ASEAN+3:RenewableNetCapacityAdditions(Gigawatts)Plus-3ASEAN050100150200200120052009201320172021CNJPKRASEAN+30481216200120052009201320172021BNKHIDLAMYMMPHSGTHVNChapter2.OntheRoadtoNetZero85Figure2.25.World:LevelizedCostsofElectricity,bySelectedTechnology(2021USdollarsperkilowatt-hour)Figure2.27.ASEAN+3:RenewableEnergyInstalledCapacity,2021(Gigawatts)Figure2.28.ASEAN+3:RenewableTechnologyMix(Percentoftotalrenewables)Figure2.26.ASEAN+3:RenewableElectricityGeneration(Percentoftotalgeneration)00.10.20.30.40.5201020122014201620182020SolarphotovoltaicOffshorewindOnshorewindHydropowerFossilfuelcosts(2021)020406080100ASEAN+3LAMMKHVNCNTHPHJPIDMYKRSGHKBN20002020World,2020World,2000Source:InternationalRenewableEnergyAgency(2022).Note:Thelevelizedcostofelectricityorenergycalculatesthepresentvalueofthetotalcostofbuildingandoperatingapowerplantoveranassumedlifetime;assuch,itallowsforthecomparisonofprojectswithdifferenttechnologiesandvaryingrisk-returncharacteristics.Source:InternationalRenewableEnergyAgency(IRENA);AMROstaffcalculations.Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:InternationalRenewableEnergyAgency(IRENA);AMROstaffcalculations.Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:InternationalRenewableEnergyAgency(IRENA);AMROstaffcalculations.Note:Dataforinstalledcapacityasof2021,whileforelectricitygeneration,dataareasof2020.050100150200250CNJPVNKRGeothermalBioenergySolarWindHydropower03691215THIDMYLAPHMMKHSGHKBN020406080100ElectricityGenerationInstalledCapacityConcentratedsolarpowerBiogasGeothermalenergyMixedHydroPlantsOffshorewindenergyRenewablemunicipalwasteSolidbiofuelsOnshorewindenergySolarphotovoltaicRenewablehydropowerFigure2.29.ASEAN+3:ImpliedCompoundAnnualGrowthRateofRenewablesSharetoAchieveAnnouncedTarget(Percent)Source:AMROstaffcalculations.Note:Theimpliedcompoundannualgrowthrateforeacheconomyisbasedonthedifferencebetweentheactualshareofrenewableenergy(asof2020)andthetargetshareofrenewableenergythathasbeenofficiallyannounced.Hence,economiesintheupperleftquadrantofthecharthavetodomoreinlesstimeinordertoreachtheirannouncedtargetscomparedtoeconomiesinthelowerrightquadrantofthechart,forexample.LaoPDRandMyanmarareomittedduetounavailabilityofofficialactualdata.Cambodia’sdatarefertoitstargetforsolarenergyonly.BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.BNJPKHTHMYCNIDKRSGPHVNHK01020304005101520253035Yearstotarget(from2020)86ASEAN+3RegionalEconomicOutlook2023TradeinrenewableswillbenefittheASEAN+3regionasawhole,whileprovidinganadditionalstreamofrevenuesforexporters.InJune2022,Singaporestartedatwo-yearpilotprojecttoimporthydropowerfromLaoPDR;Thailand,Vietnam,andCambodiaalsoimporthydropowerfromLaoPDR,whichaimstobuilditsreputationasthe“batteryofSoutheastAsia”(PWC2022)(Box2.6).Similaragreementscouldproviderevenueforotherpotentialexportersintheregion,suchasIndonesia,Malaysia,Myanmar,Thailand,andVietnam,althoughtheexportopportunitieswouldbeweighedagainstlocalneeds(Tani2022).ThesurgeindemandforcleanenergytechnologygloballywillbeanotherboostforASEAN+3exportersofsolarpanels,windturbines,andenergystorageequipment,giventheircomparativeadvantage.ASEAN+3economiesareamongthetop15exportersofsolarpowerproductsglobally;Chinaisalsoamajorexporterofwindpowerproducts(Figure2.30).However,traderestrictionsinmajortradingpartnerscouldbeobstacles—theUnitedStates’long-runningrestrictionsonsolarpanelimportsfromChinaand,byextension,Cambodia,Malaysia,Thailand,andVietnam,isacautionaryexample.22Figure2.30.World:Top15ExportersofSolarandWindEnergyProducts,2020–21(PercentofworldexportsinbillionsofUSdollars)SolarWindSource:IHSMarkitGlobalTradeAtlas;UNComtrade;AMROstaffcalculations.Note:SolarenergyproductsrefertoHScode854140.Thetop15exportersaccountedfor92.6percentofallsolarenergyproductssoldoninternationalmarketsduring2021.Windenergy-relatedgoodsrefertoHScode850231.Thetop15exportersaccountedfor99.7percentofallsolarenergyproductssoldoninternationalmarketsduring2021.22/Thesolar-paneltradeconflictbetweentheUnitedStatesandChinadatesto2012,whentheUnitedStatesbeganimposingdutiesonChina-madesolarpanels,arguingthatmanufacturersinChinawereunfairlysellingtheirproductsintheUnitedStatesatpricesbelowthecostofproduction.TheUnitedStatesalsobannedtheimportofpolysiliconandsolarpowerproductsfromXinjiang,claimingthattheyweremadeusingforcedlabor.ThetariffswerethenexpandedtoapplytosolarpanelsmanufacturedinCambodia,Malaysia,Thailand,andVietnamoversuspicionthattheywerecircumventingtherestrictionsonChineseproducts.InJune2022,theUnitedStatesannouncedatwo-yeartariffexemptionforsolarproductsfromthosefourASEANeconomies.ButinDecember2022,theUnitedStatesdeterminedthatfourmajorChinesemanufacturershadcircumventedexistingtariffsonChina-madesolarcellsandpanelsbyfinishingtheirproductsinCambodia,Malaysia,Thailand,andVietnam.ThosecompanieswillfacethesamedutyratestheUnitedStatesalreadyassessesontheirChina-madeproductsoncethetwo-yearwaiverexpiresinJune2024.Inaddition,allsolarcompaniesexportingtotheUnitedStatesfromCambodia,Malaysia,Thailand,andVietnamwillberequiredtocertifythatasignificantproportionoftheirmaterialsarenotfromChina.01020304050PortugalItalyPhilippinesFranceThailandSingaporeUnitedStatesNetherlandsKoreaGermanyJapanHongKongVietnamMalaysiaChina20212020010203040FinlandPolandEstoniaUSANetherlandsLithuaniaPortugalGreeceBrazilUnitedKingdomIndiaSpainChinaDenmarkGermany87Chapter2.OntheRoadtoNetZeroVietnamhasseenunparalleledgrowthinsolarpower.Installedsolarpowercapacityshotupfromessentiallyzeroin2017toover16gigawattsin2021,puttingVietnamwithChina,Japan,andKoreaamongthetop10countrieswiththehighestsolarcapacityintheworld(Figure2.5.1).Solarpoweroutputincreasedtoaccountforalmost5percentofVietnam’stotalelectricitygenerationin2021—thesecond-highestshareinASEAN+3afterJapan(Figure2.5.2)(Ember2022).Thisgrowthwasinitiatedbythe2015DecisionofthePrimeMinisteroutliningtherenewableenergydevelopmentstrategyandvisionthrough2050.Decision2068/QD-TTgof2015setstargetsforsolarpowerproductiontoincreaseto35.4billionkilowatt-hours(kWh)or6percentoftotalelectricityproductionin2030and210billionkWh(20percentoftotalelectricityproduction)in2050.TheDecisionwasfollowedoverthenextfiveyearsbyaraftofpolicies,regulations,initiatives,andprogramsfocusedonthedevelopmentofsolarenergyinVietnam.Specificencouragementforsolarpowerdevelopmentincludesfeed-intariffs(FITs)andpreferentialtaxrates,land-useincentives,andaccesstofinance.ThegovernmenthadearlyonidentifiedtheimportanceofcreatingfavorableconditionsfortheprivatesectortoparticipateinsolarpowerdevelopmentinVietnam.InApril2020,Decision13/2020/QD-TTgcommittedthecountry’slargestpowercompany,VietnamElectricity,anditsbranchestopurchaseelectricityfromsolarenergygeneratorsatfixedFITratesfor20years(Figure2.5.3).TheFITprogramincentivizedinvestorstomovequicklytoinstallrooftopsolarpower—byitsexpiryattheendof2020,therewere104,000rooftopsolarpowerprojectsin63localitiesacrossthecountry.AfewkeyissuesstillneedtoberesolvedforsolarpowertorealizeitsfullcontributiontoVietnam’scleanenergytransition.•Gridcongestion.Thenationalgridsystemisnotabletointegratelargeamountsofsolarpower.TheFITsprovedsopopulartheycausedanoverloadofsupplyandVietnamElectricitystoppedreceivingrequestsforconnectionandsigningsofpowerpurchaseagreementsattheendof2020.Manysolarpowerplantsstillcannotoperateatfullcapacity,resultinginawasteofresourcesandelectricitynotbeingtransmittedfromareaswithsurplustoareasinneed.Acleargridinvestmentplantointegratevariableenergyshouldbeapriority.•Energystorage.Solarenergyproductionvarieswiththeweather,season,timeofday,regionofthecountry,andsoon.Therefore,itisnecessarytofindsolutionstostoreexcesssolarpowergeneratedwhenthesunisshiningforusewhen(orwhere)itisnot.Betterforecastingofvariablesolarenergyproductionwouldalsohelpgridmanagement.•Regulatoryframework.ManyofVietnam’sregulationsonthelicensing,construction,andoperationofsolarpowerplantsandthepurchaseandsaleofsolarpowerarestillincompleteandunclear.Thishasbroughtdifficultiesforbusinesses,suchasunexpectedcosts,delays,anddisputeswithVietnamElectric.Acomprehensiveandtransparentregulatoryandlegalframeworkwouldhelpremovebottlenecksintransmissionandcapacityandimprovethelandscapeforinvestment.Box2.5:Vietnam’sSolarEnergyBoomThisboxwaswrittenbyThiThanhDo.88ASEAN+3RegionalEconomicOutlook2023Figure2.5.1.SelectedEconomies:InstalledSolarPhotovoltaicCapacity(Gigawatts)Figure2.5.2.ASEAN+3:ElectricityProductionfromSolarPhotovoltaics,2021(Percentoftotalelectricityproduction)Figure2.5.3.Vietnam:Feed-inTariffRates,2021(USdollarsperkilowatt-hour)SelectedASEANTop10Economies,202106121820002005201020152020KHIDMYPHSGTHVNBN050100150CNUSJPDEINAUITKRVNFRSource:InternationalRenewableEnergyAgency;AMROstaffcalculations.Note:AU=Australia;BN=Brunei;CN=China;DE=Germany;FR=France;ID=Indonesia;IN=India;IT=Italy;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;US=UnitedStates;VN=Vietnam.Source:OurWorldinData(2022b).Note:BN=Brunei;CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:VietnamNationalSteeringCommitteeforElectricityDevelopment.0246810JPVNKHKRCNTHPHSGMYMMLAIDHKBN0.0840.0770.071RooftopsolarpowerFloatingsolarpowerGroundsolarpower89Chapter2.OntheRoadtoNetZeroBox2.6:(Hydro)PoweringLaoPDR’sEnergyTradeLaoPDRhasahugenaturaladvantageinhydropowerenergydevelopmentoveritsASEANpeers(Figure2.27).WithaconsiderableportionoftheMekongRiverlocatedwithinitsborders,alongwithfavorableterrain,highyearlyprecipitation,andlowpopulationdensity,itisamongtheworld’stopeconomiesintermsofhydropowerpotentialpercapita,andthehighestamongtheASEAN+3(Hoesandothers2017).TotalinstalledhydropowercapacityinLaoPDRjumpedinthelastdecade,thankstoamassiveinvestmentprogram.Between2019and2021,itaddedabout2.1gigawatts(GW)ofhydropowercapacity,thethird-highestgloballyduringtheperiod(Figure2.6.1).Withintheregion,itrankedbelowonlyChina,Japan,andVietnamintermsoftotalinstalledcapacityin2021(Figure2.6.2).LaoPDRisthetopnetexporterofelectricityinASEAN(Figure2.6.3).Withinstalledhydropowercapacityatleastthreetimesgreaterthandomesticconsumptionofelectricity,ithasseizedtheeconomicopportunitytoexportsurplusenergytotherestoftheregion(PWC2022).LaoPDRexportsnearly80percentofitstotalhydropowergenerationcapacity.Electricityexports—mainlyhydropower—arekeydriversoftheeconomy’stradeandeconomicgrowth,accountingforabout22percentoftotalexportearningsduring2017–21,andabout9percentofits2021GDP(Figure2.6.4).Thailandisitslargestexportmarket,followedbyCambodia,Vietnam,andMyanmar.SingaporewasaddedtothelistinJune2022,withthesigningoftheLaoPDR–Thailand–Malaysia–SingaporePowerIntegrationProject,whichallowsittoimportupto0.1GWofhydropowerthroughexistinginterconnectionsinThailandandMalaysiaforaninitialperiodoftwoyears—thefirstmultilateralcross-borderelectricitytradeinvolvingfourASEANeconomies.LaoPDR’sambitionistobecomethe“BatteryofSoutheastAsia.”Muchoftheexpansioninitselectricitysectorwillbedrivenbystrongexternaldemandandofficialbilateralagreements:powerexportsareanticipatedtoincreasesharplyfromabout4.5GWcurrentlytomorethan25GWby2030,ofwhichabout10GWisearmarkedforThailand,about8GWforVietnam,and6GWforCambodia(UNESCAP2022;VNA2022).Tomeettheanticipatedriseindemandforrenewableenergy,hydropowerdevelopmentisatoppriorityinLaoPDR’snationalenergypolicy.Besidesabout70operationalhydropowerdams,about280additionalhydropowerprojectsareinthepipeline,mostlybackedbyThaiandChineseinvestorsandpartnersfromKorea,theUnitedStates,andVietnam(Figure2.6.5).Substantialinfrastructuredevelopmentwillbeneededtopropelthisambition.GridexpansionremainsaphysicallimitationforenergytradewithinASEAN(PWC2022).InLaoPDR,powerinfrastructuredevelopmenthasbeenprimarilyforgeneration—lessthan5percentofthevalueoffuturepowerprojectshasbeendevotedtotransmissionanddistribution(Stimson2021).Expandingthetransmissioninfrastructurewouldfacilitatemorepowerpurchaseagreementswithregionalneighborsandhelpguaranteethemonetizationofanyexcesscapacityfromprojectsinthepipeline.Exploringtheuseofpumpedstoragewillalsomaximizetheoperationalefficiencyofhydropowerplants,especiallytoaddressdemandforenergyduringthedryseason(VientianeTimes2022).“Soft”infrastructure,i.e.,trainedandqualifiedhydropowerexperts,mustalsobeexpandedinparallel,inordertomanageandassessupcomingprojectsfortheireconomic,financial,social,andenvironmentalimpacts(ADB2019).Thiscouldbeachieved,forexample,throughjointtrainingandresearchprogramswithexternalpartners.Mobilizingfinancing—especiallyfromdevelopmentpartnersandtheprivatesector—willbeespeciallycrucialtoboosthydropowerexportsinasustainableway,withoutoverlyincreasingfinancialorfiscalvulnerabilities(AMRO2022b).ThisboxwaswrittenbyMartheM.Hinojales.90ASEAN+3RegionalEconomicOutlook2023Figure2.6.1.Top10Economies:NewInstalledRenewableHydropowerCapacity,2019–21(Gigawatts)Figure2.6.3.ASEAN:ElectricityTradeBalance,2020–21(AveragevalueinmillionsofUSdollars)Figure2.6.5.LaoPDR:PlannedHydropowerProjects,byEconomyofSponsor,2020(Shareoftotalnumberofprojects)Figure2.6.2.ASEAN+3:InstalledRenewableHydropowerCapacity,2021(Gigawatts)Figure2.6.4.LaoPDR:ElectricityExports(Percentoftotalexportvalue;percentofGDP)01234GNIDNPVNINCANOLATRCN3005101520253035CNJPVNLAIDMYMMPHKRTHKHBNSG350Source:IRENA;AMROstaffcalculations.Note:CA=Canada;CN=China;GN=Guinea;ID=Indonesia;IN=India;LA=LaoPDR;NO=Norway;NP=Nepal;TR=Turkey;VN=Vietnam.Source:UNComtrade;AMROstaffcalculations.Note:DatanotavailableforBruneiandthePhilippines.DataforelectricityexportsrefertocommoditiesunderHSCode2716.ID=Indonesia;KH=Cambodia;LA=LaoPDR;MM=Myanmar;MY=Malaysia;SG=Singapore;TH=Thailand;VN=Vietnam.Source:Stimson(2020).Note:Projectswithmultipleeconomy-sponsorsarecountedundereacheconomy.AU=Australia;CH=Switzerland;CN=China;FR=France;HK=HongKong;IN=India;JP=Japan;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;NK=notknown;RU=Russia;SG=Singapore;TH=Thailand;UK=UnitedKingdom;US=UnitedStates;VN=Vietnam;ZA=SouthAfrica.Source:UNComtrade;WorldBank,WorldDevelopmentIndicators;AMROstaffcalculations.Note:DataforelectricityexportsrefertocommoditiesunderHSCode2716.Source:IRENA;AMROstaffcalculations.Note:DatanotavailableforHongKong.BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.1,157.298.513.312.60.4-98.8-249.6-1,709.8-1,800-1,200-60006001,200LAMYVNMMSGIDKHTH0246810061218243020172018201920202021ShareofexportvalueShareofGDP(rightaxis)THLACNUSKRVNSGNKAUFRINMMHKJPMYRUZACHUKChapter2.OntheRoadtoNetZero91Figure2.31.World:OperationalNuclearCapacity,2021(Gigawattelectric)Figure2.32.SelectedEconomies:ShareofNuclearPowerinElectricityGeneration,2021(Percentoftotalelectricitysupply)Source:InternationalAtomicEnergyAgency(IAEA);AMROstaffcalculations.Note:Figuresrefertothenumberofoperationalreactors.CA=Canada;CN=China;FR=France;IN=India;JP=Japan;KR=Korea;OTH=Others;RU=Russia;UA=Ukraine;US=UnitedStates.Othersreferto22othereconomies.Source:InternationalAtomicEnergyAgency(IAEA);AMROstaffcalculations.Note:BE=Belarus;BG=Bulgaria;CH=Switzerland;CN=China;CZ=CzechRepublic;FI=Finland;FR=France;HU=Hungary;JP=Japan;KR=Korea;SE=Sweden;SI=Slovenia;SK=Slovakia;UA=Ukraine.Afterdeclininginthewakeofthe2011Fukushimaaccident,theregion’sinterestinnuclearenergyispickingupagain.23ThePlus-3economiesaccountformorethanaquarteroftheworld’snuclearcapacity(Figure2.31);withinthisgroup,Koreahasthegreatestrelianceonnuclearenergyforpowergeneration(Figure2.32).AccordingtoIEA(2022d),carbondioxideemissionsinJapanandKoreaduring1990–2020wouldhavebeenappreciablyhigheriftheyhadnotusednuclearenergy(Figure2.33).Thereisnowgrowingrecognitionbypolicymakersthatthetransitiontonetzerowillbefasterifnuclearispartoftheenergymix.24Chinaleadstheglobalappetiteforadditionalnuclearcapacity,withmorethan15newreactorsunderconstructionattheendof2021,andatargettodoubletheshareofnuclearenergyinpowergenerationby2035(Table2.6).InJapan,publicsupportforanuclearrestartreachedabove60percentin2022—thehighestsince2011(Lee2022).Koreareverseditsnuclearphaseoutpolicy(whichhadbeeninplacesince2019)in2022(WorldNuclearNews2022).WithinASEAN,Indonesia,thePhilippines,andVietnamhavedeclaredNuclearenergy23/TheFukushimaDaiichiNuclearPowerStationdisasterinJapansparkedpublicdistrustofthesafetyofnucleartechnology.Morethan20reactorsaroundtheworldhavebeendecommissionedsincethenandnewprojectshavebeendiscouragedbylackofsupportivepolicy,verystringentsafetyrequirements,largeupfrontcosts,longgestationperiods,aswellasunattractiveelectricityprices.24/Asreactorscanoperateatcapacitywithoutinterruption,theycanprovideacontinuousandreliablesupplyofenergyunlikevariablerenewablesources(suchassolarorwindenergy),helpmeetfluctuationsindemandandstabilizepowergrids,expandthesuiteofdecarbonizationtools,andalsoprovideeconomicsavings(IEA2019a;IEA2020b).Thelandfootprintofnuclearenergyissmallerthanothercleanenergysources(NEI2015).9356533337241915122270020406080100USFRCNJPRUKRCAUAUKINOTH26.9%ofworldcapacity69555251473737353331292875020406080100FRUASKBEHUSICZBGFISECHKRJPCNTop10economiesFigure2.33.JapanandKorea:CumulativeCarbonEmissionsAvoidedbyNuclearPowerSince1990(Gigatons)0153045199520002005201020152020JapanActualemissionsAvoidedemissions05101520199520002005201020152020KoreaSource:InternationalEnergyAgency(IEA);OurWorldinData;AMROstaffcalculations.intentionstopursueorrestartnuclearpowerprojectstoreducefossilfueldependence,andSingaporeisalsoconsideringitaspartofits2050energymix(Ang2022).Thepotentialfornuclearenergyinaneconomydependsonfactorssuchasitsprojectedenergydemandanddecarbonizationneedsandtheavailabilityandqualityofinfrastructureandcapacity(EnergyforGrowthHubandThirdWay2022).Basedonthesecriteria,thePlus-3economiesandVietnamareassessedtoberelativelymore“nuclear-ready”markets,whereaseconomieslikeSingaporeandLaoPDRhavesmallerenergyneedsthatcanbemetefficientlybyothersources(Figure2.34).PublicsupportiskeyinmakingnuclearenergyacredibleoptioninASEAN—a2018surveyfoundsupporttobegenerallylackinginIndonesia,Malaysia,Singapore,Thailand,andVietnam(Figure2.35)(HoandChuah2022).Availabilityofinternationalfinancingisalsoofutmostimportance,giventhatnuclearenergyinvolvessubstantialupfrontcosts.AnappetitefornuclearenergyinASEANwouldbeaboontoChina,Korea,andJapan,whichareallmajorexportersofreactors(Figure2.36).92ASEAN+3RegionalEconomicOutlook2023Figure2.35.SelectedASEAN:PublicSupportforNuclearEnergyDevelopment,2018(Meanscore;5=Highestsupport)Figure2.36.World:Top10ExportersofNuclearReactors,2021(MillionsofUSdollars)Table2.6.SelectedASEAN+3:PolicyDevelopmentsRelatedtoNuclearEnergy,asofDecember2022Figure2.34.SelectedASEAN+3:ReadinessforAdvancedNuclearDevelopment,2022Source:HoandChuah(2022).Note:Eacheconomyhad1,000respondents.Thesurveywasconductedin2018.Source:UNComtrade;andAMROstaffcalculations.Note:Numbersrefertoeacheconomy’sshareofworldexports.DatarefertoHScode8401.CN=China;DE=Germany;ES=Spain;FR=France;KR=Korea;RU=Russia;SE=Sweden;TW=TaiwanProvinceofChina;US=UnitedStates.Source:AMROstaffcompilation.Source:EnergyforGrowthHubandThirdWay(2022).Note:DataasofOctober2022.EconomyDevelopmentsCambodia•ExpandedtheongoingtriangularcooperationintheapplicationofnucleartechnologywithLaoPDRandVietnaminOctober2022.•SignedamemorandumofunderstandingwithRussia’sStateAtomicEnergyCorporation(ROSATOM)andChinaNationalNuclearCooperationtoboostcooperationonnuclearenergy.China•Committedto“activelydevelopnuclearpowerinasafeandorderlymanner"inthe14thFive-YearPlan(2021–25).ThePlantargetsanincreaseinnuclearpowercapacityto70GWfortheshareofnuclearenergyinthepowergenerationmixtoreach10percentby2035.•Issued26regulationsandstandardsrelatedtonuclearsafetyin2021,inaccordancewithits2018NuclearSafetyLaw.Indonesia•SubmitteddraftlegislationinJune2022withaplantoopenitsfirstnuclearplantby2045.Japan•Setatargetshareof20percentto22percentfornuclearenergyinthe2030powergenerationmixinits6thStrategicEnergyPlan.Korea•Reverseditsearlierpolicyofnuclearphaseoutandresumedconstructionintwoplants.Nuclearenergyistargetedtohaveaminimumshareof30percentintheenergymixby2030.LaoPDR•ExpandedtheongoingtriangularcooperationintheapplicationofnucleartechnologywithCambodiaandVietnaminOctober2022.•SignedamemorandumofunderstandingwithRussia’sROSATOMinJuly2022topromotenuclearenergydomestically.Myanmar•SignedaroadmapagreementwithRussia’sROSATOMinSeptember2022,whichincludedthepossiblerolloutofasmallmodularreactor.Philippines•IssuedanexecutiveorderinFebruary2022toincorporatenuclearpowerintotheenergymix,whichopensthepossibilityofrestartingtheBataanNuclearPowerPlant(neveroperated).Thailand•Toreceivetechnicalassistancetodevelopanddeploysmallmodularreactors,undertheUS’NetZeroWorldInitiative,announcedinNovember2022.Vietnam•Consideringtheresumptionofasuspendedplantobuildtwonuclearpowerplants—ajointprojectwithRussia’sROSATOMandaconsortiumledbyJapanAtomicPower—followingtheprogram’ssuspensionin2016.012345IndonesiaMalaysiaSingaporeVietnamThailandLowersupport2.62.94.55.66.97.89.49.620.028.304008001,200JPUKFRKRCNUSDEESSERUReadyby2030•China•Japan•Korea•Vietnam•Indonesia•Philippines•Thailand•Cambodia•Malaysia•LaoPDR•SingaporePotentiallyreadyby2030Potentiallyreadyby2050Unlikelyreadyby2050Chapter2.OntheRoadtoNetZero93Figure2.37.HydrogenEnergyTechnologiesFigure2.38.ASEAN+3:OperationalProjectsforCleanHydrogen,byTechnologyType,asofOctober2022(Units)Source:WorldNuclearAssociation;AMROstaffcompilation.Note:Yellowhydrogenisaformofgreenhydrogen.Turquoisehydrogenproductionhasyettobeprovenatscale,Whitehydrogencanbeobtainedthroughfrackingbuttherearenostrategiestoexploititatpresent.Source:InternationalEnergyAgency(2022j)(October2022database);AMROstaffcalculations.Note:CCUS=carboncapture,utilization,andstorage;CN=China;JP=Japan;MY=Malaysia;SG=Singapore;TH=Thailand.Thedatabasecoversallprojectscommissionedsince2000toproducehydrogenforenergyortomitigateclimatechange.CleanhydrogenreferstohydrogenproducedfromrenewableornuclearenergyorfromfossilfuelswithCCUS.Cleanhydrogencanhelpdecarbonizeheavyindustry,expandzero-emissiontransportoptionsandencouragetheuptakeofrenewables.Hydrogenisanenergycarrierratherthanaprimaryenergysource.Thismeansthatitdoesnotexistfreelyinnature—itoccursnaturallyonlyincompoundform—anditmustbeproduced(separated)usingothersourcesofenergythroughaprocesscalledelectrolysis.Differentcolorsdenotethetypeofenergyusedinhydrogenproduction(Figure2.37).About99percentofhydrogeninusegloballyisgrayorblack/brown,acolorrangeindicativeofasignificantcontributiontoglobalcarbonemissions(IEA2019b).Demandforhydrogencomeslargelyfromoilrefiningandindustrialprocesses,particularlyammonia(forfertilizers),andmethanolandsteelproduction.Switchingtheseandotherhard-to-abateindustriestoclean(green,yellow,pink,orblue)hydrogenwouldbethefastestandeasiestwaytoloweremissions.Cleanhydrogencanpowerfuelcellelectricvehicles(FCEVs).Itcansubstitutefornaturalgasinnationalgridsforpowerandheating.Itcanalsoenabletheuseofrenewablesbyactingasaformofenergystorageaswellasanenergycarriercapableofcarryinglargeamountsofenergyoverlongdistances(Phoumin2021).CleanhydrogenisbeginningtotakeoffacrosstheASEAN+3region.About38operationalprojectsintheregionhavebeencommissionedtohelpreduceemissions,decarbonizerawinputstoindustrialapplications,andexplorehydrogenasanenergycarrier.MostareinJapanandChina,withtherestinSingapore,Malaysia,andThailand(Figure2.38).BluehydrogenprojectsaremostlyinChina,whichproducesabout30percentoftheworld’shydrogen,mostlyfueledbycoal(IEA2022k).Asforupcomingfacilities,about70areinvariousstagesofdevelopmentacrosstheregion,primarilyforindustryandtransportuse(Figure2.39).ASEAN+3economieswitharapidlygrowingrenewablessectorcouldbeespeciallywell-placedtotakeadvantageofopportunitiesfromcleanhydrogen.25Cleanhydrogen25/Theproductionofgreenhydrogencoulddivertrenewableenergyfromotherenduses,whichpromptsdebateaboutwhethergreenhydrogenshouldonlybeproducedfromrenewablecapacitythatwouldnototherwisebecommissionedorused.061218JPCNSGMYTHDedicatedrenewablesOtherrenewablesGridelectricityFossilfuelwithCCUSTechnologyunknownCurrently,fourASEAN+3economieshavenationalhydrogenstrategiesinplace.•JapanissueditsBasicHydrogenStrategyinDecember2017(theworld’sfirstnationalhydrogenstrategy)anditsStrategicRoadmapforHydrogenandFuelCellsinMarch2019,whichtogethersetoutthebroadpolicyframeworkto:developanintegratedhydrogensupplychain;reducehydrogenproductioncosts;enhancehydrogenstorageandtransportation;andexpandindustrialandconsumeruseofhydrogenandammonia.TheGreenGrowthStrategyissuedinDecember2020andupdatedinJune2021includeshydrogenandammoniaamong14identifiedgrowthsectorsfortheJapaneseeconomy(CliffordChance2022).•KoreaissueditsHydrogenEconomyRoadmapinJanuary2019,focusingonmarketcreationforhydrogenFCEVsandfuelcellsforpowergeneration.TheHydrogenEconomyPromotionandHydrogenSafetyManagementLaw,whichtookeffectin2021,supportshydrogen-focusedcompaniesthroughresearchanddevelopment(R&D)subsidies,loans,andtaxexemptions,andistheworld’sfirstlawaimedatpromotinghydrogenvehicles,chargingstations,andfuelcells,aswellastransparenthydrogenpricing(Nakano2021;Kim2021).GrayBlack/BrownBlueGreenYellowPinkTurquoiseWhite•Producedfromnaturalgas(methane),withcarbonemissions•Producedthroughgasificationofbituminousorlignitecoal,withcarbonemissions•Greyorblack/brownhydrogenwithcarboncaptureandstorage•Producedthroughelectrolysispoweredbyrenewableenergysources•Producedthroughelectrolysisusingsolarpower•Producedthroughelectrolysispoweredbynuclearenergy•Producedthroughmethanepyrolysis,withsolidcarbonbyproduct•Foundinundergrounddeposits94ASEAN+3RegionalEconomicOutlook2023Figure2.39.ASEAN+3:UpcomingProjectsforCleanHydrogen,asofOctober2022ByDevelopmentStatus(Units)ByEnd-Use(Percentoftotalprojects)0153045CNKRMYIDVNJPSGConceptFeasibilitystudyFinalinvestmentdecisionUnderconstructionSource:InternationalEnergyAgency(2022j)(October2022database);AMROstaffcalculations.Note:CN=China;KR=Korea;ID=Indonesia;JP=Japan;MY=Malaysia;SG=Singapore;VN=Vietnam.Source:InternationalEnergyAgency(2022j)(October2022database);AMROstaffcalculations.ElectricVehicles“Thefutureofpassengervehiclepowertrainsiselectric...”McKinsey&CompanySeptember2021Electricvehicles(EVs)areanimportantpartofmeetingglobalgoalsonclimatechange.AsEVs—andthebroadercategoryofzeroemissionvehicles(ZEVs)—donotrunonfossilfuels,itisgenerallyagreedthattheycreatealowercarbonfootprintthanvehicleswithtraditionalinternalcombustionengines(Figure2.40).26InASEAN+3,theshareofcarbonemissionsfromtransport,whilestillbelowtheworldaverage,hasbeentrendingupoverthelastfewdecadesintandemwiththeincreaseinthenumberofmotorvehicles—transportaccountsforover15percentofcarbonemissionsinJapan,Korea,Malaysia,thePhilippines,andThailand(Figure2.41andFigure2.42).EVadoptionisgainingtractionbutremainsunevenacrosstheASEAN+3region.Chinahastheworld’slargestfleetofelectricvehicles—itaccountedforover50percentoftheglobalEVstockin2021(Figure2.43,leftpanel).MoreEVsweresoldinChinain2021thanintheentireworldin2020(Figure2.43,rightpanel).In2021,electriccarsmadeup16percentofnewcarsalesinChina;bycontrast,about6percentofKorea’stotalnewcarsaleswereEVs,whileinJapan,thesharewasonlyabout1percent(Figure2.44).UptakeofpassengerEVsisatanearlystageinASEANeconomies:Singaporehasthehighestshareamongtotalregisteredvehicles(Figure2.45),whileinterestinEVsishighestinThailand(Figure2.46).26/EVsdonotdirectlyemitcarbondioxidebuttheelectricitytheyrunonisinlargepartstillproducedfromfossilfuelsinmanypartsoftheworld;energyisalsousedtomanufactureEVsandtheirbatteries.DifferentstudiescomparinglifetimeemissionsofEVsandgasoline-poweredvehiclesfinddifferentresultsduetodifferencesinthespecificmakeofvehiclesbeingcomparedanddifferentassumptionsabouttheelectricitygridmix,electricityemissions(marginalversusaverage),drivingpatterns,andsoon(Hausfather2022).•ChinareleaseditsfirstNationalHydrogenDevelopmentPlaninMarch2022.Itfocusesondevelopingthedomesticindustry,improvinginternalexpertise,andexpandingmanufacturingcapacityforelectrolyzersasthekeycomponentforcleanhydrogenproduction(Yin2022).