Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Economic Prospects in China and ASEAN4― China’s slowdown weighs on Asia while AEC will be a tailwind
Asian Economic Forecasting Team of JCERPoints The Chinese economy is aiming to stage a soft landing through a shift to a “new normal,” but
growth will slow, with the real GDP growth rate for 2016 through 2020 expected at 5.9% and4.5% for 2021 through 2025. Amid the backdrop are a decline in the working-age populationand the lack of progress in reforms for various structural issues, such as an increase inindebtedness among local governments.
 The economy in Thailand is buttressed by investment demand, such as in transportation
infrastructure, but the low birth rate and the aging population will act as a drag, with thegrowth rate to slow to around 3%. One factor serving as a concern is a cutback in investments
due to unstable politics.
 The growth rate for the Indonesian economy will strengthen in 2015 through 2016 on theback of the fiscal space created by scrapping fuel subsidies and a recent increase in
infrastructure investments following the appointment of President Joko Widodo. The growthrate will be sluggish thereafter as structural reform will not make headway. The rupiah will
weaken through 2019 due to interest rate hikes in the United States, but will strengthen
moderately thereafter.
 The Malaysian economy will be that of a high-income nation around 2020, when GNI is
expected to break above 15,000 per capita on the success of a liberal business environment
and infrastructure development. A further tailwind will follow if the TPP comes to fruition.
The challenge is whether domestic companies can push along with capturing added value ininnovation.
 The economy in the Philippines will maintain its growth