•SingaporereleaseditsNationalHydrogenStrategyinOctober2022,whichfocusesonR&Dandexperimentationinadvancedhydrogentechnologies;developingandscalingupsupplychainsforcleanhydrogen;landandinfrastructureplanstoimport,storeandtransformhydrogenintopower;andworkforcetrainingforjobsalongthehydrogensupplychain(SingaporeMinistryofTradeandIndustry2022).Costisthekeychallengetoovercome.Thehydrogenvaluechainiscomplexandcapital-intensive,andevolving—manyhydrogentechnologiesarestillunderdevelopmentandaglobalsupplychainhasyettobeestablished.Currentestimatessuggestthatthecostofsupplyinggreenhydrogenisaboutthreetofivetimeshigherthannaturalgas,the“cleanest”fossilfuel(Phoumin2021).CostsneedtocomedownandproductionneedstorampupforcleanhydrogentomeetitspromiseintheASEAN+3region.Thiswillrequireactiontoscalecompetitivesupply,stimulatelocaldemand,developtransportationtechnology,andfacilitatecooperationacrossvaluechainsandeconomies(dePeeandothers2022).PowerandgridinjectionOtherusesIndustrialUseMobilityRefiningMethanolIronandsteelOtherindustryAmmoniaChapter2.OntheRoadtoNetZero95Figure2.41.ASEAN+3:CarbonEmissionsfromTransport(Percentofeconomy’stotalcarbonemissions)Figure2.42.ASEAN+3:NumberofMotorVehicles(Millionsofunits)Figure2.40.ElectricVehicles,ElectrifiedVehicles,andZeroEmissionVehiclesSource:AMROstaffcompilation.Note:EVsarevehiclesthatuseelectricitytopoweranelectricmotor.Technically,FCEVsareatypeofEVsincetheyalsouseelectricitytopoweranelectricmotor.However,conventionalusagereferstoEVsasBEVsandPHEVsonly.Source:OurWorldInData;AMROstaffcalculations.Note:DataforHongKongarenotavailable.Transportexcludesaviationandshipping.BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.Source:ASEANstats;nationalauthorities;AMROstaffcalculations.Note:DataforJapan,Indonesia,Thailand,Malaysia,andthePhilippinesrefertomotorvehiclesinuseandregisteredroadmotorvehicles,respectively.CN=China;ID=Indonesia;JP=Japan;KH=Cambodia;KR=Korea;MY=Malaysia;Others=Brunei,LaoPDR,HongKong,Myanmar,Singapore,andVietnam;PH=Philippines;TH=Thailand.0510152025JPTHMYPHKRBNVNKHIDCNSGLAMMASEAN+3WorldAverage199020002010201905001,0001,5002,00002505007501,000201020122014201620182020ThousandsCNIDJPTHMYKRPHOthersASEAN+3World(rightaxis)Figure2.43.World:ElectricVehicleStocksandSales,byEconomy(Millionsofunits)StocksSales048121620201020122014201620182020ChinaEuropeanUnionUnitedStatesUnitedKingdomJapanCanadaKoreaSwitzerlandIndiaNewZealandAustraliaROW02468201020122014201620182020ChinaEuropeanUnionUnitedStatesUnitedKingdomNorwayKoreaCanadaSwitzerlandJapanAustraliaIndiaROWSource:InternationalEnergyAgency;AMROstaffcalculations.Note:Electricvehiclescomprisebatteryelectricandplug-inhybridelectricbuses,cars,trucks,andvans.EU=EuropeanUnion;ROW=restoftheworld;UK=UnitedKingdom;US=UnitedStates.Internalcombustionengine(ICE)Batteryelectricvehicle(BEV)Fuel-cellelectricvehicle(FCEV)Hybridelectricvehicle(HEV)ElectrifiedvehicleElectricvehicle(EV)Zeroemissionvehicle(ZEV)/Newenergyvehicle(NEV)/Cleanenergyvehicle(CEV)Plug-inhybridelectricvehicle(PHEV)FueltankFueltankFueltankHydrogenfuelcellICERegenerativebrakingRegenerativebrakingRegenerativebrakingRegenerativebrakingICEBatteryBatteryElectricmotorElectricmotorElectricmotorElectricmotorICEBatteryBattery96ASEAN+3RegionalEconomicOutlook2023Figure2.44.SelectedEconomies:ElectricCarRegistrationsandSales(Thousandsofunits;percentoftotalcarsales)Figure2.45.SelectedASEAN:ElectricVehicleAdoptionRate,2021(Percentofregisteredvehicles)Figure2.46.ASEAN-6:PowertrainPreferences,September–October2022(Percentofresponsesbycountry)Source:ASEANstats;nationalauthorities;variousmediareports;AMROstaffcalculations.Note:ThenumberofregisteredvehiclesissourcedfromASEANstatswhoselatestdatapointis2020proxiedasthelatestdata.ID=Indonesia;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand.DataforThailandareasof2022,and2019forthePhilippines.Source:Deloitte(2023).Note:Responsestosurveyquestion“Whattypeofenginewouldyoupreferinyournextvehicle?”fromIndonesia(ID,1,001responses);Malaysia(MY,1,005responses);thePhilippines(PH,1,007responses);Singapore(SG,1,015responses);Thailand(TH,1,004responses),andVietnam(VN,1,017responses).BEVs=batteryelectricvehicles;HEVs=hybridelectricvehicles;PHEVs=plug-inhybridelectricvehicles.EVsrefertoBEVsandPHEVs.Source:InternationalEnergyAgency.Note:Electriccarsincludebatteryelectriccarsandplug-inhybridelectriccars.UK=UnitedKingdom;US=UnitedStates.06121801,0002,0003,0004,000201620172018201920202021201620172018201920202021201620172018201920202021ChinaUSEuropeElectriccarsShareoftotalcarsales(rightaxis)01020300250500750201620182020201620182020201620182020201620182020201620182020201620182020JapanKoreaCanadaUKFranceGermany0.10.10.30.70.00.20.40.60.81.0PHIDMYTHSG7.18.08070854250711019837166786111912222811512246020406080100IDMYPHSGTHVNGasoline/dieselHEVsPHEVsBEVsOthersAlmostallASEAN+3economieshavetargetsforEVadoption(Table2.7).Inrecentyears,manyofthemhaveintroducedpolicymeasurestopromoteEVadoption,suchasimportdutyreductions/exemptionsforEVsand/orchargingstations(Cambodia,Malaysia,thePhilippines),taxandregistrationfeeexemptionsorrebates(Malaysia,thePhilippines,Singapore,Thailand,Vietnam),andsubsidiesforEVpurchases(China,Japan,Thailand)orinstallationofEVcharginginfrastructure(HongKong,Japan,LaoPDR).InSeptember2022,IndonesiamandatedtheuseofEVsforgovernmentofficialsacrossthecountryinanefforttoexpediteitstransitiontobattery-poweredtransportation(Thomas2022).AcceleratedEVadoptioninASEAN+3willhelpspurinvestmentandbringaboutaneededtransformationintheregion’sautomobileindustry.ManyASEAN+3economieshavealsosettargetsorambitionsandsupportingpoliciestodeveloptheirdomesticEVindustries(Table2.7).China’sdomesticEVindustryisalreadyrelativelymatureandisnowexpandingitsfootprintoverseas(Box2.7).Korea’sHyundaiMotorGroupplanstoinvestUSD16.5billionoverthenexteightyearstoexpanditsproductionofEVsinitshomemarketandcapture12percentoftheglobalEVmarketbydecade’send(Jennings2022).Japan’sautomobileindustry,havinglongenjoyedacompetitiveadvantageingasoline-poweredandhybridelectricvehicles,hasbeenrelativelyslowertorampupEVproductioncapacityandisracingtomakeuplostground.AmongASEANeconomies:•IndonesiaoffersseveralincentivestoencourageinvestmentinEVmanufacturing,includingtaxallowancesandholidays,aswellastariffcutsforimportedmachineryandmaterialsusedinEVproduction.Thecountry’shugenickelandcopperreservesmakeitacompetitiveinvestmentdestinationforEVmanufacturers.•Thailand—knownforyearsasthe“DetroitofAsia”foritstrackrecordinmanufacturingautomobiles—aimstobecomeaglobalhubforEVandpartsproduction.InChapter2.OntheRoadtoNetZero97February2022,thegovernmentapprovedmeasurestopromotedomesticmanufacturingofEVs,includingtheexemptionofimportdutyonsignificantelectricalpartsin2021–25(TheparatandApisitniran2022).•Malaysiaprovidesfullimportandexcisedutyexemptionsandasalesandservicetaxwaiveruntiltheendof2025forlocallyassembled(“completeknockeddown”)EVs.VolvoCarMalaysiarolledoutthefirstlocallyassembledEVinMarch2022.MalaysiaisfocusingonproducingEVcomponentsratherthancompetingwithneighboringIndonesiaandThailandinEVproduction.•Vietnam’sVinFast,establishedin2017,isthelargestmanufacturerofelectrictwo-wheelersandtheonlydomesticmanufacturerofelectriccarsinthecountry.WhiledemandforelectriccarsinVietnamisembryonic,Vinfasthassetitssightsontheglobalmarket—inNovember2022,itshippeditsfirstbatchof999electriccarstotheUnitedStatesandisbuildinganEVplantthere(Nguyen2022).Fortheregion’sEVindustrytoachieveitsmarketpotential,challengestoEVadoptionneedtobeovercome.DevelopingeconomiessuchasCambodia,LaoPDR,andMyanmarhaverelativelyweakinfrastructureandlowtechnologicalcapacity,whichcanaffecttheirreadinessforEVadoption.Evenlargeremerging-marketeconomiessuchasIndonesiaandVietnamareratedbybusinessconsultancyArthurD.Littleas“starters”inelectricmobilityreadiness,reflecting“majorchallengesincostsandinfrastructure”(Schlosserandothers2022)(Figure2.47).ArecentsurveybyDeloitte(2023)indicatesthatlackofpubliccharginginfrastructureandbatterysafetyandperformanceconcernsareamongtheimpedimentstoEVadoptionintheASEAN-6(Indonesia,Malaysia,thePhilippines,Singapore,Thailand,andVietnam).CompetitionfromEVproducerselsewhereandprotectionistpoliciesinlargemarketscouldchallengetheregion’sEVexportambitions.USEVpioneerTeslaremainsthedominantplayerintheluxuryEVmarket,owningandoperatingthelargestfast-chargingnetworkintheworld.TraditionalbrandslikeGeneralMotorsandVolkswagenarealsorampinguptheirEVlines,notonlywithluxuryEVsbutalsowithdifferentvehiclebodytypesandpricepoints(Figure2.48).Plus-3EVmakersarerisingtomeetthecompetition,butASEANEVmakersmightfindtheglobalfieldmoredauntingunlesstheycancarveouttheirownniche.Moreover,policiesinmajortradingpartnersthatfavordomesticallyproducedEVscouldshort-circuittheregion’spromisingEVexportgrowth.TheUSInflationReductionAct,passedinAugust2022,isaprimeexample.2727/The2022USInflationReductionActincludesataxcreditofuptoUSD7,500perEVpurchaseddomestically,butonlyforEVswithfinalassemblyinNorthAmerica.Inaddition,asofJanuary2024,atleast40percentofthecriticalmineralsusedintheproductionoftheEVmustcomefromtheUnitedStatesoritsfreetradeagreementpartners,whilethebatterymusthaveatleast50percentofNorthAmericancontent.Theseminimumthresholdsriseto80percentby2027forcriticalmineralsand100percentfrom2029forbatteries(Feingold2022).Figure2.47.SelectedEconomies:ElectricMobilityReadiness,20220306090120ZAVNIDBRINMXTHAEJPUSUKSGDECNNOMacroEVmarketandcompetitivelandcapeCustomerEVreadinessPubliccharginginfrastructureTCOandregulationEmergingEVmarketsStartersAmbitiousfollowersTHCNJPIDVNSGSource:Schlosserandothers(2022).Note:“Macro”factorsincludeGDPpercapitaandqualityofelectricityinfrastructure;“EVmarketandcompetitivelandscape”factorsincludethenumberofbatteryelectricvehicles(BEVs)offeredinthemarketandEVmarketshareexpectationsfor2021–26;“CustomerEVreadiness”factorsincludehomeownershiprateandcustomers’likelihoodofpurchasinganEVastheirnextvehicle;“Publiccharginginfrastructure”factorsincludethird-partyhighwayhigh-performancechargingnetworkdensityandcompoundannualgrowthrateofpublic/destinationchargingpoints;“TCOandregulation”factorsincludetaxandtariffbenefitsanddirectfinancialsubsidiesforBEVs.AE=UnitedArabEmirates;BR=Brazil;CN=China;DE=Germany;EV=electricvehicle;ID=Indonesia;IN=India;JP=Japan;MX=Mexico;NO=Norway;ZA=SouthAfrica;SG=Singapore;TCO=totalcostofownership;TH=Thailand;UK=UnitedKingdom;US=UnitedStates;VN=Vietnam.98ASEAN+3RegionalEconomicOutlook2023Source:Statista.Note:Includesbatteryelectricvehiclesandplug-inhybridelectricvehicles.Figure2.48.GlobalElectricVehicleMarketShare,byMainProducer,2021(Percent)24.80.91.93.23.54.24.34.85.15.77.68.811.313.80612182430OthersBAICToyotaMotorsGeely-VolvoCarGroupSAICMercedes-BenzGroupRenault-Nissan-MitsubishiAllianceBMWGroupHyundaiMotorStellantisGeneralMotorsBYDVolkswagenGroupTeslaInc.Source:Nationalauthorities;InternationalEnergyAgency(2022c);AMROstaffcompilationfromvariousmediareports.Note:BEV=batteryelectricvehicles;EV=electricvehicle,whichcanbeBEVorhybridplug-inelectricvehicle(HPEV);CEV=cleanenergyvehicle,whichcanbeEVorfuelcellelectricvehicle(FCEV);HEV=hybridelectricvehicle;NEV=newenergyvehicle(sameasCEV);ZEV=zeroemissionsvehicle(sameasCEV).Targetsincludeofficialtargetsandunofficialtargets(ambitions).Table2.7.SelectedASEAN+3:TargetsforElectricVehicleAdoptionandProductionEconomyTypeofTargetsforElectricVehicle(EV)AdoptionTarget(s)forEVProductionBrunei•EVshareinannualvehiclesalesCambodia•EVshareofallcars,motorcycles,andurbanbusesChina•NEVshareinannualvehiclesales;BEVshareinNEVs•NEVshareinpublicfleetstock(e.g.,buses,taxis,deliveryvehicles)FCEVsalesandstock•Charginginfrastructure•1.2millionNEVannualproductioncapacityby2025(Shanghai).HongKong•Phase-outoffuel-propelledprivatecarsincludinghybridvehicles•ReductioninvehicularemissionsIndonesia•EVandelectricmotorcyclestock•EVshareincarandtwo-wheelersales•Chargingstationsandbatteryswapstations•Phaseoutoffossilfuel-poweredcars•Productionof2millionelectricmotorcyclesby2024.•Productionof600,000EVsand2.45millionelectrictwo-wheelersby2030.Japan•EV,FCEV,andHEVshareinpassengercarsales•FCEVurbanbusstock•EVchargingpointsandhydrogenrefuelingstationsKorea•PassengerBEVandFCEVstock•EVshareinnewvehiclesales•Totalcostofownership-paritywithinternalcombustionenginesforEVsandFCEVs.•FCEVtaxi,urbanbus,andtruckstock•Chargingstations•Productionof430,000passengerEVsandFCEVsby2022,4.5millionby2030.LaoPDR•EVshareofallautomobilesMalaysia•EVmarketshare•ChargingstationsPhilippines•EVs(two-,three-,orfour-wheeled)inuseSingapore•Phase-outofinternalcombustionenginepassengervehicles•ChargingstationsThailand•ZEVshareinnewcarsales•Chargingstationsandbatteryswappingstationsforelectricmotorcycles•Productionof250,000EVs,3,000electricbuses,and53,000motorcyclesby2025.•50percentoftotalautoproductiontobeEVsby2030.•35percentshareofZEVsindomesticbusproductionby2025,50percentby2030and85percentby2035.•30percentshareofZEVsindomesticcarandvanproductionby2030,50percentby2035.Vietnam•ZEVshareofallvehicles•Productioncapacityof3.5millionEVsby2040,4.5millionby2050.99Chapter2.OntheRoadtoNetZeroBox2.7:China’sElectricVehicleLeapfrogMassproductionofelectricvehicles(EVs)haslongbeenakeyelementofChina’sindustrializationstrategy.ThegovernmentbeganthinkingaboutwaystobuildadomesticEVindustryinthe1990s,recognizingthatChinacouldnotmatchadvancedeconomiesininternalcombustionengineinnovationandaimingtoaddressenvironmentalissuessuchasairpollutioninbigcities.Intheearly2000s,the863EVProjectwasrolledoutaspartofChina’s10thand11thFive-YearPlans,withthegovernmentinvestingCNY2billion(aboutUSD290million)inEVresearchanddevelopment(R&D)duringthedecade.In2004,16state-ownedcompaniesformedanEVindustryassociationtointegratetechnologicalstandardsandworkcooperativelytodevelopatop-of-the-lineEV.In2009,thegovernmentreleasedathree-yearAutoIndustryRestructuringandRevitalizationPlan,whichincludedagoaltoincreaseproductioncapacityandsalesofso-callednewenergyvehicles(NEVs)(Figure2.39).ThesubsequentEnergy-SavingandNew-EnergyAutoIndustryPlan(2012–20)setambitioustargetstohavehalfamillionNEVsontheroadby2015and5millionby2020,withthehelpofgovernmentsupportforpilotprograms,purchaseincentives,R&Dprograms,chargingfacilities,andbatteryrecycling.ForeignownershiplimitsonNEVswerescrappedin2018,pavingthewayforTeslatosetupawhollyownedChinesesubsidiarythatbegantobuildEVsin2019,andforVolkswagentoraiseitsstakeinanEVjointventureto75percentin2020.Rampingupdomesticadoptionhasbeenanimportant—thoughcostly—partoftheEVdevelopmentplan.Asearlyas2009,thegovernmentstartedtoprovidegenerousincentivestoencourageEVpurchases.EVmanufacturersweregrantedsubsidiesforEVssold,withthesizeofthesubsidylargelydeterminedbythevehicle’sbatterycapacity—thelargerthecapacity,thelargerthesubsidy.Thesubsidies—togetherwithpreferentialtaxpoliciessuchaspurchasetaxwaiversforNEVs(introducedin2014)andlocalgovernmentincentives,e.g.,bonusesforswitchingtoNEVsandfreeEVlicenseplates(introducedin2012inShanghai)—helpedtoshrinkthepricedifferencebetweenEVsandconventionalvehiclesandsoincreasetheirpopularity.By2017,thegovernmentbegantowinddownthesubsidiesinstages.Theintentionwastomovefromdirectfinancialaidtoamarket-basedapproachbytheendof2021,althoughthesubsidieswereextendedthrough2022tosupporttheautomobilesectorduringthedownturncausedbytheCOVID-19pandemic.Intotal,thegovernmenthasspentaboutCNY100billiononEVsubsidies.ThepurchasetaxwaiverforNEVshadbeenduetoexpireattheendof2022butwasextended(forthethirdtime)through2023,atanestimatedcostofCNY100billioninforegonerevenue(Interesse2022).ProgressinEVdevelopmentanddeploymenthasbeenrapid.Productionhasincreasedmassively—by2021,Chinaaccountedforabout60percentofglobalEVproduction.EVproductioncostsinChinaareabout50percentlowerthanelsewhereintheworld,thankstoimportantpartsofthevaluechainbeingavailableinsidethecountry(Figure2.7.1)(Kawakami,Muramatsu,andShirai2022).EVchargingpointscontinuetobebuilt—reachingevenruralvillages—ataspeedfasterthaninanyothercountry(Figure2.7.2).Domesticconsumptionpatternsarechangingrapidly—by2021,oneoutofeverytwoEVssoldintheworldwasinChina,anditwillremainbyfarthetopsinglecountryforEVsalesfordecadestocome(Maguire2022)(Figure2.7.3).Exportshavegrownexponentially—mainlyTeslaandEuropeanEVbrandsmadeinChinatodate,althoughcost-competitiveChineseautomanufacturerssuchasBYD,Nio,andSAICarenowmakinginroadsinEuropeanmarketsandcountriesacrossSoutheastAsia(Figure2.7.4).Still,morecanbedone.Onthedemandside,EVinfrastructureavailability,EVpricing,andclimatechangeconcernswillbekeydeterminantsofconsumers’buyingpatterns,requiringcontinuedeffortsbytheauthorities.Onthesupplyside,disruptionsthataffectedChina’sEVproductionandexportsinthepasttwoyearshavehighlightedhowimportantitisfortheindustrytobuildresilience,includingbystrengtheninglinkswithASEANeconomiesfortechnologysharinganddevelopmentaswellasproductionalongtheentireEVvaluechain.ThisboxwaswrittenbySuanYongFoo.100ASEAN+3RegionalEconomicOutlook2023Figure2.7.1.China:ElectricVehicleIndustrialEcosystemMineralresourcesLithiumoreLithiumbatteryLight-dutyvehicles,e.g.,passengercars,minivansCharginginfrastructureBatteryrecyclingOthersEVmaintenanceandrepairBusinessmodelResearchanddevelopmentMedium-andheavy-dutyvehicles,e.g.,transitbusesOthers,e.g.,two-andthree-wheeledEVsCopperoreMotordriveIronoreElectroniccontrolsNickeloreNickeloreOthersEVcomponentsEVsAncillaryservicesEVaftermarketSource:DaxueConsulting(2022);AMROstaff.Source:InternationalEnergyAgency.Source:ChinaGeneralAdministrationofCustoms;Statista.Note:UK=UnitedKingdom.EVexportstoBangladesharemainlytwo-andthree-wheeledvehicles.Source:InternationalEnergyAgency.Figure2.7.2.China:PubliclyAvailableElectricVehicleChargingPoints(Thousandunits)Figure2.7.4.China:ElectricVehicleExportsVolume(Thousandunits)Destinationmarket(Percentofexports)Figure2.7.3.China:ElectricCarSales(Millionunits;percentoftotalcarsales)04008001,20020142015201620172018201920202021SlowFast06121801234201020122014201620182020Shareoftotalcarsales(rightaxis)UnitsBelgium18%Bangladesh14%UK9%India8%Thailand7%Germany4%France3%Slovenia3%Australia3%Philippines2%Others29%020040060020172018201920202021BelgiumBangladeshUKIndiaThailandGermanyFranceSloveniaAustraliaPhilippinesOthers18%14%9%8%7%4%3%3%3%2%29%Chapter2.OntheRoadtoNetZero101EnergyStorage“Thisistheenergystoragedecade.”YayoiSekineBloombergNEFHeadofDecentralizedEnergyNovember2021Energystorageiscrucialforthegreentransition.Batteriesandfuelcellswillhaveacentralplaceinroadtransportationsystemsthatrunmainlyonelectricityand/orhydrogen.Energystoragewillalsobecrucialinfutureelectricitysystemsreliantonvariablerenewableenergy(VRE)sourceslikewindandsunlight.Storagetechnologiesdifferinduration(i.e.,thelengthoftimeoverwhichthestoragefacilitycandelivermaximumpowerwhenstartingfromafullcharge),energydensity(i.e.,themaximumamountofenergythatcanbestoredperunitvolume),andotherattributessuchasscaleeconomies.Forexample,mostcurrentlydeployedenergystorageuseselectrochemicaltechnologyintheformoflithium-ionbatteries,whichhavehighenergydensityandshortstoragedurations,makingthemparticularlywell-suitedforEVsandmobileelectronics.Mechanicaltechnology,likepumped-storagehydropower,iswidelyusedforgrid-scalestorage,whilechemicaltechnologies,likehydrogen,havepotentialforlarge-scalestorageofVRE(Figure2.49).Arapidscaling-upofdemandforenergystorageisexpectedoverthenextfewdecadesasEVssupplantinternalcombustionenginesandastheshareofelectricitygenerationfromwindandsolarphotovoltaicsincreases.AccordingtotheIEA(2020a),globalannuallithium-ionbatteryproductionwouldneedtoreachabout1,500gigawatt-hours(GWh)peryearby2030tomeetgovernmentEVtargetsaroundtheworld—andtwicethatamounttomeetlong-termsustainabilitygoals(Figure2.50).28Asforgrid-scalebatterystorage,totalinstalledcapacitywouldneedtoexpandfromabout16gigawatts(GW)in2021to680GWin2030fortheworldtomeetitsambitiontoreachnetzeroby2050(Figure2.51)(IEA2022g).Figure2.49.EnergyStorageTechnologiesSource:AMROstaffcompilation.Source:InternationalEnergyAgency(2021a).Note:Onlyconsiderslithium-ionbatteries.2025and2030projectionsbasedoncurrentandannouncedpolicies.Source:InternationalEnergyAgency(2022g).Figure2.50.World:ProjectedAnnualElectricVehicleBatteryDemand(Gigawatt-hours)Figure2.51.World:Grid-ScaleBatteryStorageCapacityAdditions(Gigawatts)28/Batteryproductionforanoutputof1,000GWhperyearwouldrequiretheequivalentof50plants,eachonthescaleofaTeslaGigafactory.Buildingalarge-scalebatteryfactorycantakeanywherefromtwotofiveyears,dependingonthelocation.06001,2001,800202020252030ChinaEuropeUnitedStatesOthercountries05101520024682015201620172018201920202021ChinaUnitedStatesEuropeKoreaJapanOthereconomiesTotalcapacity(rightaxis)Lithium-ionbatteriesHydrogenPumpedstoragehydropowerMoltensaltstorageElectrochemicalLithium-ionbatteriesarewidelyusedinEVsandshortdurationelectricitysystemstorageapplicationsVerylargeamountsofhydrogencanbestoredinconstructedundergroundsaltcavernsPumpedstoragehydropoweraccountsforover90percentofglobalfunctionalgrid-scaleenergystoragecapacityMoltensaltisusedasaheattransferfluidandthermalenergystorageinsolarpowerplantsChemicalMechanicalThermal102ASEAN+3RegionalEconomicOutlook2023Today’sEVbatteryvaluechainsareconcentratedinthePlus-3,particularlyChina.Chinaproducesthree-quartersoftheworld’slithium-ionbatteries;Koreaaccountsfor5percentandJapan4percentofglobalproductioncapacity.Thesethreeeconomiesarehometotheworld’stop10EVbatteryproducers,withacombinedmarketshareofmorethan90percent(Figure2.52).Overhalfoftheworld’slithium,cobalt,andgraphiteprocessingandrefiningcapacity,and70percentto85percentofproductioncapacityforcathodesandanodes(keybatterycomponents)areinChina.KoreaandJapanhaveconsiderablesharesofthevaluechaindownstreamofrawmaterialprocessing,particularlyintheproductionofcathodeandanodematerialandotherbatterycomponentssuchasseparators(IEA2022e).China’sdominanceinEVbatteryproductionislikelytobemaintainedinthemediumterm,althoughcompetitionamongthePlus-3isheatingup.OftheEVbatteryproductioncapacityannouncedworldwidefortheperiodto2030,about70percentisinChina.ButKoreaandJapan,whichmaybebetterpositionedtopenetratetheUSandEuropeanEVmarkets,havestartedinitiativestoboostthecompetitivenessoftheirownbatteryindustries.InJuly2021,theKoreangovernmentannouncedplanstoinvestUSD35billioninitsEVbatteryindustrybytheendofthedecade—withkeyplayersLGEnergySolution,SKInnovation,andSamsungSDIdrivinginvestmentinR&Dandbatteryproduction—tosecurethecountry’sspotasamajorglobalforceinthesector(ParkandLee2021).TheJapanesegovernmentearmarkedtheequivalentofaboutUSD877millioninthefiscal2021supplementarybudgetforsettingupdomesticbatterystorageproduction,andsubsequentlyindicatedthatafurtherUSD24billioninpublicandprivateinvestmentwouldbeneededtodevelopacompetitivemanufacturingbaseforbatteries(JijiPress2021;Reuters2022b).29ASEANnewentrantsarepoisedtojointheEVbatteryvaluechainbyleveragingtheirproximitytothePlus-3technologyleadersaswellastheirupstreammineralandmetalresources.IndonesiaandThailand,inparticular,areattractingforeigninvestmentfrommajorbatteryandEVmanufacturers.•Indonesiaaimstoproduce140GWhofEVbatterycapacityperyear(ofwhich50GWhwillbeforexport)by2030—fromzeroEVbatteryproductiontoday(IEA2022a).30InMarch2021,aholdingcompany,IndonesiaBatteryCorporation(IBC),wascreatedfromfourstate-ownedcompaniesintheminingandenergysectorwithsomeUSD17billiontoinvestindevelopinganEVbatteryecosysteminthecountry.ConstructionhasbegunonIndonesia'sfirstEVbatteryplant—ajointventurebetweenIBCandaKoreanconsortiumledbyLGEnergy,withproductioncapacityof10GWhforHyundaiEVs—whichisexpectedbeoperationalin2024(Holman2021).IBChassecuredinvestmentsworthUSD15billionfromChina’sCBLandKorea’sLGEnergySolutionandispursuingagreementswithmajorglobalEVbatterymanufacturerssuchasCATL,Foxconn,andTesla.Source:SNEResearch(2022).Note:H1=firsthalfoftheyear.Figure2.52.World:Top10ElectricVehicleBatteryProducers(Percentofglobalsales)29/InAugust2022,ToyotaannouncedthatitwouldinvestuptoUSD5.6billiontorampupproductionofEVbatteriesintheUnitedStatesandJapan,andHondaannouncedplanstojointlyestablishaUSD4.4billionEVbatteryplantintheUnitedStateswithLGEnergySolution(Herh2022).30/Forcontext,140GWhisequivalenttoabout4–6percentofglobalEVbatterycapacitydemandin2030,asforecastedinIEA(2022b).0510152025303540OthersSvoltEnergy(China)Sunwoda(China)GotionHigh-tech(China)CALB(China)SamsungSDI(Korea)SKOn(Korea)Panasonic(Japan)BYD(China)LGEnergySolution(Korea)CATL(China)H12021H12022Chapter2.OntheRoadtoNetZero103•ThailandisdevelopingalocalEVbatteryindustryclusteredintheEasternEconomicCorridor(EEC)tohelpachieveitsaimofbecomingaregionalEVproductionhubby2035.Thefirstlithium-ionbatteryfactoryinSoutheastAsiawasopenedintheEECinDecember2021byadomesticrenewableenergycompany(Muramatsu2021);31theutilityarmofThailand'sstate-ownedoilandgasconglomerateisbuildinganEVbatteryplantanddevelopingEVbatterytechnology;andagovernment-fundedpilotplantisdevelopinganalternativetolithium-ionbatteriesthatwillmakeuseofthecountry’sabundantzincresources(Phoonphongphiphat2022).Foreigncompanies,suchasChina’sSAICMotorsandGreatWallMotors,alsoplantobuildEVbatteryproductionplantsinThailand.InJune2022,thegovernmentapprovedenhancedbenefitsforinvestmentinEVbatteryproduction:projectsusingadvancedtechnologywillenjoya90percentreductionofimportdutyonrawandessentialmaterialsforfiveyearsiftheoutputissolddomestically(Sullivan2022).•Vietnam’spotentialfornickelminingmakesitaprimelocationforEVbatteryproduction(asfeaturedinthenextsubsection).InDecember2021,Vietnam’sdomesticcarmanufacturer,Vinfast,beganconstructionofafacilitytoproducebatteriesforitsownEVs.ThelocalizationofsupplychainswillexpandVietnam’scapacityasamanufacturinghubandmakethecountryanattractivetargetforinvestment.BatteriesareatechnologyopportunityfortheenergysectorbeyondjustEVs—andthePlus-3,particularlyChina,aremajorglobalplayers.AccordingtoIEA(2021c),whilepumpedstoragehydropowerwillremainthelargestsourceofinstalledenergystoragesystemcapacityworldwide,utility-scalebatteriesareexpectedtoaccountformostofthestoragegrowthoverthenextfewyearsasthepriceoflithium-iontechnologyhasdeclinedsubstantiallywithitswidespreadcommercialuse(Figure2.53andFigure2.54).Lithium-ionbatterystoragecontributed95percentofnewutility-scalecapacitygloballyin2021(Colthorpe2022a).32China’s14thFive-YearPlanforNewEnergyStorageTechnologyDevelopmentsetsoutanambitioustargettoinstallover30GWofenergystorage(excludingpumpedhydro)by2025and100GWby2030—anearly3,000percentincreaseonitsinstalledcapacityin2020(Reuters2021a).Thegovernmentencourages,andmostprovincesnowrequire,renewableenergydeveloperstobundle10percentto30percentofenergystoragecapacitywiththeirprojects.Asnotedearlier,Chinaaccountsforalmostthree-quartersofglobalmanufacturingcapacityoflithium-ionbatteries;outsideChina,thelargestmanufacturersoflithium-ionbatteriesareinKorea,Japan,andtheUnitedStates.31/Theplanthasaninitialproductioncapacityof1GWhperyear.Thecompanyplanstoexpandproductioncapacityto4GWhatalaterstage,andpossiblyto50GWh(Muramatsu2021).32/Othertypesofbatteriescouldemergeasbreakthroughtechnology:forexample,inJuly2022,Chinacommissionedtheworld’slargestvanadiumredoxflowbattery,withacapacityof100MWandastoragevolumeof400MWh(Colthorpe2022b).Figure2.53.World:ActualandProjectedInstalledEnergyStorageCapacity(Gigawatts)Figure2.54.Lithium-ionBatteryPrice(2021USDperkilowatt-hour)0601201802402020202620202026PumpedhydroBatteries(utilityscale)ChinaAsia-PacificexChinaUnitedStatesEuropeRestoftheworld1,22094674468460739330322618516114013213512705001,0001,5002010201220142016201820202022Source:InternationalEnergyAgency(2021c).Source:BloombergNEF.Note:Forecastprices(2022and2023)areinnominalterms.104ASEAN+3RegionalEconomicOutlook2023ASEANhasuntappedmarketsforenergystoragesystemapplications.ASEANhascollectivelysetanaspirationaltargetforrenewableenergytomakeup23percentofitsenergymixby2025,andmostmembershaveplansforwindand/orsolarpowertobepartoftheirrenewable-energyimplementationframework—hence,thedevelopmentanddeploymentofenergystoragetechnologieswillbecritical(Table2.4).Atpresent,however,unlikethePlus-3,fewASEANeconomiescountamongtheworld’smainmarketsforlarge-scaleenergystoragesystems,andfewerstillhavespecificpoliciestoencourageenergystorageadoptioninthepowersector.•Thailandisrealizingitsplanstobecomeaglobalproductionbaseforenergystoragetechnology,withfullsupportfromthegovernmentandprivatefirms.ThePowerDevelopmentPlan(2018–2037)releasedin2019,mandatedthestate-ownedElectricityGeneratingAuthorityofThailand(EGAT)todevelopenergystoragesystemstosupportthetake-upofrenewableenergy.ThailandwasthefirstASEANcountrytodevelopawind-hydrogenhybridpowerplantin2018;33EGATisalsopromotingsolar-hydrobatteryenergystorage.34Meanwhile,theprivatesectorisalsopursuingopportunitiestodevelopprojectswithbatteryenergystoragesystemtechnologies,includingwithforeignfirms.35•ThePhilippineshasrapidlybecomeoneofthemostactiveenergystoragemarketsinASEAN,withmajorpowergenerationcompaniesinvestinginportfoliosofbatterystorage.Amongitseffortstomodernizeitselectricitysector,thegovernmentin2019issuedguidelinestoclarifywhocouldown,operate,andultimatelybenefitfromthedeploymentofenergystoragesystemsintheelectricpowerindustry.Thecountry’sfirst-everco-locatedsolarandstorageplantwentonlineinearly2022,andaproposalhasbeenannouncedtobuildamassivesolar-plus-storagefacilitythatwouldbeoneofthebiggestintheworld(Colthorpe2022c).•Indonesiaisattractingsubstantialinvestmentsinsolar-plus-storageprojects—forexportingelectricitytotheSingaporemarket.ASingapore-Germanjointventureisbuildingalarge-scalesolar-plus-storageplantintheRiauIslandsthatwillsendelectricitytoSingaporethroughanunderseacable;andsimilardealsarebeingnegotiatedacrosstheprovince(Murtaugh2022).33/Inawind-hydrogenhybridsystem,excesselectricalenergygeneratedbywindturbinesisusedtodecomposewaterinanelectrolyzertoproduceandstorethatenergyashydrogen.EGAThasappliedthissystemto12windturbinesacrossthecountry.34/Aftercompletingtheworld’slargesthydro-floatingsolarpowerplantin2021,EGATisbuildingasecondone,whichwillbeequippedwithabatteryenergystoragesystem(TheNation2022).35/ThairenewableenergycompanyBCPGhasobtainedfinancingofmorethanUSD14million(includingfromtheAsianDevelopmentBank)foraprojectintegratingutility-scalewindpowergenerationwithabatteryenergystoragesystem(ADB2020).AnotherThairenewableenergycompany,SuperEnergy,isbuildingSoutheastAsia’slargestbatteryenergystoragesysteminpartnershipwithaChineseinvertermanufacturer(Colthorpe2021).36/REEsareafamilyof17elements.REEsarenotrare,butminableconcentrationsarelesscommonthanmostotherminerals.37/About55percentoftheworld’sREEreservesareinChinaandVietnam(USGS2022).CriticalMinerals“Whereveryouareintheworld,pleaseminemorenickel…”ElonMuskFounderandChiefExecutiveOfficerofTeslaJuly2020TheshifttocleanenergyandEVswilldriveahugeincreaseinrequirementsforcriticalminerals.Productionofatypicalelectriccarrequiresover200kilogramsofminerals—graphite,copper,nickel,manganese,cobalt,lithium,andrareearthelements(REEs)—comparedtoabout35kilogramsofcopperandmanganeseforaconventionalcar.36Anonshorewindplantrequiresninetimesmoremineralresources(copper,zinc,manganese,chromium,nickel,andmolybdenum)thanagas-firedplant(copperandchromium).Thetypesofmineralsusedvarybytechnology.Vastquantitiesofcopperandaluminiumarerequiredforelectricitynetworks.Lithium,nickel,cobalt,manganese,andgraphitearevitalforbatteryperformance,longevity,andenergydensitywhilepermanentmagnetsusedinturbinesandEVmotorsrelycruciallyonREEs.AccordingtotheIEA,globalmineraldemandforcleanenergytechnologieswillrisebyatleastfourtimesby2040tomeetclimategoals,withparticularlyhighgrowthforEV-relatedminerals(Figure2.55)(IEA2022l).China,Indonesia,Myanmar,andthePhilippinesareamongtheworld’stopproducersofcriticalminerals.Chinaistheworld’slargestproducerofgraphite,molybdenum,andREEsandthethird-largestproduceroflithium;italsominesmorethan5percentoftheworld’smanganese,copper,andnickel.IndonesiaandthePhilippinesaretheworld’stopproducersofnickel.Myanmaristhethird-largestglobalproducerofREEs(Figure2.56).37Chapter2.OntheRoadtoNetZero105Figure2.55.World:ProjectedGrowthinDemandforCriticalMinerals,2020–40Source:InternationalEnergyAgency(2022l).Note:Projecteddemandgrowthbetween2020and2040foreachmineralispresentedasarangebasedondifferentunderlyingscenariosusedintheIEA’ssimulations.Source:USGS(2022).1,200–4,100%700–2,400%500–2,000%500–1,800%200–700%200–600%100–190%70–170%80–130%LithiumGraphiteCobaltNickelManganeseRareearthelementsMolybdenumCopperSiliconBattery-relatedmineralsRenewables-andnetwork-relatedmineralsMineral-richASEANeconomiesarepursuingpoliciestocapitalizeontherisingglobaldemandfortheseresources.•Indonesia—theworld’slargestnickelproducerandhometothelargestreservesofthemetal—aimstocapturemoreofthevaluechainbydevelopingadomesticnickel-basedEVindustry,fromnickelminingtoproducingbatterycomponentsandassemblingEVs.ConsistentwithIndonesia’sstrategyofdevelopingdownstreamindustriesfornaturalresources,andfollowingitsearliersuccessindevelopinganintegratedsteelsupplychain,thegovernmentreimposedabanonexportsofunprocessednickelorein2020andisconsideringanexporttaxonnickelproductswithlessthan70percentnickelcontentaswellaslimitingtheconstructionofnickelsmeltersproducingnickelpigiron(ferronickel)withaviewtoshiftingusefromsteelmakingtowardbatteryproduction.38Sofar,thestrategyappearstobe38/Historically,Indonesia’snickelstrategyfocusedonthesupplychainforsteelproduction.Itsfirstexportbanonnickelorewasimposedin2014toforceminingcompaniestoprocesstheoredomesticallyintoClass2nickel(e.g.,ferronickel/nickelpigiron).ThestrategysucceededinattractinginvestmentsinnickelprocessingfromChina,whichwerecriticalindevelopingafullyintegratedsteelsupplychain.Theexportbanwasrelaxedinearly2017withplanstofullyreimposeitafterafewyears.Steel-andbattery-relatednickelproductsarenotthesame,however—Indonesia’sprocessingindustryisdominatedbylownickel-contentproductslikeferronickel/nickelpigironwithnickelcontentof30–40percent,whereasbatterycathodeproductionusuallyrequiresClass1productsthatcontainaminimumof99.8percentnickel(Huber2021).Figure2.56.World:MajorProducersofCriticalMinerals,2020(Percentoftotalglobalproduction)OthersChilePeruChinaDRCongoUnitedStatesChinaChileUnitedStatesPeruMexicoOthersIndonesiaPhilippinesRussiaNewCaledoniaAustraliaCanadaChinaOthersChinaOthersBrazilAustraliaChileChinaArgentinaOthersChinaUnitedStatesMyanmarAustraliaOthers40%28%10%8%8%6%40%20%17%11%6%6%31%13%11%8%7%7%5%18%79%14%7%48%26%16%7%3%58%16%13%9%4%COPPERMOLYBDENUMGRAPHITENICKELLITHIUMRAREEARTHELEMENTS106ASEAN+3RegionalEconomicOutlook202339/MorethanathirdofthePhilippines’totallandareahasbeenidentifiedashavinghighmineralpotentialandlessthan5percentofthePhilippines'mineralreservesisestimatedtohavebeenextractedsofar(ReutersandDelaCruz2021).40/The11-yearinvestmentplanaimstoproducemorethan146,400thousandtonsofgoldore;216,000tonsofcopperore;and103,000tonsofnickelore(Minh2018).41/NorthernVietnamisalreadywellequippedwithinfrastructureandestablishedelectronicsupplychainnetworksofmajorEVbatterymanufacturers.workingtoattractdownstreaminvestmentsfocusedonnickelrefiningandprocessing—spendingonnickelinvestmentprojectsinoneofitsbiggestindustrialparksreachedUSD18billionin2022,triplethefigurein2019beforetheexportbanwasimposed(Listiyorini2022).•ThePhilippines—withtheworld’sfifth-largestreservesofnickelandrichdepositsofcopperandgold—isalsolookingtoridetherisingglobaldemandforcriticalminerals.UnlikeIndonesia,however,itsrecenteffortshavefocusedmoreontheupstreamsegment.In2021,thegovernmentliftedanine-yearmoratoriumonnewminingagreementsandafour-yearbanonopen-pitminingforcopper,gold,silver,andcomplexores.Thisopenedthedoorfornewinvestmentsandforpendingprojectstoproceedtotheirdevelopmentandcommercialextractionstages.39Thegovernmentaimstotriplethesizeofthecountry’sminingsectorby2027.Itisestimatedthatasmanyas190newminingprojectscouldgetunderwayinthenextfouryears,withnickelaccountingforone-thirdofthenewminesandthebulkofnewopen-pitmining(Mitchell2022).•Vietnam—withtheworld’ssecond-largestreservesofREEsandabundantnickeldeposits—alsohaspotentialformineralexploitation,thoughitisatamuchearlierstagethanthePhilippinesandIndonesia.In2018,thegovernmentapprovedaUSD400millioninvestmentplanformineralexploration,extraction,andprocessingover2025–35,andannouncedabanonallnaturaloreormineralexportsuntiltheendofthatperiod.40AnAustralianexplorationandminingcompanyisdevelopingthreeprojectsinnorthernVietnamwiththeaimofproducingnickel-cobalt-manganeseprecursorproductsforAsia'sgrowinglithium-ionbatteryindustry.41Thepoliciesarenotwithoutchallenges.Indonesia’sexportbanonnickelorehasalreadybeenchallengedbytheEuropeanCommissionattheWorldTradeOrganization.Moreover,nickelmininginIndonesiaisparticularlycarbon-intensiveduetoheavyrelianceoncoal,andithasbeenassociatedwithdeforestation,waterpollution,andconflictswithindigenouspeopleoverlanduse.TomeettheneedsofEVcompaniesandtheirenvironment-consciousconsumers,thegovernmentwillhavetoestablishandenforcestrictenvironmentalstandardsfortheminingandprocessingofnickelforEVbatteries.ThesameappliestoVietnam.MiningisalsocontentiousinthePhilippinesafterpastcasesofenvironmentalmismanagementfueledastronglobbyagainsttheindustry.CarbonCapture,Utilization,andStorage“Unlesswedevelopcarbondioxideremovalsrapidlyandonlargescale…itwillbeimpossibletolimitglobalwarmingto1.5degreesCelsius.”AdairTurnerChairoftheEnergyTransitionsCommissionMarch2022Carboncapture,utilization,andstorage(CCUS)referstotheprocessofcapturingcarbondioxidebeforeitenterstheatmosphereandreusingorstoringit.Carbondioxidecanbecapturedfromfossilfuelcombustionorindustrialprocesses(ordirectlyfromtheair)usingseparationtechnologies.Itcanthenbetransportedbyshiporpipelinetobeusedinarangeofapplicationsorstoredpermanentlyinundergroundgeologicalformationslikesalineaquifers.TechnologiesforCCUSarenotnew:formanyyearstheoilandgasindustryhasbeenusingcapturedcarbonfor“enhancedoilrecovery”(EOR),whereitisinjectedintofieldswithdecliningoutputratestoextractmoreoilandgas.Almostthree-quartersofcarbondioxidecapturedoverthepastfivedecadeswasusedforEORandthenstoredunderground(RobertsonandMousavian2022).Theprocessofcapturingandstoringcarbondioxidewithoutreusingitisknownascarboncaptureandstorage(CCS).CCUScanbevaluableasatoolfordecarbonizationandemissionreductionforASEAN+3.Theregionhastheyoungestexistingcoalpowerplantsamongmajorregionsintheworld(Figure2.57).Meetingthe1.5degreesCelsiuscommitmentundertheParisAgreementwouldmeanmostofthesecoalpowerplantswouldhavetoberetiredatleast20yearsearly(IPCC2022).RetrofittingtheseassetswithCCUStechnologywouldallowthemtobeusedforlonger,whichcouldhelpminimizethenegativeimpactongrowthfromassetstrandingandeconomicdislocation(SectionII).CCUSalsoiscriticalforthedecarbonizationofhard-to-abatebutessentialindustrieslikecement,ironandsteel,andchemicalsmanufacturing(GlobalCCSInstitute2022).Chapter2.OntheRoadtoNetZero107CCUScanalsopresentneweconomicopportunities.Economieswithlargeextractivesectors,e.g.,Brunei,Indonesia,andMalaysia,coulddeployCCUStoreduceemissionsalongtheirextractivesupplychain,increasingtheviabilityoffieldsthatotherwisewouldremainundeveloped.Economieswhoseindustrialsectorshavestrongcarboncaptureprospects,e.g.,thePhilippinesandSingapore,coulduseCCUSforcarbonrecycling(IEA2019)(Figure2.58).Economieswithdomesticstoragepotential,e.g.,Malaysia,Thailand,andVietnam,couldfillthedemandforoffshorestorageofcapturedcarbon.Availableestimatesofactualandpotentialcarbondioxidestorageresourcesintheregiontotalover3,000gigatonsinthePlus-3andalmost200gigatonsinASEAN,althoughonlyafractionwilleverbeeconomicallyandtechnicallyviable(Figure2.59).42Thedevelopmentoflarge-scalesharedcarbonstoragethatindustrialuserscantapanywhereinASEAN+3wouldalsofosteracapturedcarbonvaluechain,whichwouldincreaseopportunitiesfortheregion’sshippingandlogisticssectors—Japanisalreadyactiveonthisfront.4342/MostofthestorageinSoutheastAsiaisexpectedtobeinsalineaquifers,butdepletedoilandgasfieldscanalsoprovideimportantstorageopportunities.Thestoragepotentialintheregionislikelytoexceedneedsbyalargeamount,eveninascenariocompatiblewithnetzero(IEA2021d).43/MitsubishiShipbuildingisbuildingademonstrationtestshiptotransportliquefiedcarbondioxide,theworld’sfirstsuchcarrierintendedspecificallyforCCUS(MitsubishiHeavyIndustries2022).Figure2.57.ASEAN+3andSelectedEconomies:AverageAgeofExistingCoalPlants,2020(Years)Figure2.59.SelectedASEAN+3:EstimatedCarbonStorageResources(Gigatonsofcarbondioxide)Figure2.58.CarbonRecycling:PotentialApplications0153045ASEANPlus-3IndiaSouthAfricaEuropeRussiaUnitedStatesSource:InternationalEnergyAgency.Source:OGCI(2022).Note:Discoveredresourcesrefertotheestimatedquantityofstorageresourcesinwhichthepotentialforstoragehasbeenascertainedwithinanassessedgeologicformation.Undiscoveredresourcesrefertotheestimatedquantityofresourcesinwhichthesuitabilityforstoragehasnotbeenascertainedwithinthetargetgeologicformation.Undiscoveredresourcesinclude:(1)prospectiveresources,i.e.,storageresourcesestimatedtobepotentiallyaccessiblewithinundiscoveredgeologicformationsoruncharacterizedpartsofdiscoveredgeologicformationsbyapplicationoffutureexploration/developmentprojects;and(2)inaccessibleresources,i.e.,resourcesthatcannotbeusedbyfuturestoragedevelopmentprojects.ChartshowsonlyASEAN+3economieswithavailabledata.BN=Brunei;CN=China;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;TH=Thailand;VN=Vietnam.Source:InternationalEnergyAgency;AMROstaffcompilation.Note:Thisonlyreferstoapplicationsthatrequireconversion.Direct(unconverted)usesofcarbondioxidealsoexist—e.g.,toenhancetheyieldofbiologicalprocesses,forsolventsandheattransfer,andforfoodandbeverageandmedicaluses.07501,5002,2503,0003,750CNUndiscoveredDiscovered050100150200250MYJPKR0510152025BNTHIDVNCarbonRecyclingChemicals•chemicalintermediates•polymers,plasticsOtherUses•negativeemissiontechnologiesBuildingMaterials•fillingmaterials•cement,concrete•carbonateFuels•methane,methanol•gasoline,diesel,aviationfuel108ASEAN+3RegionalEconomicOutlook2023CCUSactivityanddeploymentintheASEAN+3isledbyahandfulofeconomies.Tenlarge-scaleCCUSprojectsareinvariousstagesofdevelopmentinChina,Indonesia,Korea,Malaysia,andThailand(Table2.8).ChinaandJapanarethemostCCUS-readyeconomiesintheregion,followedbyKorea,Indonesia,andMalaysia(Figure2.60)(GlobalCCSInstitute2022).CCUSmomentuminChinaisdrivenbyitsenergyproductionanduse,aswellasitsabundantstoragepotential(Figure2.59).Japanalsohasstoragepotential,aswellastransportinfrastructureandasupportivelegalenvironment.IndonesiaandMalaysiaareCCUSfrontrunnersgiventheirwell-establishedextractivesectors,withbothaimingtobecomekeyoffshorestoragehubs(Battersby2022;Nair2022).BruneiandSingaporehavealsoindicatedinterestinCCUS(Table2.9).Thereisroomforgrowth.AccordingtotheIEA,tobeinlinewiththetemperatureobjectivessetoutintheParisAgreement,carboncaptureinSoutheastAsiawillhavetoreachatleast35milliontonsayearin2030andexceed200milliontonsayearby2050,withCCUSdeployedatscaleacrossthefueltransformation,industry,andpowergenerationsectors(IEA2021d).ThemainbarrierstoCCUSintheregionarethelackofdataongeologicalstorageresources,legalandregulatoryframeworks,andpolicyincentives.Early,accurate,andtrustworthy“bankable”onshoreandoffshorestoragedataarecriticalforattractingcapitalandfacilitatingthedevelopmentanduptakeofCCUSintheregion.44CCUSneedstobeidentifiedandintegratedor(explicitly)mentionedinnationalclimatepoliciesandstrategiesfortherequisitelegalandregulatoryframeworkstomaterializesoonenoughtoattractthenecessaryinvestmentsandpublicsupport(Table2.9).Incentivesforinvestmentandfinancing—particularlyblendedfinance—arecriticalasmostgovernmentsareunabletofullyfundCCUSprojects,whilecarbonutilizationprojectscanbetechnicallyandfinanciallyriskyforinvestors(IEA2021d;RobertsonandMousavian2022).RegionalcooperationcanalsoidentifyopportunitiestosupportwiderandfasteruseoftechnologyacrosstheASEAN+3,throughcollaborationintechnology,knowledge,andinfrastructuredevelopment.Source:GlobalCCSInstitute(2022);AMROstaffcompilationfromvariousmediareports.Note:CCS=carboncaptureandstorage;CCUS=carboncapture,utilization,andstorage;EOR=enhancedoilrecovery;MtpaCO2=milliontonsofcarbondioxideayear.Table2.8.ASEAN+3:CarbonCapture,Utilization,andStorageFacilitiesandProjects,asofNovember2022ProjectNameStatusFacilityIndustryCapacity(MtpaCO2)PurposeChinaKaramayDunhuaOilTechnologyCCUSEORMethanolproduction0.1EORCNPCJilinOilFieldCO2EORNaturalgasprocessing0.6EORSINOPECQilu-ShengliCCUSChemicalproduction1.0EORCNOOCSouthChinaSeaOffshoreCCSNaturalgasprocessing0.3StorageGuodianTaizhouPowerStationCarbonCapturePowergeneration0.5EORHuanengLongdongEnergyBaseCCSPowergeneration1.5StorageSINOPECShengliPowerPlantCCSPowergeneration1.0EORIndonesiaRepsolSakakemangCarbonCaptureandInjectionNaturalgasprocessing2.0StorageSukowatiCCUSOilrefining1.4EORPAUCentralSulawesiCleanFuelAmmoniaProductionwithCCUSFertilizerproduction2.0UnderevaluationKoreaKorea-CCS1and2Powergeneration1.0StorageMalaysiaPetronasKasawariGasFieldDevelopmentProjectNaturalgasprocessing3.3EORThailandPTTEPArthitCCSNaturalgasprocessing1.0StorageOperationalInconstructionEarlyDevelopmentAdvanceddevelopment44/Longleadtimesareassociatedwithdevelopingcarbonstorageresources;somestudiesshowthisprocessalonecantakeupto10years.Chapter2.OntheRoadtoNetZero109Figure2.60.ASEAN+3andSelectedEconomies:CCSReadinessIndex,2021(0to100;100=Highestassessment)Source:GlobalCCSInstitute(2022);AMROstaffcalculations.Note:Carboncaptureandstorage(CCS)readinessisassessedonthebasisoffourfactors:(1)interest—theintensityoffossilfuelproductionand/orconsumption;(2)storage—factorsthataffectvariousaspectsofcarbondioxideinjectionandstorage,includingsiteviability;(3)legal—presenceofnationalframeworksconducivetoCCSregulation;and(4)policy—presenceofavailableexplicitandimplicitsupportforCCS.EachindicatorisgivendifferentweightsbytheGlobalCCSInstitutetocomeupwiththeoverallscore.Table2.9.ASEAN+3:KeyCarbonCapture,Utilization,andStoragePoliciesandInitiativesSource:AMROstaffcompilationfromvariousmediareports.EconomyPoliciesandInitiativesBrunei•Bruneiisexploringthepotentialofcarboncapture,utilization,andstorage(CCUS)tomitigateemissionsfromtheoilandgassector.•InJanuary2022,localstart-upPerdanaSolutionssignedanagreementwithconsultancyAsiaPacificEnergySolutionsonthefirstcarboncaptureandstorage(CCS)partnershipinBrunei.ShellisevaluatingthetechnicalandcommercialfeasibilityoftransportingcarbonfromSingaporetostoreinBrunei.China•CCUShasbeenincludedinChina’scarbonmitigationstrategiessincethe12thFive-YearPlan(2011–15).In2019,theMinistryofScienceandTechnologyandtheAdministrativeCenterforChina’sAgenda21jointlyissuedanupdatedRoadmapforDevelopmentofCCUSTechnologyinChina,whichsetgoalsforreducingthecostandenergyconsumptionofcarboncaptureby10percentto15percentin2030andby40percentto50percentby2040.The14thFive-YearPlan(2021–25)highlightedtheroleofCCUSinlow-carbondevelopmentandcalledforimplementingnear-zeroemissionsCCUSdemonstrationprojects.Indonesia•Indonesia’s2011NationalActionPlanonClimateChangerecognizedthatCCUScouldcontributeupto40percentoftheenergysector’stargetemissionreductions.ThegovernmentispreparingdraftregulationstoaccelerateimplementationofCCSandCCUSprojectsintheoilandgasarea.•In2017,theMinistryofEnergyandMineralResourcesopenedtheNationalCenterofExcellenceforCCSandCCUS,whichactsasaknowledgehubandfundingfacilitator.Japan•In2021,theMinistryofEconomy,Trade,andIndustry(METI)launchedtheAsiaCCUSNetwork,aninternationalindustry-academia-governmentplatformaimedatknowledgesharingandimprovementofthebusinessenvironmentforutilizationofCCUSinAsia.METIhasdraftedalong-termCCSroadmaptostore120–240milliontonsofcarbondioxideayearby2050.ItplanstocreatealegalframeworkforCCStoenablecompaniestostorecarbondioxideundergroundorundertheseabedby2030.•JapaneseoilrefinerEneosHoldingsandutilityJ-Powerplantolaunchthecountry’sfirstpermanentCCSoperationbytheendofthisdecade.Korea•TheNationalCCSComprehensivePlanwasestablishedinJuly2011andsubsequentlyupdatedasKoreaCCS2020topromotethedevelopmentanduseofCCStechnology.TheMinistryofScienceandICTlaunchedtheKoreanCO2StorageEnvironmentalManagementResearchCenterinApril2011.•SixKoreanenergycompanieshavesignedanagreementwithMalaysia’sPetronasforacross-borderprojecttotransportcarboncapturedinKoreatoMalaysiaforstorage.Malaysia•Malaysia’sstate-ownedoilandgascompany,Petronas,isleadingeffortstoimplementCCUS.Singapore•Singapore’sLong-TermLowEmissionsDevelopmentStrategy2020citestheneedtoadoptadvancedlow-carbontechnologieslikeCCUStofacilitateitstransition.Thegovernmentisexploringpartnershipswithcompaniesandothercountrieswithsuitablegeologicalformationstoenablecarbondioxidestorageopportunitiesandcarbonrecyclingpathways.•In2020,thegovernmentestablishedtheLow-CarbonEnergyResearchFundingInitiativetosupportresearch,development,anddemonstrationprojectsinlow-carbonenergytechnologiessuchasCCUS.Singaporeisaimingtorealizeatleast2milliontonsofcarboncapturepotentialby2030aspartofaplantomakeitsJurongIslandoilrefineryhubmoresustainable.Thailand•Thailand'sstate-ownedoilandgasgroupPTTisleadingeffortstoimplementCCUS.In2022,PTTGroup,togetherwithnationaleducational,government,andprivatesectorpartners,establishedtheThailandCCUSTechnologyDevelopmentConsortiumtodevelopeffectivetechnologyprototypes.EconomyCCSReadiness(overall)InterestStoragePolicyLegalUnitedStates7282964973Canada7148984175Leaderaverage7265974574China5386874032Japan5039713941Korea3638452043Malaysia314046939Indonesia305652434Vietnam294856328Philippines222435229Thailand224139424Memoitems:Brunei–12410–HongKong–––––Cambodia–––3–LaoPDR––18––Myanmar–8131–Singapore–15012–110ASEAN+3RegionalEconomicOutlook2023CarbonOffsets“Explorecarbonsinks.Netzeroisnotgrosszero.”RicardoHausmannHarvardKennedySchoolProfessorDecember2022CarbonoffsettingreferstoreductionsinGHGemissionsthatcompensateforGHGsgeneratedelsewhere.AcarbonoffsettypicallyrepresentsonetonofcarbondioxideoritsGHG-equivalentreducedthroughaprojectthatavoidsactivitiescontributingtoGHGemissions(e.g.,deforestationandlanduseconversion)oraprojectthatremovesGHGsfromtheatmosphere(e.g.,throughafforestation/reforestationorcarbonsequestration).Itisawayto“undo”emissionsthatareconsideredtobenotabatablegiventhecurrentcapabilitiesoftechnology.Carbonoffsetscanbeboughtandsoldbygeneratingcarboncredits—tradeableinstrumentsthatrepresentownershipof(ortherighttoemit)aunitofemissionsthattypicallyisonetonofcarbondioxideequivalent.Theemissionreductionofacarbon-offsetcreditmustbeverifiedbyanindependentthirdparty;theGoldStandardandVerra,forexample,aretwointernationallyrecognizedstandard-setters.Tradeincarbon-offsetcreditstakesplaceinthreemaintypesofmarkets,aswellasunderbilateralandmultilateralresults-basedagreements.•Domesticcompliancemarkets—wherecompaniestradedomesticcarbon-offsetcreditstomeetpartoftheirlegalobligationsunderacap-and-tradeemissionssystem—areoperationalinmostETSs,includingthoseinChina,Japan,andKorea(Box2.3).45•Internationalcompliancemarkets—wheregovernmentsorcompaniestradecarbon-offsetcreditsinternationallytomeetcommitmentstoemissionreduction—arestillintheearlystages.Demandinthesemarketsstemsmainlyfromtheairlineindustry’scompliancerequirementsunderthecarbonoffsettingandreductionmechanismoftheInternationalCivilAviationOrganization(ICAO).46AnothersourceofdemandmayarisefromnationalgovernmentstradingemissioncreditstosatisfytheirNationallyDeterminedContributionstoclimatechangemitigationunderArticle6oftheParisAgreement.Japanhasbeencooperatingwithseveralcountries,includingCambodia,Indonesia,LaoPDR,Myanmar,thePhilippines,Thailand,andVietnam,todevelopcarbonoffsetprojectsundertheJointCreditingMechanism,whichcanpavethewayforauthorizationas“internationallytransferredmitigationoutcomes”undertheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)(Box2.8).47•Voluntarycarbonmarkets—wherecompaniesandindividualspurchasecarbonoffsetstocomplywiththeirownvoluntarycommitments—areafast-growingsegmentoftheglobalcarbonoffsetmarket.Althoughthevalueofthesemarketsisstillsmall,demandisrisingasmorecompaniesvoluntarilyadoptinternalclimatechangegoalsaspartoftheircorporatesocialresponsibilityorpublicrelationsstrategy(SectionIV).•Results-basedclimatefinance—whichgenerallyreferstopaymentsmadebyinternationalfunderstodevelopingcountriesforachievingclimate-relatedresultssuchasreductionsinemissions—isafinancingmodalitythatcanbeusedforthepurposeofcarbonoffsetting.Oneofthemorewidelyknownresults-basedcarbonoffsettingprogramsistheUNFCCC’sReducingEmissionsfromDeforestationandForestDegradationinDevelopingCountries(REDD+)mechanism,whichallowsinternationaldevelopmentpartnersorprivatecompaniestomakepaymentsto—i.e.,purchasecarbon-offsetcreditsfrom—developingcountriesafterthelatter’scompletionofactionstoconserveandenhancecarbonsinksandreservoirsintheforestrysector.Giventhat15percentoftheworld’stropicalforestsareinSoutheastAsia,whichhasthehighestrateofdeforestationintheworld,ASEANcountriescouldstandtobenefitfromparticipatinginREDD+(Box2.9).45/Offsetsinacap-and-tradesystemareintendedtoincreaseflexibilityfor—andsoreducetheoverallcostof—compliance.However,oneconcernisthatallowingcappedentitiestouseoffsetsinsteadofrequiringallreductionstocomefromtheirownfacilitiescanshiftordiverteffortfromcappedsectors.Hence,theuseofoffsetcreditsisrestrictedinmostETSs.Forexample,regulatedentitiescanonlyuseoffsetsforupto5percentoftheircomplianceobligationsinthenationalETSsinChinaandKorea(Box2.3).46/TheICAO’sCarbonOffsettingandReductionSchemeforInternationalAviation(CORSIA)reliesonuseofemissionunitsfromthecarbonmarkettooffsetcarbondioxideemissionsthatcannotbereducedthroughtechnologicalandoperationalimprovementsandsustainableaviationfuels.CORSIAisbeingimplementedinthreephases:apilotphase(2021–23),afirstphase(2024–26),andasecondphase(2027–35).Morethan100economieswillparticipateinthepilotphase,includingASEAN+3economies:Cambodia,Indonesia,Japan,Korea,Malaysia,thePhilippines,Singapore,andThailand.47/TheJointCreditingMechanismisaproject-basedbilateraloffsetcreditingmechanismlaunchedbyJapanin2013tofacilitatethemitigationofGHGemissionsthroughthediffusionoflow-carbontechnologies,products,systems,services,andinfrastructure.Chapter2.OntheRoadtoNetZero111Carbonmarkets,particularlythevoluntarysegment,holdsignificantpromisefortheASEAN+3region.Bain&CompanyestimatesthatcarbonoffsetsinSoutheastAsiacouldgenerateuptoUSD10billionayearinfinancialopportunitiesby2030(Hardcastle,Kulkarni,andLichtenau2021).Thesebenefitsaccruetoavarietyofparticipants,rangingfromprojectdevelopersandfinancerstoauditorsandbrokers(Figure2.61).Forthehosteconomy,proceedsfromthesaleofcarbonoffsetscanbeusedtofosterinvestmentinlow-carbonprojectsandpromoteinnovationingreentechnology.Growingcarbonmarketsalsoencouragejobcreationinfinanceandotherprofessionalservicesectors,suchasauditing,consulting,andlegaladvisory.Moreover,ascarbonoffsetsbecomemorewidespread,sodoestheirroleincreatingfinancialinstruments(e.g.,derivativesstructuredaroundcarbon-offsetcredits),contributingtofinancialmarketdevelopmentatlarge.TheASEAN+3regionhassignificantpotentialtogeneratecarbonoffsetprojects.AccordingtointernationaladvisorycompanyClimateFocus,Chinaistheworld’ssecond-largestsupplierofvoluntarycarbonoffsets,mostlyasrenewableenergy(particularlywindpower)projects.Indonesiaistheworld’sfifth-largestsupplierandCambodiatheeighth—largelyonaccountofbothhavingprojectsthatavoiddeforestationandland-useconversion(ClimateFocus2022)(Figure2.62).Singaporeisembarkingonafive-yearresearcheffort,CarbonIntegritySG,toidentifynature-basedprojectsinSoutheastAsiathatcanbedevelopedaspotentialsourcesofcarboncredits(Wong2022).Malaysia’snewlyopenedvoluntarycarbonmarketexchangeaimstosupportthedevelopmentofdomesticcarboncreditprojectsthatcanbepurchasedbydomesticcompaniestooffsettheiremissions.Figure2.61.TheCarbonOffsetCreditEcosystemKeyactorsSource:AMROstaff,adaptedfromPaiaConsulting(2021).Source:ClimateFocus(2022);andAMROstaffcalculations.Note:Excludesnonretiredvoluntaryoffsetcreditsfrominternationalprojectsthatarenotassignedtoanycountryinparticular.BR=Brazil;CD=DemocraticRepublicofCongo;CN=China;ID=Indonesia;IN=India;KE=Kenya;KH=Cambodia;KR=Korea;LA=LaoPDR;MM=Myanmar;MY=Malaysia;PE=Peru;PH=Philippines;SG=Singapore;TH=Thailand;TR=Turkey;US=UnitedStates;VN=Vietnam.Figure2.62.ASEAN+3andSelectedEconomies:NonretiredVoluntaryCarbonOffsetCredits,byHostEconomy,March2023(Megatonsofcarbondioxideequivalent)0306090120150INCNUSBRTRIDPEKHCDKE02468THVNKRSGLAPHMMMYTop10CarbonoffsetsprojectsCarbonoffsetprograms•Setstandardsforcarboncreditquality•Certifyandissuecarboncredits•Keepregistrytotrackcertifiedcreditprojects,creditissuance,andretirementCarbonexchanges•Whereverifiedcreditsarelisted,bought,andsoldInvestors•SponsorandfinancecreditprojectsProjectdevelopers•Designcarbonoffsetprojectsinconsultationwithstakeholders•SellcarboncreditstobuyersThird-partyauditors•Independentlyvetemissionreductionpotentialbeforeprojectsareregistered•RegularlyvetemissionreductionsofprojectsoncetheyarerunningCreditbuyers•BuycarboncreditstooffsettheirownemissionsoremissionsintheirvaluechainsKeyplatformsKeyplatforms112ASEAN+3RegionalEconomicOutlook2023Theregionisalsobecomingasubstantialsourceofdemandforvoluntarycarbonoffsetsasmorecompaniesadoptcarbon-reductiontargets.Outofsome3,400companiesthathavesigneduptotheScience-BasedTargetsInitiative—amultilateralpartnershipthathelpscompaniesmeetemission-reductiontargets—about500areinASEAN+3.Moreover,theregion’sdemandispoisedtoexpandasmoremultinationalsrequiretheirAsia-basedsupplychainstofollowstricterenvironmentalstandards.48Thailand’sstate-ownedelectricitygenerator,togetherwith10ofthecountry’slargestenergy-sectorcompanies,setupavoluntaryemissionoffsetprogramin2021wherememberscouldtradecarboncredits(Thanthong-Knight2021).SingaporeandHongKong,askeyinternationalfinancialcenters,arewellplacedtobecomeregionalandglobaltradinghubsforvoluntarycarbonoffsets.•Singaporehastwointernationalexchangestradingvoluntarycarboncredits.Thefirst,AirCarbonExchange(ACX),wasestablishedin2019withgovernmentsupport.ACXbeganbyofferingtradingopportunitiesfocusedonairlines,andhasgrowntomorethan160clientsincludingfinancialinstitutions,projectdevelopers,andotherkeyindustryplayers.Thesecond,ClimateImpactX(CIX),wasborneoutofaprivate-publicpartnershipin2021.CIX’sinitialfocusisoncarboncreditsgeneratedfromprojectsrelatedtotheprotection,management,andrestorationofnaturalecosystemsandbiodiversity.Byearly2023,theexchangeexpectstoseecarboncreditstradedonalargerscaleunderstandardizedcontractsamongmultinationalcompanies,institutionalinvestors,andfinancialfirms(Nomura2022).•InOctober2022,HongKong’sstockexchangelaunchedanewplatform,CoreClimate,aninternationalcarbonmarketplacefortradingcarboncreditsandotherinstrumentstosupporttheglobaltransitiontonetzero.Participantswillbeabletousetheplatformtosource,hold,trade,settle,andretirevoluntarycarboncreditsfrominternationallycertifiedcarbonprojectsaroundtheworld.Afewchallengesneedtoberesolvedfortheregiontobenefitmorefullyfromcarbon-offsettrading.First,carbonoffsetcreditssoldinvoluntarycarbonmarketstodaycanbeverifiedbyanyindependentcertificationbodywithminimal(onsite)monitoringbythirdparties.Assuch,substantialvariationinthequalityofavailablecarboncreditshasledtolowtrustamongbuyersandinvestors.49Second,mostoffsettransactionsintheregionaredonethroughbrokersordirectlywithdevelopers,withwidevarianceinmarginsandlittlecorrelationwithquality.Carboncredittradingexchangescantacklethisproblembystandardizingmargins,increasingmarketefficiencies,improvingaccesstohigh-qualityoffsetcredits,andestablishingaderivativesmarkettoimproveliquidity.Lastly,keyregionalchallengesincludeinconsistentgovernmentsupportandpoliciesandunresolvedissuesaroundArticle6oftheParisAgreementandtheinternationallegitimacyofoffsets(Box2.8).Overcomingthesechallengeswillbenefiteconomiesintheregionthathavepotentialfordevelopingcarbonoffsetprojects(e.g.,CambodiaandIndonesia)andeconomieswithpotentialtobecomeregionalorglobalcarbontradinghubs(e.g.,HongKongandSingapore).48/Forexample,in2020,TeslarequiredKorea’sLGChemtosubmitcarbonemissionsdatafromitsbatteryproduction(Lee2020).49/Ingeneral,highqualitycarbonoffsetcreditsmustbeassociatedwithGHGreductionsorremovalsthatare:additional;notoverestimated;permanent;notclaimedbyanotherentity;andnotassociatedwithsignificantsocialorenvironmentalharms(Broekhoffandothers2019).113Chapter2.OntheRoadtoNetZeroBox2.8:CarbonOffsets:FromKyototoParisThe1997KyotoProtocoltotheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)establishedacap-and-tradesystemthatimposednationalcapsonthegreenhousegas(GHG)emissionsofadvancedeconomies.Countriescouldmeettheirtargetsbyreducingtheirownemissions,tradingemissionallowances,orpurchasingcarbonoffsetcredits.Togenerateoffsetcredits,theCleanDevelopmentMechanism(CDM)wasestablishedforoffsetprojectsincountrieswithoutbindingemissioncommitmentsundertheKyotoProtocol.CreditsearnedbyCDMoffsetprojects—called“certifiedemissionreductions”(CERs)—couldbeusedtocoverpartofthepurchasingcountries’emission-reductionobligations.Inall,morethan8,000projectsin111countries(includingCambodia,China,Indonesia,Korea,LaoPDR,Malaysia,Myanmar,thePhilippines,Singapore,Thailand,andVietnam)wereregisteredtosellCERsfromvariousventuressuchaswindpowerdevelopment,busrapidtransitschemes,andthedistributionofmoreefficientcookstoves.TheParisAgreement,whichreplacedtheKyotoProtocolin2015,requiresallcountriestosetemission-reductionpledges,withArticle6providingprinciplesfor“voluntarycooperation”toreachtheirclimatetargets.Articles6.2and6.4definetheframeworkfortheinternationalcompliancecarbonmarketagreedatthe26thUnitedNationsClimateChangeConferenceoftheParties(COP26)inGlasgowin2021.•Article6.2allowscountriestotradeemissionreductionsandremovalswithoneanotherthroughbilateralormultilateralagreements.Thesetradedcreditsarecalled“internationallytransferredmitigationoutcomes”(ITMOs).Theycanbemeasuredincarbondioxideequivalentorothermetrics,suchaskilowatt-hoursofrenewableenergy.•Article6.4willcreateaglobalcarbonmarketoverseenbyaCOP-designatedsupervisorybody.Projectdeveloperswillrequesttoregistertheirprojectswiththesupervisorybody.AprojectmustbeapprovedbyboththecountrywhereitisimplementedandthesupervisorybodybeforeitcanstartissuingUN-recognizedcredits.Thesecredits,knownas“Article6,paragraph4,emissionreductions”(A6.4ERs),canbeboughtbycountries,companies,orevenindividuals.ITMOscanalreadybetradedbetweencountries,intheory.CountriessuchasJapanandSwitzerlandhaveconcreteprojectsinplacetobuysuchcreditsandcountthemtowardtheirNationallyDeterminedContributions.However,itistypicallyalengthyprocessforcountriestoconcludetheseagreements,soitmaystillbesometimebeforeITMOsarewidelytraded.ItwilllikelytakeafewyearsbeforeA6.4ERscanbeissuedandtraded.Detailedrulesstillneedtobeworkedout,suchasrulestogovernhowprojectswillbeassessedbeforebeingregisteredandhowemissionreductionswillbemeasured,amongothers.Meanwhile,theCDMwillcontinueforatransitionalperiodwhileitsunderlyinginfrastructureandremainingfundswilllargelyberepurposedforthefutureArticle6.4mechanism.ThisboxwaswrittenbyLingHuiTan.114ASEAN+3RegionalEconomicOutlook2023Box2.9:MonetizingASEAN'sForestsTheReducingEmissionsfromDeforestationandForestDegradation(REDD+)schemeisamechanismthatcreatesfinancialvalueforthecarbonstoredinforestsbyofferingresults-basedpaymentstodevelopingeconomiesforactionstoreduceorremoveforestcarbonemissions.SupportforREDD+implementationcomesfromdonorcountries,includingtheEuropeanUnion,Japan,andNorway,andmultilateralinitiativesincludingtheGreenClimateFundandtheWorldBank’sForestCarbonPartnershipFacility(FCPF).Developingeconomiesneedtomeetahostofrequirementstoqualifyforresults-basedpaymentsforREDD+activities.Theseinclude:havinganationalstrategyoractionplanaddressingthedriversofdeforestationandforestdegradation,landtenureissues,forestgovernanceissues,genderconsiderations,andsoon;asafeguardsinformationsystemtosupporttherightsofindigenouspeoplesandlocalcommunities;anationalforestmonitoringsystemprovidingreliabledataonforestareasandtheirchanges;andasystemformeasuring,reporting,andverifyingresults-basedactions.Meetingtheserequirementstakesmanyyears—uptoadecadeinmanycases.SevenASEANcountriesareparticipatinginREDD+.•VietnamwasthefirstAsiancountrytoreacheligibilityforREDD+results-basedpaymentsin2018,butitwillbesometimebeforepaymentsmaterialize.InOctober2020,VietnamsignedanagreementwiththeWorldBank’sFCPF,unlockinguptoUSD51.5millioninexchangeforreducing10.3milliontonsofcarbondioxideequivalent(MtCO2e)ofemissionsfromsixNorthCentralRegionprovincesthrough2025(WorldBank2020a).•Indonesiareceiveditsfirstresults-basedpaymentofUSD103.8millioninAugust2020fromtheGreenClimateFund,inrecognitionofhavingavoided20.3MtCO2eofemissionsin2014–16.FurtherpaymentsofuptoUSD110millioncouldbeforthcomingfromaNovember2020programwiththeFCPFtoreduce22MtCO2eofemissionsinEastKalimantanthrough2025(WorldBank2020b).ButIndonesia’sREDD+partnershipshavenotallbeensmooth.InSeptember2021,itterminatedalongstandingagreementwithNorway—underwhichitstoodtoreceiveUSD1billionforslowingemissionsfromdeforestation—aftertransferofthefirstpaymentwasstalledformorethantwoyears(Reuters2021b).•LaoPDRcompleteditsREDD+readinesspreparationsandsignedanagreementwiththeFCPFinDecember2020foritsfirstjurisdictionalprogram.Undertheagreement,whichrunsto2025,LaoPDRwillreceiveuptoUSD42millionforverifiedreductionsofupto8.4MtCO2eofemissionsinthenorthofthecountry(WorldBank2021).•CambodiahasembarkedonfiveREDD+projectstodateandhasearnedmorethanUSD12millionsellingcarboncreditsfromtheseprojectstomajorinternationalcompanies(KhmerTimes2022).However,ithasnotaccessedREDD+results-basedfinanceatthenationalscale.CambodiahasannounceditsintentiontopursuemultiplefinancingopportunitiesforREDD+implementationatdifferentscales—thegovernmenthasincreasedthesizeofprotectedareasto41percentofthecountry’stotalarea,including72separatenationalparks,wildlifesanctuaries,multiuseareas,naturalheritagesites,andbiodiversitycorridors(Kimmarita2022).•Malaysia,Myanmar,andThailandareintheprocessofqualifyingforREDD+results-basedpayments.ThisboxwaswrittenbyJadeVichyanond.Chapter2.OntheRoadtoNetZero115ThetransitiontonetzeroGHGemissionsrequiressignificantchangesbygovernments,businesses,andhouseholds—andanunprecedentedamountofinvestment.Whileestimatesvary,mostsuggestthatoveratrilliondollarsinadditionalinvestmentannuallyfordecadeswillbeneededtosupportthegreentransitioninemergingmarketanddevelopingeconomies.AccordingtotheIMF,theworldwouldneedaboutUSD3.3trillioninenergy-relatedinvestmentsayearuntil2030toachievenetzeroby2050(Georgieva2022).Privatecapitalwillhavetocontributethelion’sshareofneededinvestments.Intheory,privatecapitalshouldbeattractedintogreenindustrieswhenitismoreprofitabletoinvestincleanenergyandgreentechnologiesthaninfossilfuelsandthetechnologiesthatrelyonthem—andthereforemarketforcesshoulddrivethegreentransitionontheirown.Inpractice,however,thismaynothappenbecausetherisk-adjustedprivatereturnoninvestmentof“brown”(highemissions)projectsisstillrelativelyhighwhilethatofgreen(loworzeroemissions)projectsisstilllow;andinvestors,businesses,andconsumershaveinsufficientinformationtomakethedecisionsthatwouldfacilitatethegreentransition.Financialmarketsareincreasinglyadoptingproducts,tools,andpracticestofacilitatethegreentransitionbyimprovinginformationflow,pricediscovery,marketefficiency,andliquidity.Thisisgivinginvestorsdatatoswitchfrommarketportfolioswithsignificantexposuretofossilfuelsintolower-carboninvestmentsand/orcompaniesthatimplementcarbonneutrality.Sustainablefinanceisthepracticeofintegratingenvironmental,social,andgovernance(ESG)criteriaintofinancialservicestobringaboutsustainabledevelopmentoutcomes(MAS2022).ESGfactorsIV.(How)CanFinancePavetheWay?Figure2.63.ESG-LabeledBondsSustainabilitybondsSocialbondsSustainability-linkedbondsGreenbondsTransitionbonds•Proceedsareusedforprojectsoractivitieswithenvironmentalandsocialbenefits.IncludesSustainableDevelopmentGoalsbonds.•Proceedsareusedforprojectsandactivitieswithdedicatedsocialbenefits.IncludesCOVID-19-responsebonds,affordablehousingbonds.•Proceedsareusedforgeneralpurposesandnottiedtospecificprojects.Couponlinkedtoentity-levelsustainabilityperformanceindicators.•Proceedsareusedforprojectsandactivitieswithdedicatedenvironmentalbenefits.•Proceedsareusedtofundgreentransitionattheactivityorentitylevel.Source:ClimateBondsInitiative;AMROstaff.50/FundsareclassifiedbyBloombergtobeESGfundsiftheirprospectusindicatesthattheyinvestinoneormoreESGactivities.coverabroadrangeofissues,includingclimatechangeandthelow-carbontransitionunderthe“environmental”pillar.ESGinvestingconsidersthesenonfinancialfactorsalongsidetraditionalfinancialfactorsintheinvestmentdecision-makingprocess.ESGissuesarefastbecomingakeyfactorininvestmentportfolioallocationandmanagement.•TotalassetsinvestedinESGfunds(comprisingmutualfundsandexchange-tradedfunds)globallymorethandoubledinaspanoftwoyearstoreachnearlyUSD10trillionin2021,basedondatacompiledbyBloomberg.50EuropeandtheUnitedStatesaremajorinvestmentdestinations,whileESGfundsdedicatedtoASEAN+3economies,eitherindividuallyorregionally(e.g.,GreaterChinaorASEAN),accountfor3percentoftotalassets,predominantlygoingtoChinaandJapan.•Themarketforso-calledlabeledbonds—bondsthathavespecificESGorsustainabilityobjectives—hasalsoboomed.ESG-labeledbondsincludeproject-basedbondssuchasgreenbonds,sustainabilitybonds,socialbonds,andtransitionbonds,aswellassustainability-linkedbondsthatarenotassociatedwithaprojectbutinsteadtargetfirmwidekeyperformanceindicators(Figure2.63).Europeisthemainsourceoflabeledbonds,followedbyASEAN+3andNorthAmerica(Figure2.64).AmongASEAN+3economies,Chinaaccountedforhalfofannuallabeledbondvolumesin2021–22,followedbyKoreaandJapan,whichtogetheraccountedfornearly40percent(Figure2.65).Therestofthissectionfocusesonaspectsofsustainablefinancethatpertaintoclimatechangemitigationintheregion.116ASEAN+3RegionalEconomicOutlook2023Source:BloombergL.P.;AMROstaffcalculations.Note:Dataincludeissuancesofgreenbonds,socialbonds,sustainabilitybonds,sustainability-linkedbonds,andtransitionbonds.Availabledataupto27December2022.Source:AsianBondsOnline,AsianDevelopmentBank;AMROstaffcalculations.Note:Dataincludegreenbonds,socialbonds,sustainabiltybonds,sustainability-linkedbonds,andtransitionbonds.51/China’sdomesticgreentaxonomy,theGreenBondEndorsedProjectsCatalogue(2021Edition)fromthePBC,setsthecriteriaforeligiblegreenprojects.Figure2.64.World:AnnualIssuanceofLabeledBonds,byRegion(BillionsofUSdollars)Figure2.65.ASEAN+3:AnnualIssuanceofLabeledBonds,byJurisdiction(BillionsofUSdollars)02505007501,000201420152016201720182019202020212022ASEAN+3RestoftheworldOtherAsiaEuropeNorthAmericaSouthAmericaAfrica075150225300201620172018201920202021Q1–Q32022ChinaHongKongIndonesiaJapanKoreaMalaysiaPhilippinesSingaporeThailandVietnamGreenFinance“Weneedanenergytransformationonthescaleoftheindustrialrevolutionatthespeedofthedigitaltransformation.Andtherefore,weneedarevolutioninfinance.”MarkCarneyUnitedNationsSpecialEnvoyonClimateActionandFinanceJuly2022Greenfinanceproductsaredebtandequityinstrumentsissuedbypublicorprivateactorsthatdirecttheirinvestmentcapitaltowardmitigatingoradaptingtoclimatechange.Thefirstgreenfinanceproductwasaclimate-awarenessbondissuedbytheEuropeanInvestmentBankin2007.Sincethen,theglobalmarkethasgrownrapidly.Greenbondsrepresentthelargestsegmentofthesustainablefinancemarket:globalissuanceofgreenbondsexceededUSD600billionin2021,saleshavingdoubledinoneyear,andthemarkethasgrownatacompoundannualrateofabout60percentinthepastfiveyears(Chandhokandothers2022).Atpresent,thereisnocommonregionalorglobaldefinitionof“green.”TwogloballyrecognizedprinciplesandstandardsforgreenbondsaretheGreenBondPrinciplesdevelopedbytheInternationalCapitalMarketAssociation(ICMA)andtheClimateBondsStandardbytheClimateBondsInitiative(CBI).Intheregion,theASEANGreenBondStandards,developedtogetherwiththeICMAandbasedonitsGreenBondPrinciples,providemorespecificguidanceonhowtheprinciplesaretobeappliedacrossASEANinorderforbondstobelabeledasASEANGreenBonds(ACMF2018).IssuersofgreenfinancialproductsinASEAN+3typicallydeveloptheirownframeworksbasedonsuchprinciplesandstandards(Table2.10).Chinahasthesecond-largestgreenbondmarketintheworldaftertheUnitedStates.Chinawastheworld’smostprolificissuerofgreenbonds—byvolume,issuance,andnumberofissuers—inthefirsthalfof2022(ChenandZhang2022).Bytheendoftheyear,2,178greenbondshadbeenissued,withatotalbalanceofCNY1.5trillion(USD215billion).Thecountry’scentral,provincial,andlocalgovernments,financialregulators,andstockexchangeshaveplayedkeyrolesindeepeningandsupportingthegrowthofthegreenfinancemarket.ThegovernmentlauncheditsGreenCreditPolicyin2007,encouragingbankstolendmoretoclimate-friendlyprojectsandlesstohighlypollutingones.By2011,twoofChina’smajorbanks,ChinaDevelopmentBankandIndustrialandCommercialBankofChina,hadbuiltacombinedgreencreditloanportfolioofnearlyUSD200billioninareaslikewastetreatment,renewableenergy,andpollutioncontrol(IFC2012).In2016,thePeople’sBankofChina(PBC)becamethefirstcentralbanktoissueguidelinesforestablishingagreenfinancialsystem.ThiswasfollowedbyguidelinesforsupportinggreenbonddevelopmentbytheChinaSecuritiesRegulatoryCommissionin2017,greeninvestmentguidelinesbytheAssetManagementAssociationofChinain2018,greenfinancedisclosurestandardsbythePBCin2021,andnewprinciplesforgreenbondissuancebytheChinaGreenBondStandardCommitteeinJuly2022.51Chapter2.OntheRoadtoNetZero117OtherASEAN+3governments,centralbanks,andregulatoryauthoritieshavealsodevelopedgreenbondmarkets.AccordingtotheCBI,ASEAN+3economieshavecollectivelyissuedmorethanUSD350billioningreenbondsinthepastfiveandahalfyears,accountingforover20percentofgreenbondsissuedglobally(Figure2.66).Somefirmsintheregionhaveissuedgreendebt(e.g.,financialinstitutions,powercompanies,andrealestatecompanies),whileHongKong,Indonesia,Korea,andSingaporehavesoldgreensovereignbonds(Table2.10).Nevertheless,thefinancinggapisstillhuge.ASEAN+3financeministriesandcentralbankshaveakeyroletoplayincontinuingtobuildanddevelopthegreenfinancemarkettoensurethatsufficientfinancingcanberaisedtoexpeditethetransitiontoalow-carboneconomy.Notablepolicymeasuresintheregionincludeofferinglow-costfundingforgreenprojects,bothdirectly(e.g.,China’sNationalGreenDevelopmentFundandJapan’sGreenInnovationFund)andindirectly(e.g.,thePBC’sCarbonEmissionReductionFacilityandBankNegaraMalaysia’sLowCarbonTransitionFacility),aswellassubsidiesorgrantstocoverreviewandverificationcostsforissuinggreenbonds—e.g.,HongKong,Japan,Malaysia,andSingapore(Table2.11).Figure2.66.ASEAN+3:GreenBondIssuanceAmountIssued(BillionsofUSdollars;percentofglobalamountissued)NumberofDeals(Count;percentofglobaldeals)0204005010015020142015201620172018201920202021H120220204005010015020142015201620172018201920202021H12022CNHKIDJPKRMYPHSGTHVNASEAN+3(rightaxis)02040030060020142015201620172018201920202021H1202202040030060020142015201620172018201920202021H12022Source:ClimateBondsInitiativeGreenBondDatabase.Note:ClimateBondsInitiativescreensself-labeleddebtinstrumentstoidentifybondsandsimilardebtinstrumentsas“greenbonds”basedoneligiblesectorsandeligibleuseofproceeds.Thedatabaseincludesonlybondsthatareexpectedtoallocateallnetproceedstoalignedgreenassets,projects,oractivities.CN=China;HK=HongKong;ID=Indonesia;JP=Japan;KR=Korea;MY=Malaysia;PH=Philippines;SG=Singapore;TH=Thailand;VN=Vietnam.118ASEAN+3RegionalEconomicOutlook2023Table2.10.ASEAN+3:GreenBondDevelopmentsSource:ClimateBondsInitiative;AMROstaffcompilationfromvariousmediareports.EconomyGreenFinanceInitiativeCambodia•InOctober2022,thegovernmentagreedinprincipletothelistingofthefirstgreenbondontheCambodiaSecuritiesExchange.Thegreenbond,issuedbyarealestatecompany,hasbeencertifiedascompliantwithASEANstandards.China•China’sfirstgreenbondwasreportedlyissuedbyawindenergyfirminJuly2015.•MajorbanksincludingBankofChinaandChinaConstructionBankissuedgreenbondsin2022undertheCommonGroundTaxonomy-ClimateChangeMitigation,alistofgreenandsustainableeconomicactivitiesrecognizedbyChinaandtheEuropeanUnionfirstpublishedinNovember2021andupdatedinJune2022.HongKong•TheinauguralofferingoftheGovernmentGreenBondProgramwasmadeinMay2019,followedbythreeofferingsin2021includingthefirstofferingofoffshorerenminbigreenbonds.Theprogramraisesfinancingforprojectsthatwillimprovetheenvironmentandfacilitatethetransitiontoalow-carboneconomy,perthegovernment’sGreenBondFramework.•AfewfinancialinstitutionsandcorporationsinHongKonghavealsoissuedgreenbonds.Forinstance,theMTRCorporationthatrunsHongKong’smasstransitrailwayissueditsfirstgreenbondin2016andanewgreenbondin2020.Indonesia•ThefirstsovereigngreensukukwasissuedinMarch2018,withproceedsgoingtoselectedeligiblegreenprojectsbasedontheGreenBondandGreenSukukFramework.Thefifthglobalgreensukukissuedin2022wasthelargestevergreensukuktranchegloballyandthefirstsinceIndonesiapublisheditsSustainableDevelopmentGoalsGovernmentSecuritiesFrameworkinAugust2021.Japan•ThefirstgreenbondwasissuedbytheDevelopmentBankofJapanin2014.In2017,theMinistryoftheEnvironmentpublishedGreenBondGuidelineswiththeobjectiveofspurringissuancesofandinvestmentsingreenbondsinJapan.TheMinistryupdateditsGreenBondGuidelinesin2020and2022,expandingtheirscopetocovergreenloansandsustainability-linkedloans/bonds,provideguidanceonthecriteriafor“green”eligibility,anddevelopalistofeligiblegreenprojects.•TheJapanBankforInternationalCooperation(JBIC)launcheditsfirstgreenbondinJanuary2022.ProceedsfromJBICgreenbonds,whichareguaranteedbythegovernment,areusedtofundexistingorfutureeligibleprojectsinaccordancewiththeJBICGreenBondFrameworkpublishedinOctober2021.Korea•ThefirstgreenbondwasissuedbytheExport-ImportBankofKoreain2013forrenewableenergydevelopment.ThefirstcorporateclimatebondwasissuedbyHyundaiCapitalServicesin2016tofinanceleasesonhybridandelectricvehicles.TheFinanceMinistrysolditsfirst“greenandsustainabilitynote”in2019.TheMinistryofEnvironmentandtheFinancialServicesCommissionpublishedtheKoreanGreenBondGuidelineinDecember2020andsupplementeditayearlaterwiththeK-TaxonomyGuideline,whichprovidesprinciplesandstandardsonthetypesofeconomicactivitiesthatareconsideredgreen.•InOctober2021,KorearaisedEUR700millioninitsfirstgreenbondissuanceintheLondonStockExchange.•InApril2022,ShinhanBankissuedKorea’sfirstgreenbondcertifiedbytheClimateBondsInitiative(CBI).Malaysia•Malaysia’sTadauEnergyissuedtheworld’sfirstgreensukukinJuly2017tofinancelarge-scalesolarphotovoltaicpowerplantsinSabah.ThegreensukukwasissuedundertheSustainableandResponsibleInvestment(SRI)SukukFrameworkdevelopedin2014andaccordingtotheGuidelinesonSRIFundsissuedin2017.Philippines•ThegovernmentraiseditsfirstUS-dollardenominatedgreenbondinMarch2022,followedbyagreensamurai(yen-denominated)bondissuanceinApril.Theproceedsareearmarkedforgreenassetsandprojectsunderthecountry’sSustainableFinanceFramework.•APhilippinegeothermalcompanyissuedthefirstCBI-certifiedclimatebondinAsia-Pacificin2016.Sincethen,otherPhilippinecompanieshavetappedthegreenbondmarket.TheSecuritiesandExchangeCommissionapprovedtheASEANGreenBondsStandardsGuidelinesontheIssuanceofGreenBondsinAugust2018,effectivelyadoptingproceduresforissuancesetoutintheASEANguidelines.Singapore•ThefirstgreenbondbyaSingaporecompanywasissuedbyrealestatecompanyCityDevelopmentsLimitedinApril2017.InSeptember2021,theNationalEnvironmentAgencybecamethefirststatutoryboardtoissueagreenbond,inaccordancewithitsowngreenbondframework.TheHousingandDevelopmentBoardandthePublicUtilitiesBoardhavealsoissuedgreenbondsandpublishedgreenbondframeworks.•SingaporelauncheditsinauguralsovereigngreenbondinAugust2022,followingthepublicationoftheSingaporeGreenBondFrameworktwomonthsearlier.Theso-calledGreenSingaporeGovernmentSecurities(Infrastructure)willbeusedtofinancemajorlong-termgreeninfrastructureprojectsthatqualifyundertheFramework.Thailand•Thegovernmentissueditsfirst“sustainabilitybond”inAugust2020.ThefirstandthirdtranchesofthebondfinancedcleaninfrastructureprojectssuchasconstructionoftheBangkokMassRapidTransitOrangeLine.•AfewfinancialinstitutionsandcorporationsinThailandhavealsoissuedgreenbonds.Forinstance,B.GrimmPowerissuedthefirstCBI-certifiedclimatebondinThailandinDecember2018.Thestate-ownedExport–ImportBankofThailandissueditsfirstgreenbondinaccordancewiththeASEANGreenBondStandardsinSeptember2022.Vietnam•InDecember2018,thegovernmentintroducedalegalframeworkforcorporategreenbondsunderDecree163/2018/ND-CP.ThefirstcertifiedgreenloaninVietnamwasissuedinOctober2020byPhuYenJointStockCompanytodevelopandoperateasolarpowerplantinHoaHoi.Chapter2.OntheRoadtoNetZero119Table2.11.ASEAN+3:GreenFinanceIncentivesandPolicyMeasuresEconomyInitiativeChina•TheCNY88billionNationalGreenDevelopmentFundinvestsingreenprojects,mainlyinnationalstrategicprograms.ThefundwaslaunchedinJuly2020bytheMinistryofFinance,MinistryofEcologyandEnvironment,andShanghaicitygovernment.Ithasbegunmakingitsfirstbatchofinvestments,whichincludefinancingeffortstodecarbonizethesteelsectorandtocleanupErhaiLake.•ThePeople’sBankofChina’sCarbonEmissionReductionFacilityprovideslow-costfundingtofinancialinstitutionstobackloansissuedtofinancecompanies’emissionreductionefforts.Thefirstbatchoflow-costloanswasissuedtofinancialinstitutionsinDecember2021.•Somelocalgovernmentsofferincentivesforgreenfinance.Forexample,HuzhouandShenzhenofferasubsidyofuptoCNY0.5milliontolocalenterprisesthatissuegreenbonds.HongKong•TheHongKongMonetaryAuthority’sGreenandSustainableFinanceGrantSchemeprovidesasubsidyforeligibleborrowerstocovertheirexpensesonbondissuanceandexternalreviewservices.TheschemebeganinMay2021andrunsforthreeyears.Japan•TheMinistryoftheEnvironment’sFinancialSupportProgramforGreenBondIssuanceprovidessubsidiestocoverexpensesforexternalreviewsorconsultationonestablishingagreenbondframework.•TheMinistryofEconomy,TradeandIndustry’sGreenInnovationFundprovides10yearsofsupporttobusiness-leddecarbonizationinitiatives.TheJPY2trillionfund,establishedinMarch2021,targetspriorityareasforwhichactionplanshavebeenformulatedinthegovernment’sGreenGrowthStrategyfor2050.Thefund’sfirstproject,ahydrogen-relatedprojectdevelopingtechnologiesfortransportation,storage,andpowergeneration,startedinAugust2021.•TheBankofJapanhasso-calledFunds-SupplyingOperationstoSupportFinancingforClimateChangeResponses.LaoPDR•InSeptember2022,LaoPDRsignedamemorandumofunderstandingwiththeInternationalFinanceCorporation(IFC)tocreateagreenfinancemarket.Thepartnershipwillstartwithamarketreadinessassessmenttoreviewthecurrentframeworkforgreenfinanceandidentifymarketopportunitiesforpotentialgreenfinancingproducts.Malaysia•TheSustainableandResponsibleInvestment(SRI)SukukandBondSchemehelpstooffsettheexternalreviewcostincurredbygreensukukissuers.TheMYR6millionscheme,introducedin2018astheGreenSukukSRIGrantScheme,hasbenefitedmorethan15issuersinvolvedinrenewableenergy,greenbuilding,andsustainableprojectstodate.Grantrecipientsenjoyincometaxexemptionsupto2025.•Thegovernment’sGreenTechnologyFinancingSchemeprovidesgovernmentguaranteesforworkingcapital,termloanfinancingfacilities,andgreenbond/sukukissuances.TheMYR2billionschemewasopenforapplicationsuntiltheendof2022.•BankNegaraMalaysia’sLowCarbonTransitionFacilityfundscapitalexpenditureorworkingcapitalforsmallandmediumenterprisestoinitiateorfacilitatethetransitiontolow-carbonandsustainableoperation.TheMYR1billionfacilitywaslaunchedinJanuary2022.Singapore•TheMonetaryAuthorityofSingapore’s(MAS’)SustainableBondGrantSchemeoffsetsadditionalexpensesforexternalreviewsofeligiblegreen,social,sustainabilityandsustainability-linkedbondsandpromotestheadoptionofinternationallyacceptedstandards.ThegrantisvalidthroughMay2023.•MAS’GreenandSustainability-LinkedLoanGrantSchemehelpsfirmstoobtaingreenandsustainablefinancingbydefrayingtheexpensesofengagingindependentserviceproviderstovalidatethegreenandsustainabilitycredentialsofaloanandencouragingbankstodevelopgreenandsustainability-linkedloanframeworkstomakesuchfinancingmoreaccessibletosmallandmediumenterprises.ThegrantisvalidthroughDecember2023.Thailand•TheBankofThailandhasissuedguidelinesforbankstotakeaccountofenvironmentalfactorsinthefinancialproductsandservicestheyofferincludingforsmall-andmedium-sizedenterprises.ItisalsoplanningtolaunchThailand’s“greentaxonomy”inthefirsthalfof2023.Vietnam•InApril2021,theStateSecuritiesCommission,incollaborationwiththeIFC,introducedahandbookforcorporateissuersandothermarketplayersinVietnamonhowtoissuegreenbonds,socialbondsandsustainabilitybonds,withguidanceinapplyingtheglobalandASEANstandardsaswellasnationalregulations.Source:ClimateBondsInitiative;AMROstaffcompilationfromvariousmediareports.120ASEAN+3RegionalEconomicOutlook2023TransitionFinance“Toreachnetzero,greeningtheeconomyismoreimportantthangrowingthegreeneconomy.”RaviMenonMonetaryAuthorityofSingaporeManagingDirectorAugust2022Transitionfinanceisgearedtowardhelpinghigh-carbonindustriesimplementlong-termchangestolowertheircarbonemissions.Thetransitionoutoffossilfuelsisnotstraightforwardforhard-to-abateorhigh-carbonsectors,becausethetechnologyisstilllackingoritscostremainsprohibitive(Figure2.67).Thesesectors—aviation,oilandgas,mining,andheavyindustriessuchassteelandcement,tonameafew—wouldneedtoundertakecomplextransformationstoreducetheircarbonemissions,e.g.,byinvestingincarboncaptureandstorage,orbycompletelyredesigningassetsandprocessestobecomemoreenergy-efficient.Whilegreenfinancefocuseslargelyonsupportinggreenactivitiesthatgeneratelowornocarbonemissions,amuchlargeramountoffinancingisrequiredfornon-greenhigh-carbonactivities—whichmakeupthebulkofmosteconomies—toreducetheircarbonfootprint.Theroleoftransitionfinanceistherefore“toprovidethefundingsupportforcompaniesthatarenotsogreen,tobecomegreener”(Menon2022)—theseincludebusinessesthatwouldnotqualifyforgreenfinanceunderthecurrentdefinitions,andthosethatareatriskoflosingtheirfundingsourcesbecauseinvestorpreferenceschange.Intheregion,China,HongKong,andJapanhavetakentheleadinissuingtransitionbonds.TheCastlePeakPowerCompany,whichownsHongKong’slargestcoal-firedpowerstation,issuedtheregion’sfirstenergytransitionbondin2017(HKEX2020).ChineseandJapanesecompanies—mostlyfromtheenergy,heavyindustry,andtransportsectors—enteredthemarketin2020–21,urgedbydomesticpolicymakerstoutilizethisinstrument.Sincethen,outstandingtransitionbondsintheregionhavetripledinvolumefromUSD850millionattheendof2020toUSD5.2billionbythethirdquarterof2022(Figure2.68andFigure2.69).Still,transitionbondsaccountedforonlyabout1percentofoutstandingsustainablebondsintheregion.52Moregrowthmaybetocome:Chinarecentlyrolledoutlow-carbontransitionbondstohelpfunddecarbonizationeffortsineightcarbon-intensiveindustriesandthePBChasindicateditwillexploremoretransitionfinanceinstruments(Reuters2022c;Jiang2022),andJapanaimstoissueaboutJPY20trillionworthofsovereigntransitionbondsoverthenext10years(Reuters2022d).Figure2.67.CarbonPerformanceAlignmentwithParisAgreementBenchmarksin2030,bySector(Percentofcompaniespersector)020406080100OilandgasElectricityandutilitiesAirlinesAutosCementSteelPaperDiversifiedminingAluminumShippingBelow2degrees2degreesParispledges/NotalignedNoorunsuitabledisclosureSource:Dietzandothers(2021).Note:Thecarbonperformanceassessmentcovers292companiesacross10sectors.Companiesareclassifiedaccordingtowhethertheiremissionsintensitiesarealignedwithapathwaytolimitglobalwarmingto2degreesCelsius,orwithamoreambitiouspathwaytolimitglobalwarmingtobelow2degreesCelsius.Companiesassessedasmeetingbenchmarkssetbycountries’firstNationallyDeterminedContributions(from2015)orinternationalcommitments(foraviationandshipping)areconsidered“notaligned”here,asbothbenchmarksareinsufficienttolimitglobalwarmingto2degreesCelsiusorbelow.Ofthe292companiesassessed,16percentprovidedinsufficientdisclosuretocalculatetheircarbonperformance.52/Bycomparison,greenbondscompriseabout70percentofthetotalofsustainablebondsoutstandingintheregion(ADB2022).Chapter2.OntheRoadtoNetZero121Figure2.68.ASEAN+3:OutstandingTransitionBonds(BillionsofUSdollars,endofperiod;shareofoutstandingsustainablebonds)Figure2.69.ASEAN+3:NewIssuancesofTransitionBonds(BillionsofUSdollars)0.450.320.240.310.730.990.00.51.01.50.02.04.06.0Dec-17Dec-18Dec-19Dec-20Dec-21Sep-22JapanChinaHongKongShareofoutstandingsustainablebonds(rightaxis)JPCN0.00.51.01.52.02.5201720202021Q1–Q32022Foreigncurrency-denominatedLocalcurrency-denominatedSource:AsianBondsOnline,AsianDevelopmentBank;AMROstaffcalculations.Source:AsianBondsOnline,AsianDevelopmentBank;AMROstaffcalculations.Note:CN=China;H1=firsthalf;JP=Japan.OtherASEAN+3economiesarenowbeginningtoissueguidelinesandexploreinstrumentsfortransitionfinance.Mostoftheguidelinesandframeworkshaveabroaderpolicyobjectivetoencourageandsupportthedevelopmentofsustainablefinance-relatedinstruments,including—butnotlimitedto—transitionfinancing.A2022surveyofASEAN+3developmentsintransitionfinance—ledbythePeople’sBankofChinawithsupportfromAMRO—indicatesthatsomeeconomiesareexploringtheuseofgovernmentsecuritiesfortransitionfinance,andotherchannelslikeprivateequityandventurecapitaltocatertodifferenttypesofprojectsandneedsandtoprovideinvestorswithmoreoptionsforESG-relatedassets.Somebanksintheregion—notably,Singapore’sDBSBankandUOBBank—nowoffertransitionfinancingintheformofloans.However,manychallengesneedtobeovercome.Attheforefrontisthelackofmarketconsensus,standards,andoverallclarityonwhatconstitutescredibletransitionfinanceandhowtoclassifyitsoperations.Transitionbondsdonotrequiretheissuerortheprojecttobelabeledasgreen.TheICMAcurrentlydoesnotrequireseparatebondprinciplesfortransitionbondsasitdidforgreenbonds,sustainablebonds,andsustainability-linkedbonds—inpartduetothechallengeofdefininghard-to-abatesectorsinawaythatcanbestandardizedglobally(Furness2022).53Asaresult,transitionfinancingmaysufferfrominadequatedisclosurewhichcouldencouragefalsetransitionactivitiesandleadtoinvestorfearsof“greenwashing”or“transition-washing”—asituationwherehigh-carbonborrowersoverstatetheiremission-reductionachievements.Otherbarrierstotransitionfinanceincludepotentialreputationalrisksforlenderssupportingcompaniesthatarebigemittersandthelackofavailabletechnologytoachievedecarbonizationinhard-to-abatesectors(Murdoch2022;MaandTerada-Hagiwara2022).Transitiontaxonomywillbe“thenextmilestoneforsustainablefinance”fortheregion(CBI2022).Theongoingdevelopmentofsustainablefinanceframeworksandtaxonomiesacrosstheregion—especiallyforsustainability-linkedbonds—shouldhelpprovidesomeguidancetoaddressgrayareasassociatedwithtransitionfinance,e.g.,bydelineatingspecifictransitionactivitieswithdescriptionsoftechnicalpathwaysandemission-reductiontargets.Currently,ChinaandJapanhaveguidelinesspecificallyfocusedontransitionfinance.54InSeptember2022,theAsiaTransitionFinanceStudyGroup,aprivateinitiativeof19Asianandglobalcommercialbanks,publishedacompilationofvoluntaryprocessguidelinesforfinancinglow-carbontechnologiesandenergytransitionprojectsinAsia.TheMonetaryAuthorityofSingaporeisdevelopingamultitierASEANtaxonomy.Ultimately,interoperabilityacrossnationaltaxonomies—astheyaredeveloped—wouldhelpfacilitateintraregionaltransitionfinancingflowsintheASEAN+3(Menon2022),particularlyashigh-emittingsectors—suchasironandsteel,cement,andchemicals—arekeyplayersinintra-regionaltrade.53/TheICMAdefinessustainability-linkedbondsas“bondinstrument[s]forwhichthefinancialand/orstructuralcharacteristicscanvarydependingonwhethertheissuerachievespredefinedSustainability/ESGobjectives.”(ICMA2021).Itargues,andsomecommentatorsagree,thattransitionbondsareaformofsustainability-linkedbonds,andaseparate“bondlabel”wouldcauseunnecessaryconfusioninthemarket(Michaelsen2020;Wright2021).54/Japan’sFinancialServicesAgency,MinistryofEconomy,Trade,andIndustry,andMinistryoftheEnvironmentpublishedBasicGuidelinesonClimateTransitionFinanceinMay2021.Chinahasdevelopedatransitionfinancetaxonomyinsomepilotregions(MaandTerada-Hagiwara2022;CBI2022).122ASEAN+3RegionalEconomicOutlook2023Climatechangemitigation,longenvisionedasagradualprocessofreducingGHGemissionsintheworld’smostcarbon-intensiveeconomies,hasnowbecomeanurgentglobalimperative.FortheASEAN+3region,asfortherestoftheworld,theacceleratedtransitiontoacarbon-neutraleconomywillhavemajormacroeconomicimplicationsinthemediumterm.Becauseofthesizeandbreadthofthepolicyeffortsinvolved—subsidies,incentives,governmentexpenditures,taxes,andregulations—andthepaceofthetransformationimplied,themacroeconomicconsequencesofthetransitionarehardtopindown,letalonequantify.Whileputtingaprice—explicitorimplicit—oncarbon(emissions)shouldhelptoaddressthenegativeexternalitiescreatedbyfossilfueluse,itwillalsodriveupthepriceoffossilfuelenergyandcouldpotentiallyaffectexportcompetitiveness,triggeranacceleratedobsolescenceofexistingcapitalstock,andevencrippleeconomicgrowth.Ontheotherhand,thepricingofcarbonshouldstimulateresearchexpenditures,thedevelopmentofnewindustriesandtechnologies,newinfrastructurespending,andthecreationofnewfinancialassets.Theeconomiccostsofmovingawayfromfossilfuelsaresignificantifgoodalternativesarenotreadilyathand.Muchwillthusdependonthespeedofdevelopment,dissemination,andadoptionofnewtechnology,e.g.,cleanenergyoptions,low-carbonindustrialprocessesandtransportation,andcarboncaptureandsequestrationtechnologies.Thesoonerscalable,reliable,andaffordablelow-carbonalternativesbecomeavailable,thelesspainfulandcostlythetransitionfromfossilfuelswouldbe.ASEAN+3economiesareinagoodpositiontomeetthetransitionchallengeandtakeadvantageofemergingopportunities.China—theregion’slargesteconomyingeographicandeconomicsize—istheleaderonalmosteveryfront.Othersarewellplacedtoleveragetheirexistingcomparativeadvantageintechnology(e.g.,JapanandKorea),manufacturing(e.g.,MalaysiaandThailand),naturalresources(e.g.,Indonesia,LaoPDR,andVietnam),andfinancialservices(e.g.,HongKongandSingapore)topropeldecarbonizationeffortsandreapeconomicbenefitsontheroadtonetzero.Mostoftheregion’seconomieswillfindfreshsourcesofcomparativeadvantageintheirnaturalendowmentsofsunlight,wind,water,minerals,flora,andfaunathatwillenablethemtojoinorcreatenewvaluechainsinrenewableenergy,hydrogen,EVs,batteries,andcarbonoffsetcredits.Thosewithsurplusrenewableenergygenerationcapacityand/ormassivecarbonstorageresources,aswellasfirst-moversincleanenergytechnologiessuchashydrogen,willfindnewmarketsandsourcesofgrowthasglobaldemandforthesegoodsandservicesispoisedtosubstantiallyincrease.Macroeconomicandfinancialpolicies—suchaseconomy-widecarbonpricing,providingpublicguaranteesformitigation-relatedloans,speedingupprivate–publicpartnershipsforemergingtechnologyprojects,andpromotingclimatefinancethroughgreencreditpolicies—cancontributetothetransitionbycreatingtherightconditionsandincentivestorealizethesenewdriversofexportsandgrowth.Fiscalandeconomicpolicymakerscanplayarolethroughclimate-informedpublicexpenditureandutilizingclimatefiscaltoolssuchascarbontaxesandETSstobringaboutanorderlytransition.AstheregionemergesfromtheCOVID-19pandemic,astrong“greenpublicinvestment”pushcanlaythefoundationforbothasustainablerecoveryandthetransformationneededforalow-carboneconomy.Ontheotherhand,rebuildingfiscalbuffersdrawndownduringthepandemicisatoppriorityinmosteconomies,whileotherspendingpriorities—suchasforeducationandhealth—alsocompeteforpublicfinancing.Andintroducingorrampingupcarbonpricing—particularlyatratesneededformeaningfulclimatemitigation—isachallengewheninflation(particularlyenergypriceinflation)iselevated.ASEAN+3financeministrieswillneedtofindwaystonavigatethesechallengesandmobilizeprivateandpublicfundingforclimatechangemitigation.Cross-governmentagencycooperationwillbecrucialtoensurethatpublicfinancesandfiscalpolicyfeedintoacrediblelong-termtransitionstrategyfortheeconomy.55Monetaryandfinancialregulatoryauthoritiescanplayarolebyenhancingtheabilityofthefinancialsystemtomobilizefundsforgreenandlow-carboninvestmentswhilemanagingclimate-relatedrisks.Theoretically,greenfinanceshouldachievescaleovertimeaslongastherisk-adjustedreturnfromgreenassetsissufficientlypositive.Inpractice,however,financialsupervisoryandregulatoryauthoritiesneedtomaintaintheintegrityofthegreenfinancemarketbyensuringtransparencyandinformation55/TheseandrelatedissuesarethefocusoftheCoalitionofFinanceMinistersforClimateAction,agroupoffiscalandeconomicpolicymakersfromover75countriesincluding6ASEAN+3economies—Indonesia(co-chair),Japan,Korea,Malaysia,thePhilippines,andSingapore.TheCoalition’sworkprogramfocuseson:(1)howtoalignpoliciesandpracticeswithParisAgreementcommitments;(2)sharingexperiencesandexpertiseonpoliciesandpracticesforclimateaction;(3)carbonpricingmeasures;(4)mainstreamingclimatechangeineconomicpolicies;(5)mobilizingprivatesourcesofclimatefinance;and(6)howtoengageindomesticpreparationandimplementationofNationallyDeterminedContributionstotheParisAgreementgoals.V.SummaryandPolicyImplicationsChapter2.OntheRoadtoNetZero123disclosureandsettingandenforcingstandardstopreventgreenwashing.Centralbanksmaygobeyondthisrolebysubsidizing“green”firmsand/orpenalizing“brown”firms,dependingonthespecificcircumstancesineacheconomy.56Asnoted,someASEAN+3centralbanksarealreadydevelopinggreenbondmarketsandguidingcredittoclimate-mitigationloans.Butasmoreindustriesswitchtolow-emissiontechnologies,“greenflation”willbecomeanissue.Theimbalancebetweenrisingdemandforcleanenergyandtechnologiesandconstrainedsupplyofmineralandotherinputsforthesetechnologiescanbeexpectedtoexertsustainedupwardpressureonthepricesofabroadrangeofproductsduringthetransition.57Thedilemmaformonetarypolicywouldbeeitheracceptingahigherinflationrateforaprolongedperiodorrespondingtothesepricepressureswithhigherinterestratesandriskingslowingdownthegreentransitionandeconomicgrowthatlarge.58Regionallycoordinatedactionwillachieveagreaterimpactthaneconomiesactingalone.Thenetzerotransitionisaraceagainsttime;to“win”thisrace,ASEAN+3needstostrengthenregionalcooperationbasedonasharedvisionforcarbonneutrality.Carbon-neutraldeclarationsbyChina,Japan,andKoreahavehelpedtoproduceavisibleshiftinthedecarbonizationmomentumintheregion.VariousinitiativesareunderwayinASEANbutacollectivelong-termvisionandmitigationstrategyhasyettobeformed(Table2.12).EnhancedcooperationamongtheASEAN+3economieswouldsupporttheregion’sjourneytonetzerothroughsharingknowledgeandtechnologiesandfacilitatingpartnershipprograms.Potentialareasofcooperationincludecross-borderelectricitytransmission,innovationandnewtechnology,andgreenfinancialnetworks.Eachissummarizedinturn.•Energy.Cross-borderpowergridconnectionswouldimprovepowersupplyefficiencyandhelpsecureamoresustainableenergysupplyacrosstheregionbylocatinglarge-scalehydro,wind,andsolarpowerplantsinthemostidealplacesforenergy-generationandenergy-sharingwithothereconomies.TheLaoPDR-Thailand-Malaysia-SingaporePowerIntegrationProject,whichstartedinJune2022,markedamilestoneasthefirstcross-borderelectricitytradeamongfourASEANcountriesandasteptowardrealizingthebroaderASEANPowerGridvisionofexpandingregionalmultilateralelectricitytrading.FurthereffortscouldbedirectedtoaccelerateASEANpowergridintegrationandensurethatitsupportsfuturedevelopmentsinregionalrenewableenergydeployment.•Technology.Technologicalinnovationisimportantforrealizinggreengrowth,butitisexpensive.Regionallytargetedgovernmenteffortsinresearchcouldhelptonurtureinnovativetechnologiesbycreatinganexpandedmarketthatwouldjustifytheinitialhighstart-upcosts.AshighlightedinSectionIII,promisingnewareasincludecleanhydrogen,energystorage,andCCUS.Cleanhydrogendeploymentatscalewillrequiresupplychaindevelopmentattheregionallevel.Energystoragetechnologyiscrucialforthis,aswellastoenabletherolloutandtransport(trade)ofrenewableenergy.CCUStechnologycandramaticallycutcarbonemissionsfromconventionalfossilfueluseandcouldcreatenewbusinessfieldsingreentechnologyacrossASEAN+3.Inthisregard,theregioncoulddrawinspirationfromEUinitiativestodevelopandpromotenewtechnology,suchastheEuropeanCleanHydrogenAlliance,theEuropeanBatteryAlliance,andEuropeanCCSProjectNetwork(Sekine2021).59•Finance.GreenfinancialnetworksarebeginningtohaveincreasedinfluenceonthedirectionofenergydevelopmentintheASEAN+3region.Withthenumberofinvestorsseekinggreenorsustainableinvestmentsgrowingintheregion,itisincreasinglyimportantforASEAN+3policymakers,state-ownedenterprises,andthefinancecommunitytodiscussregionalgreenprojectdevelopments,includingpublic-privatepartnershipframeworksandprojectriskmanagement.Early-stagecoordinationwiththefinancialcommunitycouldhelpinmobilizingfunding,especiallyforinnovative(risky)projects.56/Forexample,theEuropeanCentralBankandtheBankofEnglandaretaskedfirstwithpricestabilityandonlythenwithsupportingthegovernment’swidereconomicstrategy—whichincludesatransitiontonetzero.TheUSFederalReserve,ontheotherhand,ismandatedtofocusonpricestabilityandemploymentandconsidersit“inappropriate…touse[its]monetarypolicyorsupervisorytoolstopromoteagreenereconomyortoachieveotherclimate-basedgoals”(Newburger2023).57/Thisisinadditionto“fossilflation”causedbytherisingpriceoffossilfuelenergy—e.g.,asthecarbonpriceisraised(SectionII)(Schnabel2022).58/TheseandrelatedissuesarethefocusoftheNGFS,agroupofcentralbanksandfinancialsupervisorsfromover85economies,including10ASEAN+3economies—Cambodia,China,HongKong,Indonesia,Japan,Korea,Malaysia,thePhilippines,Singapore(chair),andThailand.TheNGFS’workprogramfocuseson:(1)howtoincorporateclimate-relatedandenvironmentalrisksinsupervisoryframeworksandpractices;(2)climatescenarioanalysis;(3)developingaframeworkforhowcentralbanksshouldassess,andrespondto,diverseclimate-relateddevelopments;(4)issuesandapproachesrelatingtonetzeroincentralbanks’ownoperations;(5)mainstreamingtheconsiderationofnature-relatedrisks;and(6)capacitybuildingandtraining.59/TheEuropeanCleanHydrogenAlliance,whichwassetupin2020,bringstogetherindustry,publicauthorities,civilsociety,andotherstakeholderstodiscussthelarge-scaledeploymentofcleanhydrogentechnologiesandwhatthisrequires.Sixthematicworkinggroupsmeetthroughouttheyearandfocusonthehydrogenvaluechainparts.TheEuropeanBatteryAlliancewaslaunchedin2017tobringtogetherEUnationalauthorities,regions,industryresearchinstitutes,andotherstakeholdersinthebatteryvaluechaintobuilduptheEU’sbatterytechnologyandproductioncapacity.TheEuropeanCCUSProjectsNetwork,whichbuildsonthe2009–18EuropeanCCSDemonstrationProjectNetwork,representsandsupportsmajorindustrialCCSandCCUSprojectsunderwayacrossEurope.AmongitsnotableinitiativesistheNorthernLightsproject,thefirstevercross-border,open-sourcecarbondioxidetransportandstorageinfrastructurenetwork.Whenitstartsoperationsin2024,itwilloffercompaniesacrossEuropetheopportunitytostorecarbonemissionspermanentlydeepundertheseabedinNorway.124ASEAN+3RegionalEconomicOutlook2023Table2.12.ASEAN+3:KeyRegionalCooperationInitiativesonClimateChangeMitigationInitiativeProgramAreasASEANPlanofActionforEnergyCooperation(APAEC)2016–25•ExpandregionalmultilateralelectricitytradingundertheASEANPowerGrid,strengthengridresilienceandmodernization,andpromotecleanandrenewableenergyintegration.•PursuethedevelopmentofacommongasmarketforASEANandenhancegasandliquefiednaturalgasconnectivityandaccessibilitythroughthetrans-ASEANgaspipeline.•Optimizetheroleofcleancoaltechnologyinfacilitatingthetransitiontowardsustainableandloweremissiondevelopment.•Reduceenergyintensityby32percentin2025(from2005levels)andencouragefurtherenergyefficiencyandconservationefforts,especiallyinthetransportandindustrysectors.•IncreasetheshareofrenewableenergyintheASEANenergymixto23percentby2025,anditsshareininstalledpowercapacityto35percentby2025,amongothers.•Advanceenergypolicyandplanningthroughregionalcooperationtoacceleratetheregion’senergytransitionandresilience.•Buildhumanresourcecapabilitiesonnuclearscienceandtechnologyforpowergeneration.ASEANCatalyticGreenFinanceFacility•ProvideASEANmemberswithtechnicalassistancetoidentifyandpreparecommerciallyviablegreeninfrastructureprojects.•FacilitateaccesstooverUSD1billioninloansfromco-financingpartnerstocoverupfrontcapitalinvestmentcosts.ASEAN-JapanClimateActionAgenda2.0•Assistinmembers’long-termstrategyandpolicymaking,includingscenarioformulationandpolicydialogueonmitigation-relatedissues.•Prioritizedecarbonizationofselectedindustriesbyusingfluorocarbons,renewableenergy,waste-recycling,water-air,andgreenlogistics(shipping,ports,airports,transport).•DisseminatedecarbonizationtechnologiesthroughtheJointCreditingMechanismandrelatedschemesandexpand“zero-carbon”cities.ASEAN-ROKCarbonDialogue•Sharepoliciesandknow-howregardingcarbonpricing(work-plandevelopmentisongoing).•Facilitatecooperationprojectstoreducegreenhousegasemissions,includingthroughexistingmechanismssuchasthePartnershipforASEAN-ROKMethaneAction,theASEAN-ROKCooperationCentreforCarbonNeutralityandGreenTransition;andtheASEANGreenDeal.ASEAN-ChinaEnvironmentalCooperationStrategyandActionPlan2021–25•Facilitatehigh-levelenvironmentalpolicydialogueandexchange,includingonenvironmentaldataandinformationmanagement.•Developsustainablecities,reducemarineplastics,andimproveairqualitythroughpolicydialogue,jointresearch,capacitybuilding,andcommunityactivities.•Promotebiodiversityconservationandecosystemmanagementthroughjointprojects,capacitybuilding,andresearch.Source:ASEAN(2021);AMROstaffcompilation.Note:ROKreferstoKorea.Chapter2.OntheRoadtoNetZero125ReferencesAbe,Tatsuya,andToshiH.Arimura.2022.“CausalEffectsoftheTokyoEmissionsTradingSchemeonEnergyConsumptionandEconomicPerformance.”EnergyPolicy168,September.Acemoglu,Daron,andothers.2012."TheEnvironmentandDirectedTechnicalChange."AmericanEconomicReview102(1):131–66.Allen,Thom,andMikeCoffin.2022.UnburnableCarbon:TenYearsOn.NewYork:CarbonTrackerInitiative.Andriansyah,andSeungHyun(Luke)Hong.2022.“CarbonPricinginASEAN+3Economies:ProgressandChallenges.”AMROAnalyticalNote.ASEAN+3MacroeconomicResearchOffice,Singapore,7November.https://www.amro-asia.org/carbon-pricing-in-asean3-economies-progress-and-challenges/Ang,Qing.2022.“SingaporeExploresTappingNuclearEnergyby2050.”TheStraitsTimes,22March.AssociationofSoutheastAsianNations(ASEAN).2021.ASEANStateofClimateChangeReport.Jakarta:ASEANSecretariat.ASEANCapitalMarketsForum(ACMF).2018.ASEANGreenBondStandards.PhnomPenh:ACMF.ASEANCentreforEnergy.2020.ASEANPlanofActionforEnergyCooperation(APAEC)2016–2025PhaseII:2021–2025.Jakarta.ASEAN+3MacroeconomicResearchOffice(AMRO).2018.“MacroeconomicProspectsandChallenges.”Chapter1.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/asean3-regional-economic-outlook-2018/ASEAN+3MacroeconomicResearchOffice(AMRO).2020.“MacroeconomicProspectsandChallenges.”Chapter1.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/full-report-asean3-regional-economic-outlook-2020/ASEAN+3MacroeconomicResearchOffice(AMRO).2021.“GlobalValueChainsinthePost-Pandemic‘NewNormal’.”Chapter2.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/asean3-regional-economic-outlook-2021-full-report/ASEAN+3MacroeconomicResearchOffice(AMRO).2022a.“MacroeconomicProspectsandChallenges.”Chapter1.ASEAN+3RegionalEconomicOutlook.Singapore,April.https://www.amro-asia.org/areo2022/ASEAN+3MacroeconomicResearchOffice(AMRO).2022b.AMROAnnualConsultationReport:LaoPDR–2022.Singapore,September.https://www.amro-asia.org/amros-2022-annual-consultation-report-on-lao-pdr/AsianDevelopmentBank(ADB).2019.LaoPeople’sDemocraticRepublicEnergySectorAssessment,Strategy,andRoadMap.Manila:ADB.AsianDevelopmentBank(ADB).2020.“ADBFinancesFirstWindPowerandBatteryStorageProjectinThailand.”NewsRelease,18May.AsianDevelopmentBank(ADB).2021.FinancingCleanEnergyinDevelopingAsia—Volume1.Manila:ADB.AsianDevelopmentBank(ADB).2022.ASEAN+3SustainableBondsHighlights.AsianBondsOnline,November.BankofJapanandFinancialServicesAgency.2022.PilotScenarioAnalysisExerciseonClimate-RelatedRisksBasedonCommonScenarios.Tokyo,26August.Battersby,Amanda.2022.“MalaysiaRevsUpCarbonCaptureandStorageDevelopments.”Upstream,1February.Black,Simon,IanParry,andKarlygashZhunussova.2022.“MoreCountriesArePricingCarbon,butEmissionsAreStillTooCheap.”IMFBlog,21July.https://www.imf.org/en/Blogs/Articles/2022/07/21/blog-more-countries-are-pricing-carbon-but-emissions-are-still-too-cheapBogmans,Christian,andothers.2020.“Energy,EfficiencyGainsandEconomicDevelopment:WhenWillGlobalEnergyDemandSaturate?”IMFWorkingPaperWP/20/253,InternationalMonetaryFund,Washington,DC.Bos,Kyra,andJoyeetaGupta.2019.“StrandedAssetsandStrandedResources:ImplicationsforClimateChangeMitigationandGlobalSustainableDevelopment.”EnergyResearch&SocialScience56,October.BP.2022.BPStatisticalReviewofWorldEnergy.71stedition.London.Broekhoff,Derik,andothers.2019.SecuringClimateBenefit:AGuidetoUsingCarbonOffsets.Stockholm:StockholmEnvironmentInstitute&GreenhouseGasManagementInstitute.Brown,Austin,andothers.2016.EstimatingRenewableEnergyEconomicPotentialintheUnitedStates.MethodologyandInitialResults.NationalRenewableEnergyLaboratoryTechnicalReportNREL/TP-6A20-64503.Colorado:USDepartmentofEnergyOfficeofEnergyEfficiency&RenewableEnergy.126ASEAN+3RegionalEconomicOutlook2023CarbonTracker.2022.UnburnableCarbon:TenYearsOn.June.Carney,Mark.2015.“BreakingtheTragedyoftheHorizon—ClimateChangeandFinancialStability.”SpeechatLloyd’sofLondon,29September.Chandhok,Sarika,andothers.2022.“CanVietnameseBanksSeizetheGreen-bondOpportunity?”McKinsey&Company,3August.Chen,Jian,andJoyZhang.2022.“China’sGreen-BondMarket:GrowingIssuanceandHistoricalOutperformance.”MSCI,24February.ChinaBankingNews.2022.“ChineseBanksPassFirstRoundofClimateRiskStressTestingbyPBOC.”21February.Clements,Benedict,andothers.2013.EnergySubsidyReform:LessonsandImplications.Washington,DC:InternationalMonetaryFund.CliffordChance.2022.“Japan’sEnergyStrategyforHydrogenandAmmonia.”10August.ClimateBondsInitiative(CBI).2022.SustainableDebtMarketSummaryH12022.August.ClimateFocus.2022.TheVoluntaryCarbonMarketDashboar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ercentyear-on-year).For2022,theeconomyisestimatedtohavecontractedby1.2percentfrom–1.6percentin2021,benefitingfromfullereconomicre-opening.Labormarketconditionhasimprovedmarkedlysince2021.Constraintsonlaborsupplyhavestartedtoeasesince2022withmoremigrantworkersexpectedtoreturnaftertheliftingofborderrestrictions.Totalandyouthunemploymentratesfellin2021(4.9percentand16.3percent,respectively)aslocaljobseekersfilledjobsinseveralindustriespreviouslydominatedbyforeignworkers.Localworkersintheprivatesectoralsogrewinnumber,thoughataslowerpaceof3.7percentin2021from16.2percentin2020.Inflationhasrisentomulti-yearhighs,drivenmainlybyglobalcommoditypriceshocks.AsBruneiisanetfoodimporter,elevatedglobalfoodprices,especiallyinthefirsthalfof2022,contributedsignificantlytothebroadeningoffoodinflation.Meanwhile,thespikeinpricesoftransportservicesandvehicleshasalsoinducedhighertransportinflation.Miscellaneousgoodsandservicesinflation,chieflyintheformofhighervehicleinsurancepremiumsinfluencedbymarketpricesofcars,addedtooverallpricepressures.Asaresult,inflationremainedhighat3.7percentin2022,increasingfrom1.7percentin2021.Theexternalpositionremainedstrong,withanestimatedbalanceofpayments(BOP)of6.4percentofGDPin2022.Thisreflectssignificantwideningofthecurrentaccountsurplus(12.8percentofGDP)amidfavorableO&Gpricesandrobustnon-O&Gexports.TheoverallBOPsurplustranslatestohigherinternationalreserves,estimatedatUSD6.1billionin2022fromUSD5.0billionin2021,orequivalentto7.2monthsofimports.Thefinancialsectorremainssoundwithamplecapitalbuffersandrecoveringprofitability.Financialinstitutionscontinuedtobehighlycapitalized,withcapitaladequacyratioofover20percentin2022.Non-performingloanratiodeclinedto3.3percentin2022from3.6percentin2021,suggestinganimprovementinassetquality.Profitabilityalsoimproved,withreturnsonequityincreasingto9.5percentin2022from8.6percentin2021.Afterbeingcurtailedbythepandemic,creditgrowthrecovered,drivenmainlybycorporatesectorloandemand.Creditgrowthstrengthenedto4.7percentin2022from4.6percentin2021.Theshiftinthecompositionofbanklendingtowardproductivesectorshasbeennotable.Asof2022,lendingtomanufacturingandotherservicessectorsdoubledinsizefromadecadeago,reaching15.5percentand10.1percentoftotalcredit,respectively.ThefiscalpositionhasimprovedconsiderablysinceFY2021,ledbythesignificantgainsinO&Grevenue.HighenergypriceshavebenefitedBrunei,whichledtoasurgeinO&GrevenuesinceearlyFY2021.Asaresult,thefiscaldeficitnarrowedsharplyto5.2percentofGDPinFY2021from20.0percentinFY2020.InthefirsthalfofFY2022,fiscalrevenuereachedBND3.4billion,exceedingtherevenuetargetofBND3.2billionforthewholeyearofFY2022.Meanwhile,expenditurerealizationreached47.2percentofthetotalbudget.Inviewofthestrongrevenueperformance,afiscalsurplusof0.5percentofGDPisexpectedforFY2022.RiskstoBrunei’soutlookaretiltedtothedownside.ContinuingrelianceontheO&GsectormakesBruneivulnerabletobothdomesticandexternalshocks,whichcouldderailthegrowthprospectsandputstrainsontheexternalandfiscalpositions.Possiblere-emergenceofnewandmorevirulentCOVID-19variantscouldsetbacktheeconomicrecovery.Sharplyhigherborrowingcostscouldexertdownwardpressureoncorporateearnings,atatimewhenexternaldemandismoderating.Perennialrisks,suchasthoseposedbyclimatechange,couldalsoundermineBrunei’smacro-financialstabilityinthelongerterm.TheauthorofthisnoteisVanneKhut.134ASEAN+3RegionalEconomicOutlook2023Sources:DepartmentofEconomicDevelopmentandPlanningviaCEIC;andAMROstaffcalculations.Brunei’seconomicactivitieshavestartedtogaintraction.Inflationhasrisentomulti-yearhighs,drivenbysoaringfoodandtransportprices.Creditgrowthhasrecovered,ledbystrongercorporatesectordemand.Labormarketconditionsmarkedlyimprovedin2021.Theexternalpositionremainsstrong,benefitingfromhighcommoditypricesandrobustgrowthofnon-O&Gexports.Fiscaldeficitnarrowedsignificantlyonhigheroilandgasrevenue,reflectingthefavorablecommodityprices.BruneiDarussalam:SelectedFiguresContributionstoRealGDPGrowth(Production)(Percentagepoints,year-on-year)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)ContributionstoBankingSectorCreditGrowth(Percentagepoints,year-on-year)FiscalBalanceandOilPrices(USD/barrel;percentofGDP)BalanceofPayments(PercentofGDP)UnemploymentRateandYouthUnemploymentRate(Percent)3.91.1-1.63.5-4.2-4.40.9-8-4048201120132015201720192021Q1Q3Q1Q3Q1Q3202020212022OthersEducationInformation&communicationTransportRealestateWholesale&retailtradeFinancePublicadministrationOtherindustryDownstreamactivitiesOil&gasAgricultureRealGDPSource:DepartmentofEconomicPlanningandStatistics;AMROstaffcalculations.Source:DepartmentofEconomicPlanningandStatistics9.38.76.87.34.928.929.921.325.816.301020304020172018201920202021UnemploymentrateYouthunemploymentrate3.3-202462019202020212022OthersMisc.goods&servicesResturants&hotelsCommunicationTransportHHequipment&maintenanceUtilityClothing&footwearFood&non-alcoholicbeveragesHeadlineinflationSource:DepartmentofEconomicPlanningandStatistics;andAMROstaffcalculations.Note:HH=household;Misc.=miscellaneous.Source:DepartmentofEconomicPlanningandStatistics;AMROstaffcalculations.Note:edenotesestimate.Brunei’sBOPfollowsBPM6.Financialaccountsignisreversedforchartingpurpose.-3.77.86.4-80-40040802010201220142016201820202022eCurrentaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestmentNeterror&ommissionsOverallbalance4.64.7-20-100102020152016201720182019202020212022HouseholdAgricultureFinanceManufacturingTransportationInfrastructureTradeOtherservicesConstructionTourismICTForeignlendingTotalcredit-20-100102030-100-50050100150FY2010FY2012FY2014FY2016FY2018FY2020OilpricesFiscalbalance(rightaxis)Source:BruneiDarussalamCentralBank;AMROstaffcalculations.Note:ICT=informationandcommunicationtechnology.Source:MinistryofFinanceandEconomy;AMROstaffestimations.Note:Brunei’sfiscaldataareinfiscalyear(FY)startingfromApriltoMarch.Annex:DevelopmentsinASEAN+3Economies135Source:NationalAuthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Brunei'sbalanceofpaymentsfollowsBPM6.Anegative(positive)financialaccountbalanceindicatesnetinflow(outflow).Overallbalance=Currentaccountbalance-Capitalandfinancialaccountbalance+Errorsandomissions.2/Grossinternationalreservesincludegold.3/Fiscaldataareinfiscalyear,whichstartsfromApriltoMarch.4/DomesticcreditreferstodomesticclaimsfromtheDepositoryCorporationsSurvey.BruneiDarussalam:SelectedEconomicIndicators201920203.91.1–1.6–1.25.95.321.96.81.8–9.62.60.1–4.4–9.3–13.9–0.5Importsofgoodsandservices13.8–2.129.510.7Exportsofgoodsandservices14.97.58.84.56.64.511.212.87.64.414.215.7–3.02.2–0.90.7–2.8–4.8–1.5–1.110.49.9–1.71.1–10.6–2.92.30.7Errorsandomissions–4.0–6.0–4.2–5.75.6–3.77.86.44.34.05.06.126.412.624.323.731.932.629.523.2–5.6–20.0–5.20.54.3–0.42.71.3Domesticcredit42.218.3–19.6–15.62.00.22.76.0NominalGDP(inBNDbillion,calendaryear)18.416.618.823.4NominalGDP(inBNDbillion,fiscalyear)18.416.219.623.8–0.41.91.73.71.41.41.31.420212022Realsector(inannualpercentagechange)Externalsector(inpercentofGDP,unlessotherwisespecified)RealGDPPrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationIndicatorFiscalbalanceTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestmentOverallbalanceInternationalreserves(inUSDbillion,endofperiod)2Currentaccountbalance1Fiscalsector3(inpercentofGDP)RevenueandgrantsExpenditure(inannualpercentagechange)Exchangerate(inBND/USD,periodaverage)MonetaryandfinancialsectorsPrivatesectorcreditMemorandumitems:Headlineinflation(inpercenty-o-y,periodaverage)Broadmoney136ASEAN+3RegionalEconomicOutlook2023CambodiaTheauthorofthisnoteisPaoloHernando.1/Withtheeconomicrecoveryontrack,theNBCinJanuary2023raisedtheminimumreserverequirementforforeignexchangedepositsandreleasedplansforagradualnormalizationofmonetaryconditionsbacktopre-pandemiclevel.Cambodia’seconomycontinuedtorecoverin2022.Drivenbythestrongexternaldemandandaresumptionindomesticactivity,realGDPgrowthisestimatedtohaveacceleratedto5.0percentin2022from3.0percentin2021.Themanufacturingsectorwasrobust,supportedbyexpansionofbothgarmentandnon-garmentexports.Tourismgrewrapidlyfromalowbasebutremainedfarbelowpre-pandemiclevels.For2023,theeconomyisprojectedtoexpandatafasterpace,withservicessectorsexpectedtobenefitfromarobustreturnoftourism,reflectingthere-openingofChina.However,thereboundinservicescouldbepartiallymitigatedbyaweakeroutlookformanufacturing.Headlineinflationspikedto5.3percentin2022from2.9percentin2021,reflectingsoaringglobalenergyandfoodprices.Inflationpressureswereparticularlyacuteduringthefirsthalfof2022,withinflationpeakingat7.8percentinJune.Inflationhassincetrendeddownwardandisprojectedtofurthereasein2023.Thecurrentaccountdeficitisexpectedtonarrowbutremainhighfor2022.Despiteastrongexportperformance,thetradedeficitremainedlargeatanestimatedtradedeficitof34.8percentofGDP,givenincreasedspendingonpetroleumimportsduetoelevatedglobaloilprices,andthatimportsofgoldremainedsubstantial.Withtourismreceiptsandremittancesrecovering,thecurrentaccountdeficitisestimatedtohavenarrowedtoaround31percentofGDP,downfromthehistoricalhighof46percentofGDPseenin2021.Despitesteadyforeigninvestmentinflows,Cambodiaisestimatedtohaverecordedanoverallbalanceofpaymentsdeficitin2022,resultinginareductionininternationalreserves.Nonetheless,externalbuffersremainedasizableUSD17.8billionasofend-2022,equivalentto8.4monthsofimportsofgoods(excludinggold)andservices.Financialconditionsremainedeasyin2022withsufficientliquidityandstrongcreditgrowth.LiquidityisampleastheNationalBankofCambodia(NBC)maintainedseveralmeasurestoeaseconditionsinthefinancialsystem,particularlykeepingreserverequirementatalow7percent.1CreditgrowthhasremainedresilientandalthoughaloanrestructuringprogramwasphasedoutasscheduledinJune2022,nonperformingloanratioshaveremainedmanageable.Withcapitaladequacyratioswellaboveregulatoryrequirementsandbanks’increasedprovisions,balancesheetsareexpectedtostayhealthyevenwiththeendofloanrestructuringprogram.Thefiscaldeficitnarrowedin2022duetohigherrevenueandtherollbackofpandemicstimulus.Revenuewasbuoyantin2022bytheresumptionofeconomicactivity.WithmostofthepopulationalreadyvaccinatedandCOVID-19infectionrateslow,healthcarespendingdeclined,whilespendingonotherkeymeasuresremainedstableorincreasedslightly.Thenetresultwasastimuluspackage1.4percentofGDPsmallerthanitwas2021.Thegradualwithdrawaloffiscalstimulusandhigherrevenuecollectionenabledthefiscaldeficittofallto5.4percentofGDPfrom8.5percentin2021.Publicdebtisestimatedhaverisenonlyslightlyto35.9percentofGDPatend-2022from35.0percentatend-2021,asCambodiadrewdownitsfiscalreservestofinanceitsdeficit.Theeconomy’sgrowthtrajectorytowardarobustrecoveryfacesseveralexternalanddomesticrisks.HeadwindsfromslowingglobaldemandamidmonetarytighteningofmostcentralbankscouldfurtherdampenCambodia’smanufacturingexports.AtailriskwithpotentiallylargeimpactwouldbetheemergenceofmorevirulentCOVID-19variants,whichcouldleadtothereturnoftightcontainmentmeasuresanddelaytheexpectedrecoveryofinternationaltourism.DespitetherecenttrendofeasinginflationpressuresinCambodia,aresurgenceremainsarisk,particularlyifoilpricessoaragainduetogeopoliticaltensionsandsupplyconstraints.Cambodia’slargecurrentaccountdeficitsareapotentialsourceofexternalvulnerability.MostofCambodia’sexternalliabilitiesarefundedfromFDIinflowsandconcessionalloansfrommultilateralanddonoragencies,whicharerelativelystable.However,capitalinflowsfromexternalprivatedebtandbanks’nonresidentdeposits,whicharemoreshort-terminnature,havebecomesubstantialinthepastfiveyears.Ifashockweretoreversetheseshort-termflows,theexternalpositioncouldcomeunderpressure.Prolongedrapidcreditgrowthamidalreadyhighprivatedebtmayresultinadeteriorationinloanquality.Thecountry’srapidcreditgrowthandcredit-to-GDPratioof177percenthavegivenrisetoconcernsoffinancialdistress.Risksmayhaveshiftedawayfrombankstowardshadowbankingactivitieswiththeemergenceofpropertydevelopersprovidingtheirownlong-termfinancingwithlaxloanscreeningandminimalsupervision.Suchshadowbankingactivitiesaremorevulnerabletoshocks,suchasfromafallinpropertyprices.Annex:DevelopmentsinASEAN+3Economies137Cambodia:SelectedFiguresTheeconomygraduallyrecoveredin2022amidsteadyreopeningafterasurgeinCOVID-19in2021.Thecurrentaccountdeficitnarrowedin2022fromthehistoricalhighseenin2021,butremainslarge.Cambodia’sgrossinternationalreservesremainedhigh,butdroppedtoUSD17.8billionasofend-2022fromUSD20.3billionin2021.Asthepandemicwaned,fiscalpolicywastightenedin2022withthegovernmentrampinguprevenueeffortsandscalingbackfiscalstimulus.Creditgrowthremainedrobustin2022atabove20percentledbyincreasedlendingtohouseholds,trade,construction,andrealestate.Inflationrosesignificantlyinthefirsthalfof2022drivenbyrisingenergypricesbutslowedinthesecondhalf.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)CurrentAccountBalance(BillionsofUSdollars)InternationalReserves(Monthsofimports;billionsofUSdollars)FiscalBalanceandPublicDebt(PercentofGDP)ContributionstoCreditbyBanksandMicrofinanceInstitutions(MFIs)(Percentagepoints,year-on-year)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)-6-4-2024682013201420152016201720182019202020212022eAgricultureGarmentConstructionOtherindustriesServicesOthersGDP-4-202468102019202020212022FoodHousing&utilitiesTransportRestaurantsHealthOthersHeadlineinflationSource:NationalInstituteofStatisticsofCambodia;AMROstaffestimates.Note:edenotesestimate.Source:NationalBankofCambodia;AMROstaffcalculations.Note:Foodincludesnon-alcoholicbeverages.-5-4-3-2-101220182019202020212022TradeServiceaccountPrimaryincomeSecondaryincomeCurrentaccountbalance0510152025024681012201213141516171819202122Foriegnreserves(rightaxis)Inmonthsofimportsofgoods&servicesSource:NationalBankofCambodia;AMROstaffcalculations.Source:NationalBankofCambodia;AMROstaffcalculations.Note:Thefiguresfor2022areasoftheend-September.01020304020182019202020212022AgricultureManufacturingConstruction&realestateTradeHotels&restaurantsTransport&ITHouseholdlendingOthersTotalloans(Banks+MFIs)Source:NationalBankofCambodia;AMROstaffcalculations.Note:IT=informationtechnology.-10-8-6-4-202262830323436FiscalbalancePublicdebt2021201320142015201720162018201920202022eSource:MinistryofEconomyandFinance.138ASEAN+3RegionalEconomicOutlook2023Cambodia:SelectedEconomicIndicatorsSource:Nationalauthorities;AMROstaffestimates.Note:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.201920207.1–3.13.05.06.1–4.3–3.711.66.813.078.7–3.314.3–2.76.85.3Importsofgoodsandservices11.1–8.923.14.3Exportsofgoodsandservices13.3–11.313.59.0–15.0–8.5–45.7–32.7–16.4–10.8–47.1–34.224.812.745.826.213.113.512.612.00.0–0.4–0.2–0.410.4–1.532.614.1Errorsandomissions0.0–1.70.1–0.29.82.50.3–6.7Grossexternaldebt56.868.174.475.718.821.320.317.826.223.421.223.326.928.829.928.6–0.6–5.3–8.5–5.428.133.835.036.518.215.316.310.3Domesticcredit24.420.032.318.428.017.223.419.3110.0105.9110.5120.21,6941,5441,5851,7061.92.92.95.44,0614,0934,0994,096PrivatesectorcreditMemorandumitems:NominalGDP(inKHRtrillion)Exchangerate(inKHR/USD,periodaverage)GDPpercapita(USD)Headlineinflation(inpercenty-o-y,periodaverage)(inpercentofGDP)RevenueandgrantsExpenditure(inannualpercentagechange)BroadmoneyGovernmentdebtMonetaryandfinancialsectorsFiscalbalanceOverallbalanceInternationalreserves(inUSDbillion,endofperiod)FiscalsectorCurrentaccountbalanceIndicatorPrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationExternalsectorTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestment(inpercentofGDP,unlessotherwisespecified)20212022Realsector(inannualpercentagechange)RealGDPAnnex:DevelopmentsinASEAN+3Economies139ChinaTheauthorofthisnoteisSuanYongFoo.China’seconomyhasbeenresilientwhilebeinghitbymultipleshockssincethestartoftheglobalpandemic.TheseincluderecurrentCOVID-19outbreaks,supplychaindisruptionsandinputcostpressuresduetotheUkrainecrisis,andfinancialdistressinthepropertysector.In2022,asmanyofthesepressuresintensified,GDPgrowthcameinatasubdued3.0percentwithbothconsumptionandinvestmentfaltering,whileexportscontractedonayear-on-yearbasisinQ4.Labormarketconditionsdeterioratedsignificantlythrough2022.Thesurveyedurbanjoblessratewasanelevated5.5percentinDecember,havingrisenashighas5.7percentearlierintheyear.Somegroupssuchasfreshgraduatesandmigrantworkersfaceddifficultiessecuringjobsalthoughthe12.06millionurbanjobscreatedin2022exceededthepolicytargetof11million.Overallwagegrowthslowed.Inflationwascontainedin2022duetoweakdemandandadministrativemeasures.In2022,headlineconsumerpriceinflationwas2.0percent,coreinflationwas0.9percent,andproducerpriceinflationwas4.1percent.Subdueddemandwasakeyfactor.Authorities’effortstoaddresssupplydisruptionsandensuretimelysupplyofdailynecessitiesalsohelpedcontaininflation.China’sexternalpositionisstrong.Thebalanceofpaymentsrecordedasurplusin2022—withstrongexportperformancebeingakeydriverevenasshipmentscontractedyear-on-yearinQ4.Affectedbytheassetpricechangesanddevaluationofnon-UScurrencies,foreigncurrencyreservesdecreasedthroughmostof2022,butroseinthelasttwomonthstoreachUSD3.1trillion.Afterhavingdepreciatedinthemiddleof2022,therenminbihasstrengthenedfromNovember2022,andtheperformanceofrenminbiisrelativelystablecomparedwithothermajorcurrencies.Thebankingsystemremainssoundandstableoverallalthoughsomebanksexperiencedsignificantassetqualitydeterioration.Capitalbuffersandliquidityareampleforthestrongerbanksbutconsiderablyweakerforsomesmallerandmid-sizedbanks.Bank’profitshavegenerallydecreasedreflectingthemarkedslowdownoftheeconomyandthecontinueddownturnoftherealestatesector.Totalsocialfinancinggrowthslowedsignificantlyin2022butwasstillafirm9.6percentfortheyearandpickedupto9.7percentinJanuary2023.Thepropertysectorremainsdepressed,andafirmrecoverywillneedstrongeffortsandtimeforpolicymeasurestotakeeffectaswellasconfidencetoberestored.Severaldevelopersarestilldistressed.Pricescontinuetofallacrosscities,especiallyTier-2andTier-3cities.Transactionvolumesremainmarkedlylowerthanthoseseeninpreviousyears.Severalbanksandassetmanagementcompaniesandastate-ownedbondinsurer,guidedbyauthorities,havestrengthenedtheirsupportforpropertydevelopersandtherealestatesector,whilemanagingcreditrisksandkeepingtheeconomyontrackformultiyeardeleveraging.China’sfiscalpositionremainssoundbutthebudgetdeficitwidenedsignificantlyin2022.Theeconomicgrowthslowdownandtaxreductionpolicieshaveweakenedrevenuecollection.Theneedtostabilizeandliftthepropertysectorwhilestrengtheningtherecoveryoftheentireeconomyandlabormarkethasposedastifffiscalchallenge.Giventheeconomicandfiscalconditionsin2022,thegeneralbudgetrevenuegrowthcouldbe0.6percent,whilethegeneralpublicexpendituregrowthcouldbeanelevated6.1percent,resultinginasizeablegeneralaccountdeficitof4.9percent.Inthiscontext,theauthoritieshavemadegreateruseofbothmonetaryandcreditpolicytoolsandfiscalresourcestosupporttheeconomyandcontainrisksoverthepastfewyears.China’seconomicrecoveryshouldbecomeincreasinglyfirmin2023,withmomentummarkedlystrongerinthesecondhalfoftheyear.AbaselinescenarioentailstheeconomystrengtheningmarkedlyinQ2aspandemicconditionscomeundercontrol,andgainingfurthertractionthroughtherestoftheyear.Asthelabormarketimproves,consumptionshouldreboundasthekeydriverofrecovery.Investmentshouldalsopickupasbusinessoperationsnormalize,thepropertysectorturnsaround,andinfrastructureprojectscontinuetorampup.RiskstoChina’seconomicoutlookremainsignificantandelevated.ThemostpronouncedarethoserelatedtoCOVID-19outbreaks,particularlytheemergenceofmorevirulentvariants;renewedstrainsinthepropertysector;productionandsupplychainchallengesduetogeopoliticaltensions;andweakeningglobaldemand.Besidesthese,intermittentpowershortages,whichaffectedindustrialproductioninthepast,mayrecurin2023,whilecapitalchallengesfacingsomesmallandmid-sizedbanksmaysqueezecreditsupplytomicro,smallandmedium-sizedenterprises.140ASEAN+3RegionalEconomicOutlook2023China:SelectedFiguresChina’seconomicrecoveryhasbeenbumpyduetofactorsincludingrecurrentCOVID-19outbreaksandtheUkrainecrisis.Thesurveyedurbanunemploymentratehasrisenduetoweakeconomicconditionsandpandemiccontrolmeasures.Growthintotalsocialfinancingcameinatafirm9.58percentin2022despiteconstrainsonthedemandandsupplyside.China’ssizeabletradesurplushasbeenakeydriverofthehealthofitsoverallBOPposition.Fiscalrevenuegrowthslowedmarkedlyin2022astheeconomyslowed,whilespendinggrowthstayedbrisk.Consumerpriceinflationhasstayedlow,withauthoritiestakingseveralmeasurestodealwithsupply-sideissues.ContributionsofGDPGrowth(Percentagepoints,year-on-year)SurveyedUrbanUnemploymentRate(Percent)ContributionstoTotalSocialFinancing(Percentyear-on-year,year-to-date)TradeBalance(BillionsofUSdollars)FiscalRevenueandExpenditureGrowth(Percent,year-on-year,year-to-date)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)2.9-10-50510152020182019202020212022ConsumptionInvestmentNetexportsGDP2.1-1012345Jan-21Jul-21Jan-22Jul-22Jan-23OthersHealthcare&medicalserviceEducation,culture&entertainmentTransportation&communicationHouseholdfacility,article&serviceResidenceClothingFood,tobacco&liquorHeadlineinflationSource:NationalBureauofStatistics.Source:NationalBureauofStatistics.4.55.05.56.06.5JanFebMarAprMayJunJulAugSepOctNovDec201720182019202020212022-50050100150202020212022UnitedStatesEuropeanUnionASEANJapan&KoreaOthersTradebalanceSource:NationalBureauofStatistics.Source:GeneralAdministrationofCustoms.-202468101214Jul-21Oct-21Jan-22Apr-22Jul-22Oct-22Jan-23RenminbiloanShadowloanCorporatebondGovernmentspecialbondOthersAggregatefinancing-20-1001020304020182019202020212022RevenueExpenditureSource:ThePeople’sBankofChina.Source:ChinaMinistryofFinance.Annex:DevelopmentsinASEAN+3Economies141China:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandWIND;AMROstaffestimates.Note:NumbersinreddenoteAMROstaffestimates.FX=foreignexchange.y-o-y=year-on-year.1/IncludesonlygeneralgovernmentaccountandincorporatesAMROstaffestimates.2/BroadmoneyreferstoM2.20195.92.28.43.06.4–0.99.81.84.55.12.65.1Importsofgoodsandservices–2.8–0.430.17.9Exportsofgoodsandservices0.59.929.913.70.71.71.82.30.92.42.63.30.2–0.6–0.8–1.70.40.71.20.20.40.60.30.3–0.7–1.7–1.3–1.50.1–0.2–1.10.0Overallbalance–0.10.90.10.3Grossexternaldebt14.516.215.515.23,107.93,216.53,250.23,127.719.318.017.716.824.224.221.521.5–4.9–6.2–3.8–4.938.645.946.851.08.710.19.011.8TotalSocialFinancing10.713.310.39.698.7101.4113.4121.02.92.50.92.0Lendingprimerate,1year(period-end)4.153.853.803.65Exchangerate(inCNY/USD,periodaverage)6.916.906.456.74(inpercentofGDP)(inannualpercentagechange)2022Fiscalsector1CapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestmentFXreserves(inUSDbillion,endofperiod)ErrorsandomissionsTradebalance20202021RealsectorRevenueandgrantsExpenditureFiscalbalanceGovernmentdebtMonetaryandfinancialsectorsBroadmoney2Memorandumitems:NominalGDP(inCNYtrillion)Headlineinflation(inpercenty-o-y,periodaverage)Currentaccountbalance(inpercentofGDP,unlessotherwisespecified)(inannualpercentagechange)RealGDPIndicatorPrivateconsumptionGrossfixedcapitalformationExternalsector142ASEAN+3RegionalEconomicOutlook2023HongKong,ChinaTheauthorofthisnoteisFanZhai.EconomicrecoverywasinterruptedbytheoutbreakofthefifthwaveoftheCOVID-19pandemicinthefirstquarterof2022.SoaringnewinfectionsandstringentsocialdistancingmeasuresweighedheavilyondomesticdemandinQ12022,whilethedeterioratedexternalenvironmentandregionallogisticaldisruptionsrelatedtoCOVID-19depressedexports,andtightenedfinancialconditionsposedconstraintondomesticdemandintherestoftheyear.Asaresult,GDPcontractedby3.5percentin2022.Labormarketconditionsdeterioratedinearly2022beforeimprovinggraduallyintherestoftheyear.Theseasonallyadjustedunemploymentrateincreasedto5.4percentinFebruary–April,beforedecliningto3.5percentinOctober–December,withtotalemploymentgrowingfrom3.56millionto3.67millionoverthesameperiod.Despitethatunemploymentratewaslargelybacktothepre-COVID-19levelofNovember2019–January2020,totalemploymentwasstill4.5percentlowerthroughthosemonths,reflectingtheimpactofashrinkinglaborforce.Inflationrosemodestlyin2022withheadlineCPIincreasingby1.9percent,primarilyduetotherisingpricesofimports.Thegeopoliticalconflictandpandemic-relatedsupplychaindisruptionspusheduplocalenergyandfoodprices,contributingtheriseintheheadlineCPI.Theprivatehousingrentalcomponentofinflationdecreasedin2022,helpingtocontainoverallpricepressures.Theoverallexternalpositionhasremainedstrong.Followingarobustperformancein2021,HongKong’smerchandiseexportscontractedby8.6percentinvaluein2022.Supportedbystrongservicesandprimaryincomesurpluses,HongKongmaintainedalargecurrentaccountsurplusinthefirstthreequartersof2022.ReflectingoutflowsfromtheHongKongdollarandthetriggeringoftheweak-sideConvertibilityUndertaking,foreignreservesdecreasedfromUSD497billionatthebeginningof2022toUSD424billionattheendofDecember.TheFY2022fiscalbudgetaimedtodeploytimelyandeffectivefiscalmeasurestosupporttheeconomywhilebuttressinglong-termgrowth.ThegovernmentbudgetedoverHKD170billionofcounter-cyclicalmeasures,includingHKD66billionforasecondroundofconsumptionvouchersandHKD54billionforanti-pandemicandothermeasurestargetedatsupportingvulnerablesectorsandhouseholds.Apartfromthepandemicmeasures,thegovernmentalsosetasidefundstoenhanceHongKong’sinnovationandtechnologyecosystemandtodeepenitsintegrationintotheGuangdong-HongKong-MacaoGreaterBayArea.TheupdatedfiscaloutlookinSeptember2022suggestedthattheconsolidatedfiscaldeficitinFY2022wouldlikelyexceedHKD100billion,whichcomparedtoHKD56.3billionannouncedintheFebruary2022BudgetSpeech.Thebankingsectorremainsresilient,bolsteredbystrongbuffersandsupportedbyCOVID-19reliefmeasures.Bankcapitalandliquiditypositionsremainstrong,togetherwithimprovedprofitability,providingacushionagainstshocksdespitelowerprofitability.Despiteaslightuptickofnonperformingloanratiofrom0.88percentatend-2021to1.38percentatend-2022,theoverallassetqualityofHongKong’sbankingsectorremainssoundbyhistoricalandinternationalstandards.Domesticfinancialandcreditconditionshavetightenedinrecentmonths.Loandemandweakenedin2022,mainlyduetoanuncertainexternalenvironmentandrisinginterestrates.HongKongdollarinterestrateshaverisenintandemwithUnitedStates’interestrateswhilevolatilityinfinancialmarketshasheightenedamidtheeconomicdownturnandglobalfinancialbacklash.Theresidentialpropertymarkethassoftened,withitsvarioussegmentsdisplayingsignsofdownwardpressure.Thegovernmenthassteppedupeffortstoboostthesupplyofbothpublicandprivatehousingtoaddressthesupply-demandimbalanceandhousingaffordability.In2022,thegovernmentannouncedithadidentifiedsufficientlandforproviding360,000publichousingunitsinthecomingdecade(i.e.from2023–24to2032–33).ThegovernmentalsoplannedtointroduceanewLightPublicHousingscheme,whichpromisestoproduce30,000unitsofpublichousinginthecomingfiveyears.TakingintoaccountthetotalsupplyofLightPublicHousingandtraditionalpublicrentalhousing,thetargetistocapthewaitingtimeatabout6yearsandshortenitto4.5yearsinfouryears’time(2026–27).ThegrowthoutlookhasimprovedonthebackofthereopeningofbothmainlandChinaandHongKong,althoughdownsiderisksremainintheshortterm.Ahigher-for-longerUnitedStatespolicyinterestratewouldleadtomuchtighterdomesticfinancialconditions,andweakentherecovery.IftheUnitedStatesandEuropeweretogointorecession,thiscouldweakenHongKong’salreadyfeebleeconomicrecoveryintheshortterm.ThemainlandChina’seconomicgrowthoutlookwouldalsowouldaffectHongKong’sinboundtourismandeconomicrecovery.AsharpdownshiftinHongKong’spropertymarket,shouldithappen,wouldweighoneconomicgrowth.Inthemediumterm,furtherescalationofChina-UStensionscouldundermineHongKong’sroleasaninternationalfinancialandbusinesscenter.Annex:DevelopmentsinASEAN+3Economies143HongKong,China:SelectedFiguresHongKong’seconomycontractedin2022afterastrongrecoveryin2021.Theexternalpositiondeterioratedin2022amidcapitaloutflowdrivenbyrisingUSdollarinterestrates.Inflationrosemoderatelyonrisingenergyandfoodprices.Foreignexchangereservesremainedample,coveringabout39monthsofretainedimports.ThegovernmentprojectedfiscalreservesasapercentageofGDPwouldrevertitsdecliningtrendinFY2024.Overallemploymentimprovedinthesecondhalfof2022,buttherecoveryremainedunevenacrosssectors.ContributionsofGDPGrowth(Percentagepoints,year-on-year)BalanceofPayments(BillionsofHongKongdollars)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)ForeignReserves(MillionsofUSdollars;monthsofimports)FiscalReservesProjections(BillionsofHongKongdollars;percentofGDP)-20-15-10-505101520152016201720182019202020212022NetexportsChangeininventoriesGrossfixedcapitalformationGovernmentconsumptionexpenditurePrivateconsumptionexpenditureRealGDPgrowth60801001202017201820192020202120222023OverallFinancing,insurance,realestate,professional&businessservicesTrade&wholesaleRetail,accomodation&foodservicesTransportationSource:CensusandStatisticsDepartment.Source:CensusandStatisticsDepartment.-400-300-200-10001002003002013201420152016201720182019202020212022Neterrors&omissionsCapitalaccountFinancialnon-reserveaccountCurrentaccountOverallbalanceofpayments253035404550552503003504004505002011201320152017201920212023ForeignreservesInmonthsofretainedimportsofgoods(rightaxis)Sources:CensusandStatisticsDepartment.Source:HongKongMonetaryAuthority.-4-2024620162017201820192020202120222023HousingFoodElectricity,gas&waterHeadlineinflation05101520253035404502004006008001,0001,2001993199820032008201320182023InbillionsofHongKongdollarInpercentofnominalGDP(rightaxis)Source:CensusandStatisticsDepartment.Source:FinancialServicesandtheTreasuryBureau.Note:Greybarsdenotegovernmentprojectionsinthe2022BudgetSpeech.EmploymentbySector(Index,2018=100,non-seasonallyadjusted,three-monthmovingaverage)144ASEAN+3RegionalEconomicOutlook2023HongKong,China:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Referstofiscalyear,whichstartson1Aprilandendson31March.2/BroadmoneyreferstoM3.20192020–1.7–6.56.4–3.5–0.8–10.65.6–1.05.17.95.98.1–14.9–11.18.3–8.5Importsofgoodsandservices–7.2–6.915.8–12.2Exportsofgoodsandservices–6.1–6.717.0–12.65.97.011.86.61.61.95.60.5–8.70.7–13.4–22.05.69.911.92.0–7.6–19.7–21.6–9.6–6.79.9–4.8–16.5Errorsandomissions2.52.11.22.0–0.39.8–0.3–13.4Grossexternaldebt458.6518.4508.8483.4441.4491.9496.9424.020.821.124.221.421.430.524.228.6–0.6–9.40.0–7.30.31.02.04.32.75.84.31.6Domesticcredit6.71.23.8–3.06.81.64.80.02.82.72.92.82.90.31.61.92.540.900.502.137.847.767.777.83Policyrate(inpercentperannum)Exchangerate(inHKD/USD,periodaverage)GovernmentdebtMonetaryandfinancialsectorsPrivatesectorcreditMemorandumitems:NominalGDP(inHKDtrillion)Headlineinflation(inpercenty-o-y,periodaverage)(inpercentofGDP)RevenueandgrantsExpenditure(inannualpercentagechange)Broadmoney2FiscalbalanceOverallbalanceInternationalreserves(inUSDbillion,endofperiod)Fiscalsector1CurrentaccountbalanceIndicatorPrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationExternalsectorTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestment(inpercentofGDP,unlessotherwisespecified)20212022Realsector(inannualpercentagechange)RealGDPAnnex:DevelopmentsinASEAN+3Economies145IndonesiaTheauthorofthisnoteisThiKimCucNguyen.TheIndonesianeconomypostedasolidrecoveryin2022.Growthmomentumwasboostedbystrengtheneddomesticdemand,whileexportsbenefitedfromelevatedcommoditypricesanddownstreameffortsinnaturalresource-basedindustries.RealGDPgrewby5.3percentin2022andislikelytoremainfirmin2023,supportedbyresilientdomesticdemandamidanexpectedslowdowninglobaldemand.Despitepass-throughfromsoaringglobalfoodandfuelpricesontodomesticprices,consumerpriceinflationwasrelativelymorecontainedthaninregionalpeers,andhasmoderatedrecently.Theexternalpositionremainedstrongin2022.Likeotheremergingmarkets,IndonesiasawoutflowsfromthegovernmentbondmarketduetoriskaversiontriggeredbytheUSFederalReserveaggressivemonetarytightening.Rupiahstabilitywas,nevertheless,maintainedthankstoacurrentaccountsurplusandincreasedFDIinflows.Externaldebtdeclinedsteadilytoabout30percentofGDPbyend-2022,downfromabout35percentin2021and39percentin2020.Thedebtmaturitystructureremainedsoundwithshort-termexternaldebtaccountingforonlyabout17percentoftotalexternaldebt.Listedfirms’financialperformancehasimproved.Increasedearningswereobservedincommodityexportersonthebackofhigherdemandandprices.Likewise,resumeddomesticactivitybenefitedsectorsthatproduceconsumergoods.ThiswasinlinewiththemovementoftheJakartaCompositeIndexwhichoutperformedregionalpeersin2022.Bankingsectorsoundnesshasremainedintact.Banks’profitabilityindicatorsimprovedonthebackofastrongrecoveryinloangrowth.Economicrecoveryalsounderpinnedimprovedloanquality.Notably,thesizeofrestructuredloansmoderatedfrom11percentoftotalloansoutstandingin2021to8percentasofOctober2022.Thenonperformingloanratioalsofellto2.4percentinDecember2022,from3.0percentasatend-2021.Atthesametime,Indonesianbanksremainedwellbufferedwithelevatedcapitaladequacyratioandprovisions.Thecentralbank’spolicymixhasbeenappropriatelyadjustedinresponsetoexternalheadwindstomaintaingrowthmomentumwhileensuringfinancialstability.BankIndonesia(BI)startedtonormalizethemonetarypolicybyraisingtherupiahreserverequirementratio.BIalsoincreaseditsbenchmarkpolicyratetocontainrisinginflationexpectationsandsupporttherupiahexchangerate.Asthebanksremainedfinanciallysound,macroprudentialpoliciesstayedrelaxedinlinewithotherpolicymeasuresoftheFinancialSystemStabilityCommitteetosupporteconomicrecovery.Effortstoupgradepaymentsystemsandpromotefinancialinclusionhaveaccelerated.Notably,BIlaunchedthereal-timeretailpaymentsystemBI-FASTandexpandedthestandardizedquickresponsepaymentsathomeandwithneighboringcountries.TherecentpublicationofawhitepaperonProjectGarudaoncentralbankdigitalcurrencywasanothersteptowardenhancingthepaymentsysteminthedigitalera.Thegovernmenthasactivelytakenpolicymeasurestocontaininflationandmaintainpeople’spurchasingpower.Theseincludeeffortstostrengthentheinter-regionalsupplyanddistributionofnecessitygoods,notablyfoodandfoodingredients.Toabsorbtheglobalcommoditypriceshock,thegovernmentraisedthesubsidyspendinginthe2022budgetandkeptsubsidizedfuelpricesunchanged.Morerecently,thegovernmentincreasedthepricesofseveraltypesofsubsidizedfueltominimizepressuresonthebudget,whileprovidingadditionalcashtransfersandwagesubsidiestovulnerablegroups.Thefiscalpositionhasconsolidatedfasterthanbudgetedonthebackofrobustrevenuecollection.Implementationofthe2021taxreformpackage,coupledwithreboundingeconomicactivityandcommoditypricewindfalls,underpinnedastrongrevenueperformancein2022.Thebudgetdeficitnarrowedto2.4percentofGDPin2022,oneyearaheadofthegovernmentplanofrestoringafiscalrulecappingthebudgetdeficitat3percent.Indonesia’sshort-termoutlookisweigheddownbyrisksofaglobalslowdownandpotentialrecessioninsomemajortradingpartners.Meanwhile,adeepeningoftheglobalenergycrisismaystokeinflationpressures,andcausetheUSFederalReservetotightenfurther,heighteninguncertaintyinglobalfinancialmarkets.Onapositivenote,recenteasingofChina’szero-COVIDpolicyandare-openingofitsborderswillbenefittourismandpresentanupsideopportunityforIndonesia.Challengesinthemediumtolong-termarisefromtheneedtoimprovetheinvestmentclimate,supportedbyinfrastructuredevelopmentandconnectivityenhancement.Asmoothtransitiontoagreenandsustainableeconomyisalsocritical.146ASEAN+3RegionalEconomicOutlook2023Indonesia:SelectedFiguresSource:StatisticsIndonesia.Source:BankIndonesiaSource:MinistryofFinanceofIndonesiaNote:Datafor2022arepreliminaryfiscalrealizationdataannouncedbyMinistryofFinanceofIndonesia.Source:BankIndonesia.Source:StatisticsIndonesia,BankIndonesia.Note:BI7DRRreferstoBankIndonesia’s7-dayreversereporate.Recoverymomentumstrengthenedin2022,boostedbystrongerdomesticdemandandresilientexports.Despitecapitaloutflows,especiallyfromthegovernmentbondmarket……supportedtherupiahandreservepositionin2022.Astrongrevenueperformanceunderpinnedthefiscaldeficittonarrowtobelow3percentofGDPaheadofthegovernmentplan.…animprovedcurrentaccountbalance,coupledwithcontinuedFDI…BankIndonesiaraiseditsbenchmarkpolicyratefromarecord-lowtocontaininflationexpectationsarisingfromglobalcommoditypriceshocksContributionstoRealGDPGrowth(Percentagepoints,year-on-year)NetCapitalFlowstoGovernmentBondandEquityMarkets(TrillionsofIndonesianrupiah)GrossForeignReservesandRupiahSpotRate(BillionsofUSdollars;IDR/USD-reverseorder)BudgetRevenue,Expenditure,andBalance(PercentofGDP)CurrentAccountBalance(PercentofGDP)ConsumerPriceInflationandPolicyRate(Percent)5.0-2.13.75.3-0.77.13.55.05.05.55.75.0-9-6-30369122019202020212022Q1Q2Q3Q4Q1Q2Q3Q420212022ConsumptionexpenditureGrossfixedcapitalformationChangeinstockExportsofgoods&servicesImportsofgoods&servicesStatisticsdiscrepanciesRealGDP0123456720192020202120222023HeadlineinflationCoreinflationInflationtarget:UpperboundInflationtarget:LowerboundBI7DRRrate-150-120-90-60-300306020192020202120222023GovernmentbondsStockThisistheleftchartonpage146Source:IndonesiaStockExchange;MinistryofFinanceofIndonesia.-6-4-2024620182019202020212022GoodsServicesPrimaryincomeSecondaryincomeCurrentaccountThisistherightchartonpage14613,00013,50014,00014,50015,00015,50016,0008595105115125135145155201820192020202120222023GrossforeignreservesRupiahspotrate(rightaxis)Rupiahappreciation-10-505101520201720182019202020212022Non-oil&gasincometaxValue-addedtaxExcisetaxOil&gasrevenueTotalrevenueTotalexpenditureFiscaldeficitAnnex:DevelopmentsinASEAN+3Economies147Indonesia:SelectedEconomicIndicators201920205.0–2.13.75.35.0–2.62.04.93.32.04.2–4.54.5–5.03.83.9Importsofgoodsandservices–7.1–16.723.314.7Exportsofgoodsandservices–0.5–8.124.016.3–2.7–0.40.31.0–0.41.72.53.23.30.71.1–0.71.81.31.51.12.00.30.4–0.7–0.5–0.9–0.9–1.10.40.21.10.3Grossexternaldebt36.139.334.930.1129.2135.9144.9137.212.410.711.913.414.516.816.415.8–2.2–6.1–4.7–2.430.239.440.739.56.512.514.08.45.5–1.75.210.615,83415,43416,97119,5883.02.01.64.25.003.753.505.5014,23714,14814,30814,850Indicator20212022OtherinvestmentOverallbalanceGrossfixedcapitalformationExternalsectorRealsector(inannualpercentagechange)RealGDPHouseholdconsumptionGovernmentconsumptionFiscalsector(inpercentofGDP,unlessotherwisespecified)CurrentaccountbalanceTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestment(inpercentofGDP)Internationalreserves(inUSDbillion,endofperiod)RevenueandgrantsExchangerate(inIDR/USD,periodaverage)FiscalbalanceGovernmentdebtMonetaryandfinancialsectorsNominalGDP(inIDRtrillion)Headlineinflation(inpercenty-o-y,periodaverage)Policyrate(inpercentperannum)Expenditure(inannualpercentagechange)BroadmoneyPrivatesectorcreditMemorandumitems:Source:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimatesNote:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.148ASEAN+3RegionalEconomicOutlook2023JapanTheauthorofthisnoteisJinhoChoi.TheJapaneseeconomycontinuedtorecoveratamoderate,thoughsometimesvolatile,paceastheCOVID-19pandemicshiftstoanendemicphase.AnOmicronvariantsurgeshrankGDPby1.8percent(annualized,quarter-on-quarter)inQ12022,andastrong4.7percentreboundinQ2wasfollowedbycontractionagain,by1.1percent,amidanotherspikeininfectionsbeforetheeconomyreturnedtogrowthof0.1percentinQ4.Overall,GDPgrew1.0percentin2022.Privateconsumptionremainedrobustamidtherecoveryandbusinessinvestmentbegantoshowsomesignsofimprovementfromthesecondquarter.However,exportscontinuedtogrowataslowerpacethanimports.Employmentremainedfirmin2022,asthegrowthofnon-regularworkersturnedpositive,recoveringfromthepandemic.Theunemploymentrategraduallydeclinedto2.4percentinJanuary2023fromits3.1percentpandemicpeakofOctober2020.Nominalwagegrowthisnowonarisingtrend.However,escalatinginflationhasledtorealwagegrowthturningnegativesinceApril2022.Consumerpriceinflationacceleratedin2022,mainlydrivenbysoaringenergyandfoodprices.CoreCPI,lessfreshfood,roseby4.2percentyear-on-yearinJanuary2023,exceedingtheBankofJapan’s(BOJ)pricestabilitytarget.Strippingoutfreshfoodandenergy,“core-core”CPIinflationalsorosestronglyby3.2percentinthesamemonth.Thatsaid,Japan’sinflationremainsrelativelylowcomparedtopeereconomies,withamodestincreaseinservicesprices,coupledwithalimitedpass-throughofthecostofimportedgoodstoconsumerprices.Meanwhile,medium-terminflationexpectationsincreasedsignificantlytoover2percentaccordingtotheBOJTankansurvey.Japan’sexternalpositionremainedresilient,supportedbyalargeprimaryincomesurplusandsubstantialforeignreservesdespitewideningtradedeficits.In2022,thecurrentaccountremainedinsurplus,whiledecliningto2.1percentofGDPfrom3.9percentin2021,reflectinghighercommodityprices.Theservicesaccountstayedindeficit,largelyduetoasharpdropininboundtourism.Theprimaryincomesurplusremainedstrongin2022,offsettingthetradedeficit.TheyendepreciatedsharplyagainsttheUSdollarbymorethan12percentin2022,reflectingadivergingmonetarypolicystancefromtheUSFederalReserveandawideningtradedeficit.Thebankingsectorremainedlargelysound.Banklendingexpandedmoderatelyin2022by3.0percentyear-on-year,andbroadlycomparabletothepre-pandemicrateof2–3percent.Thefinancingneedsofsmallandmedium-sizedenterprisesandhouseholdslargelydrovetheloangrowth.Assetqualityinthebankingsystemremainedsolidwiththeaveragenonperformingloanratiostandingat1.3percentasofMarch2022.Capitaladequacyratioshavebeenwellabovetheregulatoryrequirements.ProfitabilitypickedupinFY2021atmajorandregionalbanks,partlyattributabletotheBOJ’spolicysupportduringthepandemic.Liquidityconditionsremainedrobustasdepositsgrewfasterthanloans.TheliquiditycoverageratiosatJapanesemegabankswerehigherthan,orwerecomparableto,thoseofotherglobalsystemicallyimportantbanks.ThefiscaldeficitnarrowedinFY2021onthebackofstrongrevenuecollectionafterwideninginFY2020becauseofthemassiveCOVID-19stimuluspackages.ForFY2022,thegovernmentlaunchedanemergencypackageofJPY6.2trillion,equivalentto1.1percentofGDP,primarilytomitigatetheimpactsofsoaringcrudeoilandcommodityprices,whichwaspartlyfundedbyasupplementarybudgetofJPY2.7trillion.InOctober2022,thegovernmentannouncedanothereconomicpackage,totalingJPY39trillion,equivalentto6.9percentofGDP,tomitigatetheimpactofpriceincreasesandtosupportinvestmentandreformsforsustainablegrowth,whichwouldbebackedbyasecondsupplementarybudgetproposalofJPY29.6trillion.Japan’smacro-financialoutlookistiltedtothedownsidewithsubstantialuncertainties,mainlyfromtheexternalsector.AresurgenceofglobalenergypriceswouldhurttheJapaneseeconomy,whichreliesonenergyimports,byworseningthetermsoftradeandweighingdowndomesticconsumption.ArecessionintheUnitedStatesandEuropewoulddampenglobaldemandandsomakeconditionsdifficultforJapan’smanufacturingandexportsectors.Medium-tolong-termvulnerabilitiesandchallengesincludethelowprofitabilityofregionalbanks,weakeningfiscaldiscipline,side-effectsfromprolongedmonetaryeasing,andthedemographicdragfrompopulationagingandlowfertilityrates.Annex:DevelopmentsinASEAN+3Economies149Japan:SelectedFiguresJapaneseeconomycontinuedtoexpandatamoderatepacein2022.Thecurrentaccountsurplusremainedresilientin2022onthebackofalargeprimarybalancesurplus.Loangrowthrecoveredtopre-pandemiclevels,drivenbyfinancingneedsofsmallandmediumenterprises,andhouseholds.ThefiscaldeficitnarrowedinFY2021amidstrongrevenuecollection.TheyendepreciatedsharplyagainsttheUSdollarbymorethan12percentin2022.Consumerpriceinflationacceleratedin2022onthebackofsoaringenergyandfoodprices.ContributionstoRealGDPGrowth(Percent,quarter-on-quarter,seasonallyadjustedannualizedrate)CurrentAccountBalance(PercentofGDP)ContributionstoBankLendingGrowth(Percentagepoints,year-on-year)PrimaryBalanceofCentralandLocalGovernments(PercentofGDP)ExchangeRates(JPY/USD;JPY/euro)ConsumerPriceInflation(Percent,year-on-year)-30-20-10010203020182019202020212022PrivateconsumptionPrivateinvestmentPublicdemandNetexportsGDP-2-1012345201720182019202020212022CPI:AllitemslessfreshfoodCPI:Allitemslessfreshfood&energyCPI:GeneralBOJPriceStabilityTargetSource:MinistryofInternalAffairsandCommunicationsviaHaverAnalytics.Note:CPI=consumerpriceindexSource:CabinetOfficeviaHaverAnalytics-6-4-20246820082010201220142016201820202022GoodsServicesPrimaryincomeSecondaryincomeCurrentaccount10511512513514515516595105115125135145155201820192020202120222023JPY/USDJPY/euro(rightaxis)YendepreciationSource:MinistryofFinanceviaHaverAnalyticsSource:BankofJapanviaHaverAnalytics-20246820192020202120222023Small&mediumenterprisesLargefirmsHouseholds(andothers)TotalbanklendingSource:BankofJapanviaHaverAnalytics-10-8-6-4-202420122014201620182020202220242026202820302032EconomicgrowthachievedcaseBaselinecase2019Consumptiontaxhike2014ConsumptiontaxhikeSource:CabinetOffice(January2023)viaHaverAnalytics.Note:TheshadedareaindicatestheCabinetOffice'sprojectionperiod.150ASEAN+3RegionalEconomicOutlook2023Japan:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Referstofiscalyear,whichstartson1Aprilandendson31March.2/ReferstoCPIofallitemslessfreshfood2019202020212022–0.4–4.32.11.0–0.6–4.70.42.11.92.43.51.50.5–3.6–0.1–1.1Importsofgoodsandservices1.0–6.85.07.9Exportsofgoodsandservices–1.5–11.611.74.93.52.93.92.1–0.2–0.2–0.5–3.8–0.10.0–0.10.04.02.41.82.74.31.73.63.21.70.8–4.0–3.5Financialderivatives0.10.10.40.9–2.1–0.31.82.0Errorsandomissions1.1–0.3–0.8–0.60.50.21.3–1.3Grossexternaldebt83.092.796.4101.81,323.81,394.71,405.81,227.635.436.838.041.238.646.843.950.6–3.1–10.0–5.9–9.4238.8261.6259.0268.41.74.15.64.0Domesticcredit2.64.94.91.53.65.47.00.3557.9539.1549.4556.40.50.0–0.32.50.6–0.2–0.22.3–0.1–0.1–0.1–0.1109.0106.8109.8131.4GovernmentconsumptionIndicatorRealsector(inannualpercentagechange)RealGDPPrivateconsumptionCapitalaccountbalanceGrossfixedcapitalformationExternalsector(inpercentofGDP,unlessotherwisespecified)CurrentaccountbalanceTradebalanceFinancialaccountbalanceDirectinvestmentPortfolioinvestmentGovernmentdebtOtherinvestmentOverallbalanceInternationalreserves(inUSDbillion,endofperiod)Fiscalsector1(inpercentofGDP)RevenueandgrantsExpenditureFiscalbalanceMonetaryandfinancialsectors(inannualpercentagechange)BroadmoneyPrivatesectorcreditMemorandumitems:NominalGDP(inJPYtrillion)Headlineinflation(inpercenty-o-y,periodaverage)Coreinflation2(inpercenty-o-y,periodaverage)Policyrate(inpercentperannum,endofperiod)Exchangerate(inJPY/USD,periodaverage)Annex:DevelopmentsinASEAN+3Economies151KoreaTheauthorofthisnoteisXu(Kimi)Jiang.TheKoreaneconomyreboundedduring2021and2022mainlyonstrongexportgrowthandrecoveringprivateconsumption.RealGDPgrowthin2022was2.6percent,abovethepotentialgrowthrateestimateof2.0percent,drivingtheoutputgapintopositiveterritoryforthefirsttimesince2020.However,economicrecoveryfromthepandemicremainsunevenacrosssectors.Whilemanufacturingreboundedquickly,servicesrecoveredonlygradually.Thelabormarketremainedtight.Theunemploymentratefellto2.9percentin2022from4.0percentin2020.Totalemploymentexceededpre-pandemiclevels,althoughagainthejobsrecoverywasuneven,withaccommodationandfoodservicesstilllaggingduetoaheavytollfromthepandemic.Headlineinflationhasprobablypeakedandisexpectedtodeclineto3.3percentin2023from5.1percentin2022.Theincreaseininflationwasbroad-basedin2022,bothfromthesupplyside,reflectingrisingenergyandfoodprices,andfromthedemandside,spurredbytheeconomicreopeningandlarger-than-expectedfiscalstimuli.Coreinflation,whichexcludesfoodandenergyprices,alsoroseatafastpaceof3.6percent.Higherinflationappearstohavetransmittedtowagegrowthtosomeextent,butaninflation-wagespiralisexpectedtobeunlikelyevenasthelabormarketistight.Short-terminflationexpectationshavebeenhigh,althoughlong-termexpectationsremainwellanchored.Theexternalsectorhasbeenresilientdespitewideningtradedeficitsandsomedeclineinforeignreserves.Thecurrentaccountsurplusisforecasttonarrowfrom4.7percentin2021to1.8percentin2022mainlyduetotradedeficits.InternationalreservesdroppedbyUSD40billiontoUSD423billionin2022amidthedepreciationofthewonandacontinualnetincreaseinresidents’overseasportfolioinvestments.Despitetherecentdecline,foreignreservesremainample,coveringabout2.4timesshort-termexternaldebtsandaboutsixmonths’ofimports.Monetarypolicytighteninghasbecomerestrictive.Totametherapidandbroad-basedincreaseininflationfollowingthesurgeincommodityandimportpricestogetherwithelevatedhouseholddebts,theBankofKorea(BOK)hasraisedthebaserateon10occasionssinceAugust2021,to3.50percentfrom0.50percent,includingtwobighikesof50basispointseach.FinancialinstitutionshavesloweddownlendingsincetheBOKembarkedonitshikingcycle,butborrowers’debt-servicingcapacityhasremainedbroadlyrobust.Theslowdownofloangrowthhasbeendrivenmainlybyfewerhouseholdandsmallandmediumenterpriseloansasthecostofborrowingrose.Overall,theloanqualityofbanksandnonbankfinancialinstitutionsremainssound.Thisisreflectedbythelowaveragedelinquencyrates.Thatsaid,thedebt-servicingcapabilityofyoungadultsandsmallfirmshasdeterioratedsomewhatandcouldcontinuetoworsenamidtheincreaseininterestrates.Thepropertymarkethasbeenslowingdownsincemid-2021.Housingdemandsoftenedduetothetighterfinancialenvironmentamidstringentmacroprudentialmeasuresandrealestatetaxes,andaslowdowninthedomesticeconomy.Accordingly,mortgagelendingmoderated.Meanwhile,thesupplyshortageeasedamidnewhousingcomingonthemarketandarelaxationofhousingredevelopmentregulations.Asaresult,propertyandrentalprices,especiallyforapartments,havecontinuedtofallacrossthecountry.Thebudgetfor2023andtheNationalFiscalManagementPlan(NFMP)2022–26envisageafiscalpolicyshiftfromexpansiontoconsolidation.Thefiscaldeficit,excludingsocialsecurityfunds(SSFs),isbudgetedtodeclinesharplyto2.6percentofGDPin2023,mainlyattributabletothespendingbeingcutby6.0percentrelativetothesecondsupplementarybudgetin2022.Overthemediumterm,theNFMP2022–26aimstomaintainthefiscaldeficit(excludingSSFs)atmid-2percentofGDPandthegovernmentdebtatbelowmid-50percentofGDP.Riskstotheeconomicoutlookaretiltedtothedownsideinthenearterm,withalotofuncertaintysurroundingthebaselineforecast.Short-termrisksincludeaweaker-than-expectedrecoveryinChina,moreaggressivepolicyratehikesbytheUSFederalReserve,asharpereconomicslowdowninadvancedeconomies,thespreadofnewandmoreinfectiouscoronavirusvariantsinKoreaanditsmajortradingpartners,renewedcommoditypricehikes,andsupplychaindisruptions.Overthemediumterm,arisinginterestburdenandslowingeconomycouldleadtofinancialdistressinvulnerablefamiliesandbusinesses,althoughhouseholdandcorporatedebtaregenerallysound.Vulnerabilitiescouldalsoariseamongsomelanddevelopersandsmallsecuritiescompanies.Inaddition,geopoliticaltensionscouldintensifyanddampeneconomicactivities.Inthelongterm,rapidpopulationagingwillaggravatethefiscalburdenandweighonthecountry’seconomicpotential.152ASEAN+3RegionalEconomicOutlook2023Korea:SelectedFiguresTheKoreaneconomyreboundedduring2021and2022,mainlyonstrongexportgrowthandrecoveringprivateconsumption.Jobgrowthwasstrongin2022,althoughunevenacrosssectors.Loanstothehouseholddeclinedin2022,ledbybankingsector.Yieldsofcorporatebondsandshort-termmoneymarketinstrumentsroserapidlyinOctoberandNovember2022followingthedefaultoftheLegolandKoreadeveloper.Despitetherecentdecline,foreignreservesremainample,coveringabout2.4timesshort-termexternaldebt.Theincreaseininflationwasbroad-basedin2022,bothfromthesupplysideandthedemandside.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)ChangeinEmployment(Thousands,year-on-year,non-seasonallyadjusted)ChangeinHouseholdLoans(TrillionsofKoreanwon,non-seasonallyadjusted)PolicyandMarketInterestRates(Percentage;basispoints)ForeignExchangeReserves(BillionsofUSdollars;times)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)-6-303692016201720182019202020212022NetexportsChangeininventoriesGrossfixedcapitalformation:PublicGrossfixedcapitalformation:PrivateGovernmentconsumptionPrivateconsumptionRealGDPgrowth-202468201320152017201920212023Food&energyCoreinflation(exfood&energy)HeadlineinflationSource:BankofKoreaviaHaverAnalytics;Source:StatisticsKoreaviaHaverAnalytics;-1,000-50005001,0001,50020162017201820192020202120222023Agriculture,forestry&fishingMining&manufacturingElectricity,transport,communication&financeConstructionWholesale,retailtrade&hotelsBusiness,personal,publicservices&othersTotaljobcreationSource:StatisticsKoreaviaHaverAnalytics;AMROstaffcalculations01234-30-20-1001020200720102013201620192022MonthlychangeinbillionsofUSdollarsShort-termexternaldebtcover(quarterly,rightaxis)Source:BankofKoreaviaHaverAnalytics;AMROstaffcalculations-100102030201820192020202120222023BankingsectorCommercialcreditcompanySavingsbankInsuranceMutualfinancingChangeinhouseholdloans0501001502000123456Dec-21Feb-22Apr-22Jun-22Aug-22Oct-22Dec-22Feb-23BankofKoreabaserateCommercialpapers:91-dayYieldoncertificatesofdeposit:91-daySpreadof3-yearAA-corporatebondyieldto3-yearKTB(rightaxis)Source:FinancialSupervisoryServiceviaHaverAnalytics2023Source:BankofKoreaviaHaverAnalytics;AMROstaffcalculations.Note:KTB=Koreantreasurybond.Annex:DevelopmentsinASEAN+3Economies153Korea:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimatesNote:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Governmentdebtreferstoonlydebtsecuritiesandloans.20192.2–0.74.12.62.1–4.83.74.46.45.15.64.2–2.13.52.8–0.9Importsofgoodsandservices–1.9–3.110.13.5Exportsofgoodsandservices0.2–1.710.82.93.64.64.71.83.24.03.90.63.53.93.44.01.61.62.42.92.62.51.11.5–1.0–0.5–0.1–0.9Errorsandomissions0.00.4–0.40.50.11.10.8–1.7Grossexternaldebt28.533.534.939.7408.8443.1463.1423.224.624.727.528.625.228.329.031.2–0.6–3.7–1.5–2.737.643.646.949.57.99.812.93.59.69.712.18.09.09.111.37.01,924.51,940.72,071.72,162.40.40.52.55.11.250.501.003.501,165.71,180.11,144.41,292.2Fiscalbalance(includesocialsecurityfunds)2021RealsectorRealGDPCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestment2020PrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationExternalsectorTradebalanceExchangerate(inKRW/USD,periodaverage)Governmentdebt1MonetaryandfinancialsectorsPrivatesectorcreditMemorandumitems:DomesticcreditNominalGDP(inKRWtrillion)Broadmoney2022(inannualpercentagechange)(inpercentofGDP,unlessotherwisespecified)Headlineinflation(inpercenty-o-y,periodaverage)Policyrate(inpercent,endofperiod)RevenueExpenditure(inpercentofGDP)(inannualpercentagechange)OverallbalanceInternationalreserves(inUSDbillion,endofperiod)FiscalsectorCurrentaccountbalanceIndicator154ASEAN+3RegionalEconomicOutlook2023LaoPeople’sDemocraticRepublicTheauthorofthiscountrynoteisYokiOkawa.TheLaoPDR’seconomyin2022continuedtorecoverfromthepandemic.Therecoverywasunderpinnedbystrongconstructionandmining.Mobilitydatasuggestthatmovementrestrictionswerenolongeraconstraintondomesticbusinessamidthereopeningofborders.Ontheotherhand,extremelyhighinflationsincemid-2022dampenedconsumption.GDPgrowthisestimatedat4.0percentin2022.Theclosureofcopperandgoldminescouldweakengrowthin2023,whilethereopeningoftheChineseborderwouldincreaseFDIandtouristarrivalstoLaosthroughtherecentlycompletedLao-Chinarailway.Inflationhassurgedsincemid-2022,drivenbydomesticandexternalfactors.Domesticenergypricesincreasedin2022duetotheglobaloilpriceincreaseanddepreciationofthekip.TheLaocurrency’ssharpdepreciationalsopushedupfoodprices,partlyduetotherelianceonfoodimports.Inaddition,foodpricesspikedinSeptemberandOctober2022,onaccountofhigherlogisticscostsduetoflooding.Thekipdepreciated30percentagainsttheUSdollarintheparallelmarketbetweenMarchandJune2022andthenstabilized.Thedepreciationwasduetoasharpriseinspendingonimportsasaresultofhigherglobaloilprices,aswellashighdebtrepaymentsandlowrepatriationofexportearnings.ThepaceofdepreciationslowedafterJuly,helpedbytheBankoftheLaoPDR(BOL)issuinghigh-yieldbondsinJunetomopupliquidity.Thekipgraduallyappreciatedfromaround19,000LAK/USDinNovember2022to17,000LAK/USDinJanuary2023amidtheweakeningofUSdollar.Theexternalbalanceweakenedin2022,resultinginlowergrossinternationalreserves.Thecurrentaccountbalancedeterioratedwithslowerexportgrowthwhilerecoveryandhigherenergypricespushedupimports.ThefinancialaccountturnednegativeduetoanincreaseindebtrepaymentsandaslowdowninFDI.GrossinternationalreservesdeclinedfromUSD1.3billionattheendof2021toUSD1.1billioninSeptember2022.Banklendinghaspickedup,whiledepositgrowthhasslowedinrecentmonths.Strongloangrowth,especiallyinkiploans,mayberelatedtotheimprovedfinancialpositionofconstructioncompaniesasgovernmentarrearswereclearedin2021.Inaddition,twostate-ownedbankswererecentlyrecapitalized.FollowingtheissuanceofBOLbillsinJune,bankliquiditydeclinedasdepositorsswitchedoutofbankdeposits.Thekiploan-to-depositratioincreasedto91.0percentasofOctober2022,upfrom79.4percentattheendof2021.Thegovernmentcontinueditsfiscalconsolidationin2022.Thebudgetdeficitwasreducedto0.6percentofGDPin2022from1.3percentin2021.In2022,revenuegrowthwasrobust,drivenbystrongactivityinthehydropowerandminingsectors,whileexpendituregrowthwasmoderateduetoslowercapitalexpendituredisbursements.However,despitefiscalconsolidation,thepublicdebt-to-GDPratioestimatedtohaverisenfurtherfrom75percentto97percentofGDPin2022duetothedeclineintheexchangerate.Theexternalsectorisexposedtodownsiderisks.Theglobaleconomicslowdownandtheclosureofcopperandgoldminescouldweighongrowthandtheexternalbalanceinfuture,althoughthereopeningoftheChineseborderwouldprovideaboosttotourism.Givenlowgrossinternationalreserves,thekipremainsvulnerabletoexternalshocks,includinghigherenergypricesandtighterUSdollarfinancingconditions,amidlargeexternaldebtrepayments.Anotherroundofkipdepreciationcouldfurtheraccelerateinflationandweakenthebalancesheetsoffirmswhoseborrowingsaredenominatedinforeigncurrenciesandrevenuesareinthekip,includingÉlectricitéduLaos(EDL),thestate-ownedelectricitycompany.Althoughfinancialsoundnessvariesacrossbanks,loanqualityissubjecttodownsiderisks.BanquePourLeCommerceExterieurLaoPublic,thelargestbankwitha40percentshareintotalbankdeposits,reportedafurtherdeclineinitscapitaladequacyratiotobelow6percentinQ22022,againstaregulatoryminimumof8percent.Whilenonperformingloansratiosremainedlowandstable,bankassetqualitycouldbeaffectedbythewithdrawalofregulatoryforbearancesonCOVID-19-relatedrestructuredloans.Giventhelowlevelofgrossinternationalreservesandlimitedaccesstoexternalfinancing,thegovernment'sdebtservicecapacityisamajorconcern.ExternaldebtserviceisexpectedtoremainaboveUSD1billionayearforthenextfewyears,whilesecuringexternalfinancingischallengingduetounfavorablemarketconditionsandLaoPDR’slowcreditratings.EDL'sfinancialpositioncontinuestodeteriorateduetooperationalandforeignexchangelosses.EDL'sfinancialdifficultiescouldstrainthefiscalpositionthroughdelayedon-lendingpaymentsandpotentialbailoutcosts.Annex:DevelopmentsinASEAN+3Economies155LaoPDR:SelectedFiguresTheLaoPDReconomycontinuesitsrecoveryfrompandemicin2022.ThekipdepreciatedsharplyfromMarchtoJune2022whileitgraduallyappreciatedfromNovember2022toJanuary2023.Creditgrowthacceleratedpartlyduetotheimprovedfinancialconditionsaspublicarrearswereresolved.Theprimarybalanceimprovedin2022butpublicdebtincreasedbecauseofcurrencydepreciation.Foreignexchangereserveswereonadownwardtrendin2022.Inflationacceleratedin2022,drivenbyfoodpriceandcurrencydepreciation.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)Exchangerates(LAK/USD;percentagepoints)CreditGrowth(Percent,year-on-year)PrimaryBalanceandPublicDebt(PercentofGDP)InternationalReserves(MillionsofUSdollars;monthsofimports)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)Sources:LaoStatisticsBureau;andAMROstaffestimates.Note:edenotesestimate.Source:LaoStatisticsBureau.Note:CPI=consumerpriceindex.6.25.53.33.54.0-20246820182019202020212022eAgricultureMiningManufacturingElectricityConstructionServiceGDPGrowth010203040502020202120222023FoodTransportationRestaurants&hotelsOthergoodsOtherservicesCPI010203040508,00012,00016,00020,00024,000Jan-21Jul-21Jan-22Jul-22Jan-23Gap(rightaxis)ReferencerateParallelrate0.00.51.01.52.02.53.03.57009001,1001,3001,5001,7002019202020212022ForeignreservesInmonthsofimports(rightaxis)Source:BankofLaoPDRNote:Gapisadifferencebetweenparallelratesandreferencerates.Source:BankofLaoPDR;AMROstaffestimates.01020304050602019202020212022CredittoprivatesectorM2MonetaryBase20152016201720182019202020212022e-6-4-2024405060708090100PrimarybalancePublicdebtSource:BankofLaoPDR.Source:MinistryofFinance;AMROstaffestimates.Note:edenotesestimate.156ASEAN+3RegionalEconomicOutlook2023LaoPDR:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimatesNote:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Usingendofperiodexchangerates.2/Domesticcreditcomposesnetclaimsfromcentralgovernment,localgovernment,nonfinancialcorporationsandhouseholds.3/Privatesectorcreditexcludescredittostate-ownedenterprises.20195.53.33.54.01.21.11.52.45.69.26.14.86.9–1.21.43.9–7.0–1.22.7–0.3–2.83.46.85.310.45.71.6–1.84.05.15.62.9–0.2–1.3–1.6–0.56.61.9–2.4–4.1Errorsandomissions–2.7–2.8–4.30.70.71.7–0.3–1.3Grossexternaldebt185.384.894.2119.2997.01,319.01,263.01,066.015.612.714.715.318.817.916.016.3–3.3–5.2–1.3–1.0Primarybalance–1.5–3.7–0.12.259.162.374.795.118.916.324.041.57.44.311.543.48.55.510.644.2162,657172,612184,981211,60418,73719,07619,05614,742GDPpercapita(inUSD)2,6302,6372,5931,9743.35.13.823.08,6819,0489,70714,076Exchangerate(inLAK/USD,periodaverage)AgricultureIndustryNominalGDP(inUSDmillion)Privatesectorcredit3Memorandumitems:OverallbalanceInternationalreserves(inUSDbillion,endofperiod)FiscalsectorNominalGDP(inLAKbillion)Headlineinflation(inpercenty-o-y,periodaverage)FiscalbalanceGovernmentdebtMonetaryandfinancialsectors(inannualpercentagechange)BroadmoneyDomesticcredit2(inpercentofGDP)RevenueandgrantsExpenditureCurrentaccountbalanceTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestmentRealGDPServicesExternalsector(inpercentofGDP,unlessotherwisespecified)Indicator202020212022Realsector(inannualpercentagechange)Annex:DevelopmentsinASEAN+3Economies157MalaysiaTheauthorsofthiscountrynoteareDianadelRosarioandWeeChianKoh.Theeconomyreboundedstronglyin2022,butwithgrowthmomentumeasedsomewhattowardtheendoftheyear.From3.1percentin2021,GDPgrowthincreasedto8.7percentin2022.Astrongrecoveryindomesticdemand,particularlyprivateconsumption,droveMalaysia’sGDPtoexpandby6.9percentyear-on-yearinthefirsthalfof2022.Growthsurgedfurtherto14.2percentinQ3fromalowbaseandduetorobustexports,whichreceivedaboostfrom1April2022asinternationalborderswerereopened.Growtheasedto7.0percentyear-on-yearinQ4,asweakeningglobaldemandbegantoweighonMalaysia’smanufacturingandexternalsectors,andthestrongreboundinprivateconsumption,whichstartedinQ42021,peakedtowardend-2022aspandemicsupportmeasuresweregraduallyunwound.Nonetheless,goingforward,consumerdemandislikelytoremainsupportedbythesustainedrecoveryofthelabormarket—inlinewiththepick-upininfrastructureinvestmentandastrongpipelineofFDI—aswellasamplehouseholdsavings.Pricecontrolsandsubsidieshaveputalidoninflation,althoughthebroadeningofpricepressureshaspromptedanormalizationofmonetarypolicy.Headlineinflationroseto3.3percentin2022from2.5percentin2021,withpricecontrolsonselectedfooditemsandenergysubsidiesmitigatingthepass-throughofglobalinflationtodomesticprices.However,areboundindemandfromtheliftingofCOVID-19restrictionshascontributedtoabroadeningofpricepressures,withcoreinflationrisingtoitshighestinnearlysevenyears,at4.0–4.2percentinSeptember–December2022.Aftertakingitspolicyratestoarecordlowof1.75percentin2020,BankNegaraMalaysia(BNM)startedtonormalizemonetarypolicyinMay2022,raisingthepolicyrateinfour25-basis-pointincrementsto2.75percentbyFebruary2023.RobusttradesurplusesandFDIinflowshavekeptMalaysia’sexternalpositionstrongdespitesomeoutflowsofportfolioinvestmentfollowingaggressivemonetarypolicytighteningbytheUSFederalReservein2022.ThetradesurpluswassupportedbyfavorabletermsoftradeandupbeatdemandforMalaysia’sexportsofcommodities,electricalandelectronicproducts,andothermanufacturedgoods.Atthesametime,FDIroseremarkablyto4.1percentofGDPin2022,from3.1percentin2021and2.2percentin2018–19.ThesepositivedevelopmentshavehelpedmitigatethedeclineinBNM’sinternationalreservesamidcurrencydepreciationpressuresandportfolioinvestmentoutflowsastheUSFederalReservemonetarytighteningtriggeredareallocationofglobalfundstosaferassets.BNM’sinternationalreservesremainadequatetocovershort-termexternalliabilitiesdespiteadeclineofUSD1.7billionfromUSD116.9billionatend-2021toUSD115.2billionasofend-January2023.Thebankingsystem,withitsamplecapitalandliquiditybuffers,remainsabletofacilitatecontinuedcreditgrowth.Thebankingsystem’scapitalandliquiditybuffersarewellabovetheirregulatoryrequirementsof10.5percent(inclusiveofthecapitalconservationbuffer)and100percent,respectively.Loanimpairmentshavelikewiseremainedlowat1.72percentoftotalloansattheendof2022,only0.05percentagepointhigherfromend-2021,despiteheightenedcreditrisksfromthephasingoutoftheloanrepaymentassistanceinJune2022andhigherborrowingcosts.Loangrowthpickedupfrom4.4percentatend-2021topeakat6.8percentinAugustbeforeeasingto5.5inNovemberand5.7percentinDecember.Fiscalperformancein2022beatinitialMinistryofFinance(MOF)projections,whiletherevised2023budgetseekstobalancegrowthandfiscalconsolidation.Thefiscaldeficitwasat5.6percentofGDPin2022comparedtotheMOF’sinitialestimateof6.0percent,withfiscalrevenuegettingaboostfromthesurpriseupsideinglobalcommoditypricesandarobustdomesticrecovery.Therevised2023budget,tabledbythenewgovernmenton24February2023,aimstocontinuetosupportgrowthandalleviatecost-of-livingpressures.Yet,ittakesonafasterpaceoffiscalconsolidation,withaprojectedfiscaldeficitof5.0percentin2023andnarrowingfurtherto3.2percentin2025,byraisingnewsourcesofrevenuesuchasaluxurygoodstax.WhiletheeconomyhasrecoveredstronglyfromtheCOVID-19pandemic,itsnear-termoutlookfacesmultifacetedrisks.Chiefamongthemare:(1)adeeper,ormoreprotracted,recessionintheUSandEurope,andaweakrecoveryoftheChineseeconomy,(2)elevatedinflationduetosupplyrelateddisruptions,suchasfromprolongedgeopoliticalconflictsandspikesinCOVID-19casescausingworkershortagesinChina,and(3)asharptighteningoffinancialconditions,includingrenewedcurrencydepreciationpressures,fromtheUSFederalReservecontinuedratehikes.Ontheupside,therecentreopeningofChina’sinternationalborderscouldexpediterecoveryinMalaysia’stourismindustryandsupportmerchandiseexport.158ASEAN+3RegionalEconomicOutlook2023Malaysia:SelectedFiguresAstrongrecoveryinconsumerdemandandalowbasepushedupGDPgrowthto8.7percentin2022.Merchandiseexportspostedrobustgrowthuntilclosertoend-2022whentheglobalmanufacturingoutlookdimmed.Loangrowthstrengthenedin2022despitetheincreaseinlendingratefollowingBNM’spolicyratenormalization.Thefiscaldeficitandgovernmentdebt,afterrisingin2020-2021,haveremainedwellabovepre-pandemiclevels.Pricecontrolsandsubsidieshaveputalidonheadlineinflationbuthavenotkeptcoreinflationfromrisingsteadily.Employmentandwagegrowtharesupportingthereboundinprivateconsumption.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)ManufacturingSectorPMIandMerchandiseExports(Index;percentyear-on-year)LendingRateandLoanGrowth(Percent,percentyear-on-year)FiscalBalanceandFederalGovernmentDebt(PercentofGDP;percentofGDP)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)WagesandUnemploymentRate(Percentyear-on-year;percent,seasonallyadjusted)0.7-17.1-2.5-3.3-0.515.9-4.53.65.08.914.27.0-30-20-1001020202020212022PrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationChangeininventoriesNetexportsGDP5.43.73.03.54.04.55.05.5-10-50510Aug-19Apr-20Dec-20Aug-21Apr-22Dec-22ManufacturingsectorwagesUnemploymentrate(rightaxis)Source:DepartmentofStatisticsMalaysia;AMROstaffestimates.Source:DepartmentofStatisticsMalaysia.-60-40-200204060803540455055606570Sep-19May-20Jan-21Sep-21May-22Jan-23GlobalmanufacturingPMIMerchandiseexportsinUSdollars(rightaxis)-4-2024620192020202120222023OthersMisc.goods&servicesTransportHousing&utilitiesFood&non-alcoholicbeveragesHeadlineinflationCoreinflationSource:BankNegaraMalaysia;DepartmentofStatisticsMalaysia;S&PGlobal.Note:Forglobalmanufacturingpurchasingmanagers’index(PMI),dataabovelevel50denoteexpansion.Source:DepartmentofStatisticsMalaysia.Note:Misc.=miscellaneous.234567Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23AveragelendingrateLoangrowthSource:BankNegaraMalaysia.020406080-8-404808091011121314151617181920212223BOverallbalanceFederalgovernmentdebt(rightaxis)2008Source:BankNegaraMalaysia;DepartmentofStatisticsMalaysia;MalaysiaMinistryofFinance;AMROstaffestimates.Note:23Breferstoestimatesundertherevised2023budget.Annex:DevelopmentsinASEAN+3Economies159Malaysia:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimation.Note:y-o-y=year-on-year.4.4–5.53.18.77.7–4.21.911.31.55.05.33.9–2.1–14.4–0.96.8Importsofgoodsandservices–2.4–7.917.714.2Exportsofgoodsandservices–1.0–8.615.412.83.54.23.82.67.56.47.16.9–2.5–5.50.80.80.40.21.80.9–2.1–3.51.2–2.9–0.8–2.2–2.12.9Errorsandomissions–0.50.0–1.6–0.50.6–1.43.03.0Grossexternaldebt62.667.670.064.0103.6107.6116.9114.617.515.915.116.521.022.221.522.0–3.4–6.2–6.4–5.652.462.063.460.43.54.06.44.34.43.53.85.24.23.24.55.75.76.0–0.71.21,5131,4181,5451,7880.7–1.22.53.33.001.751.752.754.144.204.144.402022(inpercentofGDP,unlessotherwisespecified)(inannualpercentagechange)202020192021(inpercentofGDP)(inannualpercentagechange)Headlineinflation(inpercenty-o-y,periodaverage)Policyrate(inpercentperannum)RevenueandgrantsExchangerate(inMYR/USD,periodaverage)ExpenditureFiscalbalanceGovernmentdebtMonetaryandfinancialsectorsBroadmoneyNominalGDP(inMYRbillion)PrivatesectorcreditMemorandumitems:LoansSecuritiesOtherinvestmentOverallbalanceFiscalsectorInternationalreserves(inUSDbillion,endofperiod)IndicatorGrossfixedcapitalformationExternalsectorRealsectorCurrentaccountbalanceTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentRealGDPPrivateconsumptionGovernmentconsumption160ASEAN+3RegionalEconomicOutlook2023MyanmarTheauthorofthisnoteisTanyasornEkapirak.AfterasharpdeclineinGDP2021,theMyanmareconomyrecoveredmodestlyin2022.TheCOVID-19infectionhassubsidedandcaseloadhasremainedlowafterslightlypickingupinSeptember.ThebanoninternationalflightswasliftedsincelateApril.Googlemobilitydatashowthatactivitiessuchastheworkplaceandgroceryshoppinghaverecoveredinbigcities.Overall,domesticconsumptionisresilientandgraduallyrecoveringwiththeresumptionofactivities.Manufacturinghasbeenweigheddowninrecentmonthsbyelectricityoutages,supply-chaindisruptions,andspikesinfuelprices,whilegarmentexportshavestartedtorecover,yetremainbelowpre-pandemiclevel.Inflationrosesignificantlyin2022onthebackofhigherenergyandfoodpricesamidthesignificantdepreciationofkyat.Headlineinflationhasbeentrendingup,reaching19.6percentyear-on-yearinJuly2022,upfrom12.6percentattheendof2021.Risingenergypricesandexchangeratedepreciationwerethekeyfactorsbehindthesurge.Foodinflationhasalsobeenrisingonthebackofsupplychaindisruptionsandhighertransportcosts.Myanmar’sexternalpositiondeterioratedamidadeclineinexports,apullbackinFDI,andadropinoverseasremittances.Tradevolumes,especiallybordertrade,havebeengraduallyreboundingafterThailandandChinareopenedtheirborders.Serviceincomedeterioratedamidacollapseintourism-relatedservicesduringthepandemic.InvestmenthasfallenduetoahaltinnewFDIinflowsasbusinessconditionsworsenedandamidcontinuinguncertaintiessinceastateemergencywasannouncedinFebruary2021.Asaresult,thecurrentaccountturnedintoadeficitofUSD1billioninFY2021/22whilethefinancialaccountdeterioratedtoasmallsurplusofUSD0.9billion.TheoverallbalanceofpaymentswasestimatedtobeinaslightdeficitofUSD0.06billion.Overallfinancialconditionhasremainedconstrainedsince2021.Outstandingloanstotheprivatesectorincreasedbyonly0.02percentin2021,downfrom4.2percentin2020,reflectingtheweakeconomy.Bankfundingalsotightenedasdepositsfellby12.9percentin2021.TheCentralBankofMyanmar(CBM)hasmaintaineditspolicyrateat7percentsinceMay2020.InFY2020/21,bothexpenditureandrevenuedeclinedsignificantly.NotwithstandingasharpcontractioninGDP,governmentrevenueisestimatedtohaveincreasedby36.7percentduetoanimprovementintaxcollectiononlocalproduction,importduties,andconsumption.Governmentexpenditureisestimatedtohaveincreasedby24.8percentduetoariseininterestpayments.Theoverallfiscaldeficitnarrowedto7.0percentofGDPinFY2021/22,downfrom7.7percentinFY2020/21.Externalfinancingdeclinedsignificantly,withUSD837millionindisbursementsin2021,downfromalmostUSD2billionin2020.TheuncertainbusinessenvironmentamidrecurrentCOVID-19outbreaks,politicaluncertainties,andsanctionsfromadvancedeconomies,willcontinuetodampeninvestorsentiment.Uncertaintieslingerandheadwindsaregathering,particularlyonthepoliticalfront.TargetedsanctionsimposedprimarilybytheUnitedStatesandEuropeanUnionhavediscouragednewFDIinflows,cutoffsupportfrominternationaldonors,andpromptedseveralmultinationalcorporationstoadoptawait-and-seestrategy.Furthermore,ablacklistingbytheFinancialActionTaskForceafterbanksinMyanmarfailedtoimplementcounter-terrorismandanti-financialcrimemeasuresinOctober2022wouldposedifficultiestobusinessesintransferringfundsinandoutofthecountry.Thebankingsectorremainshighlyvulnerableamidmountingrisks.Althoughsomebankfunctionshaveresumed,overallbankingsectorsoundness,includingassetqualityandcapitaladequacy,hasdeterioratedsincethestateemergencywasdeclared.Also,asdepositshavestagnatedandthebusinessoutlookisuncertain,bankcreditsupporttotheprivatesectorwillcontinuetobetepid,andinformallendingmayplayabiggerrole.Thekyatcontinuestobeundersignificantpressure,withapersistentdivergencebetweentheofficialandparallelrates.ForeignexchangehasbeenasevereshortageinMyanmarsince2021.Inresponse,theCBMhastightenedregulations,includingforeignexchangesurrenderrequirements,whichhashadsignificantnegativeimpactsonbusinessesandhouseholds.Annex:DevelopmentsinASEAN+3Economies161Myanmar:SelectedFiguresAfterasharpdeclineinGDPin2021,theMyanmareconomystartedtorecovermodestlyin2022.ExternalpositiondeterioratedamidapullbackinFDIandadropinoverseasremittances.Foreignreservescontinuedtobeunderpressureamidsignificantuncertainties.Thefiscaldeficitremainedelevated.TheCentralBankofMyanmarsettheofficialexchangerateat2,100MMK/USDamidsignificantdownwardpressureonthecurrency.Inflationhasrisensignificantlyin2022onthebackofhigherenergyandfoodpricesContributionstoRealGDPGrowth(Percentpoints,year-on-year)BalanceofPayments(PercentofGDP)GrossInternationalReserves(MillionsofUSdollars)FiscalBalance(PercentofGDP)ExchangeRate(MMK/USD)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)Source:CentralBankofMyanmar.-20-15-10-50510FY18/19FY19/20FY20/21FY21/22eAgricultureIndustryServicesRealgrowth05101520252019202020212022FoodRental&utilitiesOthernon-fooditemsHeadlineinflationSource:MinistryofPlanningandFinance;AMROstaffestimation.Note:edenotesestimate.FYdenotesfiscalyear.Source:CentralStatisticalOrganization.-2-1012201920202021CurrentaccountFinancialaccountNeterrors&omissionsOverallbalanceForeigndirectinvestmentSource:CentralBankofMyanmar;AMROstaffcalculations.1,0001,2001,4001,6001,8002,0002,200201920202021202220235,0006,0007,0008,0009,00010,0002019202020212022-100102030FY18/19FY19/20FY20/21FY21/22eRevenue&grantsExpenditureFiscalbalanceSource:MinistryofPlanningandFinance.Note:edenotesestimate.FYdenotesfiscalyear.Source:CentralBankofMyanmar.162ASEAN+3RegionalEconomicOutlook2023Myanmar:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimation.Note:RednumberdenotesAMROstaffestimate.y-o-y=year-on-year.1/Referstofiscalyear,whichstartson1Octoberandendson30September.201920206.83.2–18.71.2–0.2–2.5–0.2–4.3–4.3–5.3–1.6–3.73.34.32.62.42.43.01.41.81.51.81.5–1.2Errorsandomissions–2.7–0.2–2.42.60.31.50.00.8Grossexternaldebt14.715.115.617.15,604.66,913.46,917.96,858.718.720.513.516.424.926.821.323.1–6.5–6.2–7.7–6.738.742.251.055.815.415.011.4–0.7Domesticcredit17.414.414.57.916.18.61.50.68.65.83.618.210.007.007.007.001,531.91,426.01,493.71,856.72022Realsector(inannualpercentagechange)RealGDPExternalsector(inpercentofGDP,unlessotherwisespecified)Internationalreserves(inUSDmillion,endofperiod)Fiscalsector1CurrentaccountbalanceIndicator2021TradebalanceCapitalandfinancialaccountbalanceDirectinvestmentOtherinvestmentOverallbalanceHeadlineinflation(inpercentyoy,periodaverage)(inpercentofGDP)RevenueandgrantsExpenditure(inannualpercentagechange)BroadmoneyFiscalbalanceExchangerate(inMMK/USD,periodaverage)GovernmentdebtMonetaryandfinancialsectorsPolicyrate(inpercentperannum,endperiod)PrivatesectorcreditMemorandumitems:Annex:DevelopmentsinASEAN+3Economies163ThePhilippinesTheauthorofthisnoteisHeungChun(Andrew)Tsang.ThePhilippineeconomyregisteredastrongrecoveryin2022amidacalibratedrelaxationofquarantineprotocolsandcontinuedprogressinthegovernment’svaccinationprogram.GDPgrowthwas7.6percentin2022,followingapost-pandemicreboundof5.7percentin2021.Therecoverywasmainlydrivenbyanimprovementinprivateinvestmentandhouseholdconsumption.Ontheproductionside,themaindriverofGDPrecoverywastheservicessector,particularlywholesaleandretailtrade.Thelabormarketalsoimprovedmarkedly.Unemploymentratewasat4.3percentinDecember2022,whichwaslowerthanthepre-pandemicrateof4.6percent.Inaddition,bothemploymentandthelaborforceparticipationrateshavesurpassedpre-pandemiclevels.Headlineinflationpickeduprapidlyin2022owingtorisingoilandfoodprices.Theaverageinflationraterosefrom3.9percentin2021to5.8percentin2022followinghigherenergyprices,domesticfoodshortages,whicheventuallyledtosecond-roundeffects.Coreinflation,whichistheheadlineinflationexcludingfoodandenergyitems,alsoincreasedfrom3.0percentto3.9percent,suggestingthattheinflationpressureswerebroad-based.TheexternalpositionremainedsounddespiteanincreaseinthecurrentaccountdeficitfromUSD6.0billionin2021toUSD17.8billioninQ1–Q32022,or6.1percentofGDP.ThewideningwaspartlyoffsetbynetinflowsinthefinancialaccountofUSD10.3billion.Weakeninginthecurrentaccount,mainlyduetoanincreaseinthetradedeficitcoupledwiththeUSdollarstrengthtoexertdownwardpressureonthepeso.Thepesodepreciatedfrom50.8PHP/USDinearly2022toanall-timelowof59.2PHP/USDinlateSeptemberbeforereboundingto56.1PHP/USDattheendoftheyear.Over2022,whilethepesodepreciatedby10.5percentagainsttheUSdollar,itwasbyonly3.3percentinnominaleffectiveterms.Meanwhile,thegrossinternationalreservesdeclinedfromUSD108.8billionatend-2021toUSD96.1billionatend-2022,duemainlytothegovernment’srepaymentsofitsforeigncurrencydebt.Thatlevelissufficienttocovershort-termexternalfundingneedswithimportcoverageof7.3monthsand3.9timestheshort-termexternaldebtasofDecember2022.TheBangkoSentralngPilipinas(BSP)startedtonormalizeitsmonetarypolicystanceinMay2022asinflationpressureintensified.In2022,theBSPraisedthepolicyrateseventimesfromahistoriclowof2.0percentto5.5percentinDecember.TheBSPhasalreadystartedtounwindsomeofthemeasuresimplementedtocushionthepandemicimpact.Measuresincludedrepotransactions,andtreasurybondpurchasesinthesecondarymarket.In2022,loangrowthpickedupsteadilyacrosssectors,risingfrom4.8percentyear-on-yearinDecember2021to13.4percentinDecember2022.Benefitingfromrelaxingpandemicrestrictions,loanstotherealestate,manufacturing,andservicessectors,andforhouseholdconsumptionexpandedsignificantly.Meanwhile,loangrowthwasboostedbywrite-offsofnonperformingloansundertheFinancialInstitutionsStrategicTransferAct,whichhelpedtofreeupbanks’balancesheetsfornewlending.Thefiscalsituationimprovedin2022,drivenmainlybysolidrevenueperformance.In2022,thegovernmentrevenueincreasedby18percentcomparedto2021.Thiswasattributabletorobusteconomicrecovery,highcommodityprices,andimprovedtaxadministration.Meanwhile,expendituregrewby10.4percentwhileinfrastructurespendingroseby14.3percentinthefirstelevenmonths,consistentwitheconomicgrowth.Asaresult,thefiscaldeficitfellto7.3percentofGDPin2022,comparedwith8.6percentofGDPin2021.SeveralrisksandchallengesarecloudingthePhilippineeconomicrecovery.Highinflationandglobaleconomicslowdownweighongrowthprospect.HighinflationcausedbytheUkrainecrisisandtheinfluenceofothersupplyfactorscoulddampendomesticconsumption.Highfoodandoilpricesinparticularhaveimpactedhouseholds’abilitytoaffordotherdiscretionaryitems.AweakeconomicrecoveryinChinaandslowerglobalgrowthwouldaffectexports,althoughthedirectimpactwillbelimitedasthecontributionofmerchandisetradetotheeconomyislesssignificant.Inaddition,capitalflowvolatilitycouldheightenintheshorttermshould,asexpected,globalfinancialconditionstightensignificantly.Overalongerterm,scarringeffectsofthepandemiccouldbecomemoreapparent.Thechallengewillbetoaddressthelearninglossesfromrepeatedschoolclosuresduringthepandemic,whichmayimpactproductivityandgrowthpotential.Moreover,thePhilippines’socialandeconomiccostsofnaturaldisastersareincreasingduetoglobalclimatechange,giventhatthePhilippinesisamongthecountriesthataremostsusceptibletonaturaldisasters.ThesepointsraisetheurgencyforthePhilippinestotakeactiontobuildresilient,sustainable,andinclusivelong-termgrowth.164ASEAN+3RegionalEconomicOutlook2023ThePhilippines:SelectedFiguresThemomentumofeconomicrecoverystrengthened.Monetarypolicystartedtotightenin2022.Thecurrentaccountdeficitwidened,drivenbyasurgeinimports.Internationalreservesremainedsufficientforexternalfundingneeds.Thefiscaldeficitnarrowedwithsolidrevenueperformance.Inflationacceleratedandstayedabovethe2–4percenttargetrange.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)MonetaryPolicyandMarketRates(Percent)CurrentAccountBalance(PercentofGDP)InternationalReserveAdequacy(Monthsortimes;billionsofUSdollars)FiscalBalance(PercentofGDP)ConsumerPriceInflationandInflationTarget(Percent,year-on-year)Source:PhilippineStatisticsAuthority;AMROstaffcalculations.Source:BangkoSentralngPilipinas.Source:BangkoSentralngPilipinas.(BSP)Note:Importcover(BSPmeasure)referstonumberofmonthsofaverageimportsofgoodsandpaymentofservicesandprimaryincome.Source:PhilippineStatisticsAuthority;AMROstaffcalculations.Note:Dataforinflationiscalculatedfromconsumerpriceindex(CPI,baseyear=2018).-20-15-10-5051020182019202020212022PrivateconsumptionGovernmentconsumptionGrosscapitalformationNetexportsStatisticaldiscrepancyGDP024681020182019202020212022HeadlineCPICoreCPIUpperboundLowerbound0246820182019202020212022OvernightlendingfacilityrateOvernightdepositfacilityrateOvernightreverserepurchaserateInterbankcallloanrate(weightedaverage)-10-8-6-4-2020182019202020212022InterestpaymentPrimarybalanceFiscalbalanceSource:BangkoSentralngPilipinas.Source:BureauofTreasury.-2.6-0.83.2-1.5-6.1-15-10-505101520182019202020212022Q1-Q3GoodsServicesSecondaryincomePrimaryincomeCurrentaccount02040608010012002468101220182019202020212022Reserves/grossexternalfundingneedsImportcover(BSPmeasure)Short-termexternaldebtcover(byresidualmaturity)Grossinternationalreserves(rightaxis)Annex:DevelopmentsinASEAN+3Economies165ThePhilippines:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimates.Note:RednumberdenotesAMROstaffestimate.y-o-y=year-on-year1/ThePhilippines'balanceofpaymentsfollowsBPM6.Anegative(positive)financialaccountbalanceindicatesnetinflow(outflow).Tradebalancereferstothetradebalanceofgoodsandservices.Overallbalance=Currentaccountbalance-Capitalandfinancialaccountbalance+Errorsandomissions.2/BroadmoneyreferstoM4.201920206.1–9.55.77.65.9–8.04.28.39.110.57.15.03.9–27.39.910.4Importsofgoodsandservices2.3–21.613.013.1Exportsofgoodsandservices2.6–16.18.010.7–0.83.2–1.5–5.3–9.6–5.5–9.8–13.7–2.1–1.9–1.8–3.5–1.4–0.9–2.5–2.0–0.7–0.52.6–0.30.0–0.5–1.7–1.0Errorsandomissions0.7–0.70.00.02.14.40.3–1.8Totalexternaldebt22.227.227.026.487.8110.1108.896.116.115.915.516.119.523.524.123.4–3.4–7.6–8.6–7.339.654.660.460.99.88.78.07.4Domesticclaims10.74.78.212.57.8–0.23.810.519,517.917,951.619,410.622,023.32.42.43.95.84.02.02.05.551.849.649.354.5Policyrate(inpercentperannum,endofperiod)Exchangerate(inPHP/USD,periodaverage)GovernmentdebtMonetaryandfinancialsectorsClaimsonprivatesectorMemorandumitems:NominalGDP(inPHPbillion)Headlineinflation(inpercenty-o-y,periodaverage)(inpercentofGDP)RevenueandgrantsExpenditure(inannualpercentagechange)Broadmoney2FiscalbalanceOverallbalanceInternationalreserves(inUSDbillion,endofperiod)FiscalsectorCurrentaccountbalance1IndicatorPrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationExternalsectorTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestment(inpercentofGDP,unlessotherwisespecified)20212022Realsector(inannualpercentagechange)RealGDP166ASEAN+3RegionalEconomicOutlook2023SingaporeTheauthorofthisnoteisJadeVichyanond.Singapore’sgrowthmomentummoderatedasthereopeningtailwindssubside.Aftergrowingby8.9percentyear-on-yearin2021,Singapore’sGDPgrowthslowedto3.6percentin2022,asnormalizationcontinued.Manufacturinglostsomesteamasglobalgrowthslowed,whiletheservicessectorremainedstrong,thankstotherecoveryintourismandtherelativelyresilientretailsector.Growthisexpectedtoslowasprospectsforglobalgrowthworsenandinflationpressuresconstraindomesticdemand.Inflationrosesignificantlyin2022.Singapore’sheadlineinflationrosefrom4.0percentyear-on-yearattheendof2021toahighof7.5percentinSeptember2022beforemoderatinginthesubsequentmonths.Whilethemaincontributorswerelargelydomestic(carownershipandaccommodationcosts),externalpressurewasalsosignificantasitwasresponsibleforrisingpricesofinfood,electricity,andpetrol.Inlightofheightenedinflationpressure,throughout2022,exchangeratepolicywastightenedwiththeslopeoftheSingaporedollarnominaleffectiveexchangerate(SGDNEER)policybandadjustedupwardtwice,inJanuaryandApril,andthebandre-centeredupwardthreetimes,inApril,July,andOctober.Asaresult,theSGDNEERappreciatedbyabout6.8percentinQ42022.Thelabormarketimprovedconsiderably,withmoresignsoftightnessevident.Theseasonallyadjustedoverallunemploymentratedeclinedsignificantly,fromahighof3.6percentinOctober2020to2.0percentinDecember2022.Relaxationofborderrestrictionssupportednonresidentemployment,particularlyeasingthelaborshortageintheconstructionsector.However,thelabormarketisexhibitingsignsoftightness,withthejobvacancy-to-unemployedpersonratioupfromanaverageof1.0duringthefewyearspre-pandemicto2.6inJune2022.Non-oildomesticexports(NODX)slowedalongwithsofteningexternaldemand.Aftergrowingat12.1percentin2021,NODXslowedto3percentin2022,asreflectedinthedecelerationofbothelectronicsandnon-electronicsexports.Thefinancialsectorhasremainedresilientthroughoutthepandemicperiod.Thebankingsystem’soverallnonperformingloan(NPL)ratiofellfurther,to1.9percentinQ22022from2.1percentinQ42021,althoughtheNPLratiosof5.0percentinthewholesaletradesegmentand8.6percentinthetransportandstoragesegmentremainedrelativelyhigh.Thisreflectedthesignificantimpactofthepandemicontradeandtourism-relatedsectors.Meanwhile,nonbanklendingtoresidentsgrewbyaround6percentyear-on-yearinQ3.Capitalandliquiditybuffersremainedstrongandwellaboveregulatoryrequirements.AphasedhikeintheGoodsandServicesTaxratewillsupportrevenuecollectioninthemediumterm.Thestaggeredincrease—fromthecurrent7percentto8percentin2023and9percentin2024—isinlinewiththegovernment’srevenuemobilizationdrivetomeetgrowingsocialspendingneeds.Anumberofsupportpackagesintheformofcashpayouts,rebates,andvouchers,hasbeenrolledouttohelpoffsetrisinglivingcosts,especiallyforlow-incomehouseholds.Aspateofmacroprudentialmeasureshasbeenrolledouttocoolthepropertymarket.InDecember2021,theAdditionalBuyer’sStampDutywasraisedbybetween5percentagepointsand15percentagepoints,exceptforSingaporecitizensandpermanentresidentsbuyingtheirfirstproperty.Inaddition,theTotalDebtServicingRatio(TDSR)forhousingloansgrantedbyfinancialinstitutionswasloweredfrom60percentto55percent,andtheLoan-to-Value(LTV)limitforpublichousingloanswasloweredfrom90percentto85percent.InSeptember2022,theauthoritiesfurthertightenedLTVlimitforpublichousingloansandtheTDSR,andintroduceda15-monthwait-outperiodforformerprivatepropertyownerswishingtobuyresalepublicflats.Theimpactofthemeasuresthusfarappearstobelimited.Demandremainsresilient,backedbystronghouseholdbalancesheetsandsustainedgrowthinhouseholdincome,albeitwithlowertransactionvolumes.Thishassustainedrealestatepricesamidlimitedsupply,withpronouncedpriceincreasesof10.3percentand8.6percentyear-on-yearobservedinbothpublic(resale)andprivatehousingin2022,respectively.Agloomieroutlookforglobaldemandandelevatedpricepressureconstituteskeyrisksforthecomingquarters.First,theuptrendinpolicyratesinkeyglobaleconomiescloudstheprospectsforglobalgrowth,whichwilldirectlyaffectSingapore’smanufacturingandexportperformance.Second,inflationpressureislikelytopersistintheneartermonthebackofbothexternalanddomesticfactors;supplychaindisruptionsandelevatedpricesofsomekeycommoditiesposechallengesontheexternalfront,whilerisingcarownershipfeesandaccommodationcostsremainkeydomesticinflationrisks.Overthelongerterm,Singaporewillneedtocontendwithchallengesarisingfromanagingpopulationandclimatechange.Annex:DevelopmentsinASEAN+3Economies167Singapore:SelectedFiguresSingapore’sgrowthmomentumhasmoderatedasthereopeningtailwindssubside.Non-oildomesticexportsslowedalongwithsofteningexternaldemand.TheSingaporeovernightrateaveragehasrisenalongwiththeUSFederalReserve’sovernightbankfundingrate.AsmallnegativefiscalimpulseisexpectedinFY2022.Inlightofinflationpressure,throughout2022,theslopeoftheSGDNEERpolicybandwasadjustedupwardtwice,andthebandwasre-centeredupwardsthreetimes.Inflationrosesignificantlyin2022duetobothexternalanddomesticfactors.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)ContributionstoNon-oilDomesticExports(Percentagepoints,year-on-year)OvernightInterestRates(Percentperannum)EstimatedFiscalImpulseandOutputGap(PercentofGDP;percentofpotentialGDP)SGDNEERandPolicyBand(Index)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)Source:MinistryofFinanceviaCEIC;AMROstaffcalculationsandestimates.Note:FYdenotesfiscalyear.FiscalimpulsedataareestimatedbyAMROstaff.-15-10-5051015202016201720182019202020212022ServicesManufacturingConstructionOthersGDPgrowth-4-2024682016201720182019202020212022PrivateroadtransportFuel&utilitiesFoodAccommodationOthersServicesHeadlineinflationSource:SingaporeDepartmentofStatisticsviaCEIC;AMROstaffcalculationsSource:SingaporeDepartmentofStatisticsandMonetaryAuthorityofSingaporeviaCEIC;AMROstaffcalculations-20-10010203020152016201720182019202020212022OthersPharmaceuticalsPetrochemicalsElectronicsTotalnon-oildomesticexports1151201251301351402019202020212022MASSGDNEERPolicyband:Mid-bandPolicyband:UpperboundPolicyband:LowerboundSource:EnterpriseSingaporeviaCEIC;AMROstaffcalculations.Source:MonetaryAuthorityofSingapore(MAS)viaCEIC;AMROstaffcalculationsandestimates.Note:SGDNEER=Singaporedollarnominaleffectiveexchangerate.Upper,midandlowerboundsofpolicybandareAMROstaffestimates.01234Mar-21Jun-21Sep-21Dec-21Mar-22Jun-22Sep-22FederalReserveovernightbankfundingrateSingaporeaverageovernightrateSource:UnitedStatesFederalReserveandMonetaryAuthorityofSingaporeviaCEIC;AMROstaffcalculations-15-10-505101520-15-10-505101520FY2018FY2019FY2020FY2021FY2022(revised)FiscalimpulseOutputgap(rightaxis)168ASEAN+3RegionalEconomicOutlook2023Singapore:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEIC;andAMROstaffestimates.Note:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Singapore’sbalanceofpaymentsfollowsBPM6.Anegative(positive)financialaccountbalanceindicatesnetinflow(outflow).Overallbalance=Currentaccountbalance-Capitalandfinancialaccountbalance+Errorsandomissions2/Fiscalbalancedenotestheoverallfiscalposition,i.e.,thedifferencebetweenoperatingrevenueandexpenditure,minusspecialtransfersandtop-upstoendowmentandtrustFunds,plusNetInvestmentReturnsContributionandcapitalizationofnationallysignificantinfrastructure,netofdepreciationandSignificantInfrastructureGovernmentLoanActinterestcostsandloanexpenses.201920201.3–3.98.93.62.8–13.16.69.73.213.03.7–2.32.3–14.818.01.6Exportsofgoodsandservices0.20.411.7–1.3Importsofgoodsandservices0.0–1.112.0–1.916.216.518.019.326.030.529.729.219.1–5.02.043.4–10.4–11.5–20.7–19.328.817.414.214.8–1.1–10.18.847.4Errorsandomissions0.70.0–0.4–0.4–2.221.515.6–24.5279.5362.3417.9289.514.514.013.913.814.720.216.016.40.2–10.50.3–0.3124.7146.6136.6167.84.410.78.87.8Domesticcredit2.41.19.3–0.3514.1480.7569.4643.50.6–0.22.36.1Coreinflation(inpercenty-o-y,periodaverage)1.0–0.20.94.11.361.381.341.38Exchangerate(inSGD/USD,periodaverage)GovernmentdebtMonetaryandfinancialsectorsMemorandumitems:NominalGDP(inSGDbillion)Headlineinflation(inpercenty-o-y,periodaverage)(inpercentofGDP)RevenueandgrantsExpenditure(inannualpercentagechange)BroadmoneyFiscalbalance2OverallbalanceInternationalreserves(inUSDbillion,endofperiod)FiscalsectorCurrentaccountbalance1IndicatorPrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationExternalsectorTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestment(inpercentofGDP,unlessotherwisespecified)20212022Realsector(inannualpercentagechange)RealGDPAnnex:DevelopmentsinASEAN+3Economies169ThailandTheauthorofthisnoteisMingHan(Justin)Lim.TheThaieconomygrewatafasterpaceof2.6percentyear-on-yearin2022,aftergrowingby1.5percentin2021.TherecoverywasunderpinnedbystrengtheningdomesticdemandandastrongerreboundintouristarrivalsfollowingthefurtherrelaxationofborderrestrictionsinThailandandothercountriessinceend-2021.Thefasterreopeningboostedrecoveryintheservicessector,particularlyaccommodationandfoodservices.Onthedemandside,privateconsumptiongrewstrongly,supportedbyrobusttourismspending,alabormarketrecovery,andrisingfarmincomes.Headlineinflationclimbedto6.1percentin2022from1.2percentin2021duetothesurgeinglobaloil,domesticpork,andcommodityprices.Meanwhile,coreinflationincreasedto2.5percentin2022from0.2percentin2021,reflectingmainlyhigherpricesinthepreparedandcookedfoodcategories.Thailand’scurrentaccountdeficitwidenedfurtherin2022,reflectingasmallertradesurplusduetostrongimports,andnotwithstandinganimprovementinthetourismservicesaccount.Thetradesurplusnarrowedasimportscontinuedtogrowfasterthanexports,drivenbysoaringenergy,commodityandfertilizerprices.InternationalreservesfelltoUSD216.6billioninDecember2022fromUSD246.0billioninDecember2021,althoughitcontinuestobehighandcoversmorethan2.3timesThailand’sshort-termexternaldebt.Reflectingthesignificanttighteningofglobalfinancialconditions,theyieldsofThaiTreasurybillsandgovernmentbondsrosesharplyin2022.Domesticmonetaryconditionshavealsotightened,withtheovernightinterbankraterisingslightlysinceAugustintandemwiththeBankofThailand’spolicyratehikes.Notwithstandingthetighterfinancialconditions,thecorporatebondmarketexpandedatafasterpace.Moreover,thewell-diversifieddomesticbondmarketremainssufficientlydeeptoabsorbthegovernmentbondissuances,withotherdepositorycorporationscontinuingtoplayalargerrolein2022.Thebankingsectorhasweatheredthepandemicshockwell.Banks’overallloangrowthslowedto2.1percentyear-on-yearin2022from6.5percentin2021.Thecapitaladequacyratioremainedhighat19.4percent,andthesamewastrueforCommonEquityTier1ratioof15.9percent.Asaresultoffinancialassistancemeasuresandbanks'loanportfoliomanagement,nonperformingloans(NPLs)ratioremainedstableat2.7percentin2022,broadlyunchangedfrom3.1percentin2020,whiletheNPLratioofsmallandmediumenterpriseloansremainedelevatedat6.8percent.Fiscalpolicyremainedonanexpansionarytrack.Theauthoritiesrolledoutphases4and5oftheco-paymentand“WeTravelTogether”schemes,totallingTHB67.7billion,tocontinuesupportingconsumerspendingandbusinessesaffectedbythepandemic.Forlower-incomehouseholds,cost-of-livingmeasuresincludedon-budgetsocialassistanceprograms,suchasincreasingthecookinggassubsidyfromTHB45toTHB100perwelfarecardholdereverythreemonthsforsixmonthsbetweenAprilandSeptember2022.Inaddition,thegovernmentalsorolledoutquasi-fiscaloperationsbygovernment-backedinstitutionssuchastheStateOilFund,whichthegovernmenthasapprovedtosubsidizehalfofanyfurtherincreasesofthedieselmarketpriceabovethelatestcappedpriceofTHB35perliter.Downsideriskstothenear-termoutlookremainhigh.Riskstogrowthstemmainlyfromaprotractedglobalslowdown,furthersupplychaindisruptions,andtheemergenceofmorevirulentstrainsofCOVID-19.AprolongedandsharperriseinUnitedStates’interestrateswouldheightentheriskofcapitaloutflowsandexchangeratedepreciationwhilefurtherincreasingborrowingcosts.Inflationmaystayelevatedforlongerduetothewithdrawalofpricesubsidiesandhigherwages.Thailandwillneedtoaddressitslong-termstructuralchallenges.Government-linkedinstitutionsarebearingthehighcostsofprovidingthesubsidiesthroughtheirquasi-fiscaloperations,whichwillincreasetotalpublicdebt.Atthesametime,thesignificanteconomicscarsfromthepandemiccanbeadragongrowthinthelongterm.Thailandwillalsoneedtoaddressstructuralchallengesstemmingfromarapidlyagingpopulation,digitaltransformationandclimatechange.170ASEAN+3RegionalEconomicOutlook2023Thailand:SelectedFiguresGrowthexpandedatafasterpacein2022duetohigherprivateconsumption.Thetradedeficitwidenedsignificantlyasimportscontinuedgrowingatafasterpacewhilethegrowthinexportsslowed.Thepublicdebt-to-GDPratioroseataslowerpaceasthebudgetdeficitnarrowedandoff-budgetCOVID-19spendingdecreased.Thehighhouseholddebt-to-GDPratioeasedslightlybutremainedelevated.Touristarrivalsreboundedsharply,andthehoteloccupancyraterosebutremainedlowerthanbeforethepandemic.Headlineinflationrosesharplyduetothesurgeinglobaloil,porkandcommodityprices.ContributionstoRealGDPGrowth(Percentagepoints,year-on-year)TradeBalance(Percent,year-on-year;billionsofUSdollars)FiscalBalanceandPublicDebt(PercentofGDP;percentofGDP)HouseholdDebtandBankLendingtoHouseholds(Percent,year-on-year;percentofGDP)TourismSector(Millionsofpersons;percent)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)Source:BankofThailand.Source:BankofThailand;AMROstaffcalculations.Note:Dataforexportsandimportsareoncustomsbasis.-40-30-20-10010203020182019202020212022ChangesininventoriesImportsofgoods&servicesExportsofgoods&servicesGrossfixedcapitalformationGovenmentconsumptionPrivateconsumptionGDP-4-202468102017201820192020202120222023CoreinflationRawfoodEnergyHeadlineinflationPolicyrateSource:OfficeoftheNationalEconomicandSocialDevelopmentCouncil.Source:BankofThailand;ThailandMinistryofCommerce.Note:Policyraterefersto1-dayrepurchaserateofThailand.-6-4-20246-60-40-20020406020192020202120222023Tradebalance(rightaxis)ExportsImports020406080012342020202120222023NumberoftouristarrivalsAccommodationoccupancyrate(rightaxis)010203040506070-6-5-4-3-2-10FY2018FY2019FY2020FY2021FY2022FY2023eFiscaldeficitPublicdebt(rightaxis)7075808590950123456720182019202020212022Householddebt(rightaxis)LoanstohouseholdsSource:MinistryofFinance;AMROstaffestimations.Note:edenotesestimate.Afiscalyear(FY)runsfrom1Octoberto30September.Source:BankofThailand;AMROstaffcalculations.Annex:DevelopmentsinASEAN+3Economies171Thailand:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimatesNote:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Afiscalyear(FY)runsfrom1Octoberto30September.Forexample,FY2023isfrom1October2022to30September2023.2/Domesticcreditcomposesnetclaimsfromcentralgovernment,localgovernment,nonfinancialcorporationsandhouseholds.201920202.2–6.11.52.64.0–0.80.66.31.61.43.70.02.0–4.83.12.3Importsofgoodsandservices–5.2–13.917.84.1Exportsofgoodsandservices–3.0–19.711.16.87.04.2–2.1–3.44.98.06.52.2–2.7–2.3–1.21.0–0.9–4.6–0.90.0–1.6–2.4–2.4–0.7–0.44.82.31.7Errorsandomissions–1.81.81.90.32.53.6–1.4–2.1Grossexternaldebt31.638.138.837.9224.3258.1246.0216.615.315.114.914.718.120.020.118.3–2.8–4.9–5.2–3.641.049.458.460.43.610.24.83.92.08.18.83.13.75.04.84.116.915.716.217.40.7–0.81.26.11.250.500.501.2531.031.332.035.1(inpercentofGDP)RevenueandgrantsExpenditureExchangerate(inTHB/USD,periodaverage)GovernmentdebtMonetaryandfinancialsectors(inannualpercentagechange)BroadmoneyDomesticcredit2PrivatesectorcreditMemorandumitems:NominalGDP(inTHBtrillion)Headlineinflation(inpercenty-o-y,periodaverage)Policyrate(inpercentperannum)FiscalbalanceOverallbalanceInternationalreserves(inUSDbillion,endofperiod)Fiscalsector1CurrentaccountbalanceIndicatorPrivateconsumptionGovernmentconsumptionGrossfixedcapitalformationExternalsectorTradebalanceCapitalandfinancialaccountbalanceDirectinvestmentPortfolioinvestmentOtherinvestment(inpercentofGDP,unlessotherwisespecified)20212022Realsector(inannualpercentagechange)RealGDP172ASEAN+3RegionalEconomicOutlook2023VietnamTheauthorofthisnoteisWanwisa(May)Vorranikulkij.Followingaslumpduetothepandemic,theVietnameseeconomyreboundedrapidlyin2022,recordingGDPgrowthat8percentfortheyear.Therecoveryhasbeenbroad-based—manufacturingwasboostedbyrobustexportsandstrongFDIinflows,whiledomesticconsumptionexpanded,drivenbytherelaxationofmobilityrestrictionsandtheeconomicstimuluspackage.Highoilpriceswerechieflyresponsibleforelevatedconsumerpriceinflationin2022.However,state-administeredpricesandtemporarytaxcutshelpedcurbinflation.AlthoughinflationstillexceededtheStateBankofVietnam’s(SBV’s)4-percenttargetinQ4,averageheadlineinflationstoodat3.2percentin2022,lowerthaninotherregionaleconomies.ContinueddemandforVietnam’smanufacturingproductshelpedtheexportsectorrecoverrapidlyinthefirstthreequartersof2022.However,slowglobaleconomicactivitystartedtoweighdownonmanufacturingexportsinthelastquarter.Meanwhile,capitalinflowsweredraggeddownbylargedepositoutflowsfrombanksdespiteresilientFDI.Inaddition,therecordofneterrorsandomissionswaslarge.Asaresult,thebalanceofpaymentsturnedintodeficit,leadingtoaUSD23.5billiondeclineinforeignreservesfromend-2021—whichstoodataroundUSD82.4billionasofOctober2022,equivalentto2.5timestheshort-termexternaldebt.TheSBVstartedtoraisekeypolicyratesinSeptember2022inresponsetoasharpdepreciationofthedong,triggeredbytheUSFederalReserve'sratehikes.Atthesametime,theSBVincreaseditscreditgrowthtargetby1.5–2percentattheendoftheyearfromtheinitialtargetof14percenttosupporteconomicrecovery.Meanwhile,banklendingtoriskysectors,includingrealestate,wascloselymonitored,toensurethatcreditwassufficientlyredirectedtoproductivesectors.Theimpactoftemporarytaxreductionreducedrevenuecollectionto17.0percentofGDPin2022from18.5percentin2021.Meanwhile,asaresultoftheeconomicstimuluspackage,thegovernment’sexpenditureremainedabove21percentofGDP.Fiscaldeficitthuswidenedsignificantlyto4.4percentofGDPin2022from3.4percentofGDPin2021.Lookingahead,Vietnam’seconomyisexpectedtomoderatetoamoresustainablerateof6.8percentin2023.Weakeningglobaldemandwilllikelydampenmanufacturingproduction.Meanwhile,therelaxationofChina’sborderrestrictionswillbenefitVietnam’sservicessectorandexport.KeydownsideriskstoVietnam’sgrowthoutlookarederivedmainlyfromthechancesofaglobaleconomicslowdown.Aweakeningoftheglobaleconomy,intandemwithtightenedmonetaryconditionsacrossvariouscountries,mayworsenVietnam’sexternaldemand.TherecoveryalsoremainssusceptibletotheriskoffurtherwavesofCOVID-19infection.Inaddition,aprolongedUkrainecrisiswillputpressureonenergyprices.Elsewhere,financialsectorrisksmayarisefromthelingeringimpactofCOVID-19onassetqualityanduncertaintyintherealestatemarket.Meanwhile,tepidsentimentintherealestatemarkethasexacerbatedvulnerabilitiesinVietnam’sfinancialsystem.Thegovernmentshouldacceleratestructuralreformstoensureasustainabledevelopmentpath.Corporatebondmarketdevelopmentisatanearlystage,withprivateplacementsbypropertydevelopersandbanksdominatingthemarket.Meanwhile,theequitizationandthedivestmentofstate-ownedenterprises(SOEs)hassloweddownsubstantiallyinrecentyears.Therefore,SOEsstillcommandasignificantshareoftheeconomy,adominancewhichcan,attimes,impededevelopmentoftheprivatesector.Inaddition,thedelayeddevelopmentofdomesticindustriesandashortageofskilledlaborcontinuetohinderthecountry’seffortstomoveuptheglobalvaluechain.Annex:DevelopmentsinASEAN+3Economies173Vietnam:SelectedFiguresGrowthhasreboundedfrom2021onthebackofrobustmanufacturingproduction.Tradebalanceregisteredasurplusthrough2022onthebackofexports.Thefiscaldeficitwidenedin2021asaresultoftheeconomicstimuluspackageinresponsetotheCOVID-19pandemic.Alargenumberofneterrorsandomissionsanddepositoutflowswidenedthebalanceofpaymentsdeficit.Creditgrowthremainedhighlastyear,inlinewiththeSBV’screditpolicytosupporteconomicrecovery.State-administeredpricesandtaxcutshavekeptVietnam’sinflationlowerthanregionalpeers’despiteinflationpressurefromhighglobaloilprices.ContributionsofRealGDPGrowth(Percentagepoints,year-on-year)TradeBalance(Percentyear-on-year;billionsofUSdollars)FiscalBalance(PercentofGDP)BalanceofPayments(BillionsofUSdollars)ContributionstoCreditGrowth(Percentagepoints,year-on-year)ContributionstoConsumerPriceInflation(Percentagepoints,year-on-year)-10-50510152019202020212022TaxlesssubsidiesServicesIndustry&constructionAgriculture,forestry&constructionRealGDP-4-20246820192020202120222023OthersEducationHousing&constructionmaterialsTransportationFood&foodservicesHeadlineinflationSource:GeneralStatisticsOfficeviaCEIC;AMROstaffcalculationsSource:GeneralStatisticsOfficeviaCEIC;AMROstaffcalculations-4-20246-40-20020406020192020202120222023Tradebalance(rightaxis)ExportsImports-20-15-10-50510152019202020212022CurrentaccountFinancialaccountNeterrors&omissionsOverallbalanceSource:StateBankofVietnamviaCEIC;AMROstaffcalculationsSource:GeneralStatisticsOfficeviaCEIC;AMROstaffcalculations-10-505100510152025302010111213141516171819202122Fiscalbalance(rightaxis)RevenueExpenditure051015202019202020212022OthersTransportation&telecommunicationTradeConstructionIndustryAgriculture,forestry&fisheryTotalloanoutstandingSource:MinistryofFinanceviaCEIC;AMROstaffestimationsSource:StateBankofVietnamviaCEIC;AMROstaffcalculations174ASEAN+3RegionalEconomicOutlook2023Vietnam:SelectedEconomicIndicatorsSource:NationalauthoritiesviaCEICandHaverAnalytics;AMROstaffestimatesNote:NumbersinreddenoteAMROstaffestimates.y-o-y=year-on-year.1/Vietnam'sfinancialaccountsarerecordedinthewaytoreflectanatureoffundflows.Positivefiguresshownetinflowsintothecountrywhilenegativefiguresshownetoutflowsfromthecountry.2/Monetaryandfinancialsectordatafor2022areasattheendofNovember2022.7.42.92.68.02.73.03.33.48.24.43.67.88.12.01.610.0Producttaxexcludingsubsidy6.06.06.07.03.74.4–1.10.36.48.94.57.25.72.58.58.44.74.54.25.31.0–0.40.10.40.1–1.64.22.8Errorsandomissions–2.4–2.0–3.5–1.86.94.93.96.9Grossexternaldebt35.236.437.640.478.895.5110.083.020.218.818.517.019.821.321.921.40.3–2.5–3.4–4.443.444.243.142.813.613.69.79.6Domesticcredit9.312.412.611.612.811.613.514.77,7078,0448,4809,5132.83.21.83.24.02.52.54.523,05123,20823,16023,271NominalGDP(inVNDtrillion)Headlineinflation(inpercenty-o-y,periodaverage)Policyrate(inpercentperannum)Exchangerate(inVND/USD,periodaverage)20202019GovernmentdebtMonetaryandfinancialsectors2(inannualpercentagechange)BroadmoneyPrivatesectorcreditMemorandumitems:Internationalreserves(inUSDbillion,endofperiod)Fiscalsector(inpercentofGDP)RevenueandgrantsExpenditureFiscalbalanceTradebalanceCapitalandfinancialaccountbalance1DirectinvestmentPortfolioinvestmentOtherinvestmentOverallbalanceCurrentaccountbalanceIndicator20212022Realsector(inannualpercentagechange)RealGDPAgriculture,forestry,andfishingIndustryandconstructionServicesExternalsector(inpercentofGDP,unlessotherwisespecified)ASEAN+3MacroeconomicResearchOffice10ShentonWay,#15-08,MASBuilding,Singapore079117Tel:+6563239844Email:enquiry@amro-asia.orgFollowuswww.amro-asia.orgLinkedInTwitterFacebook

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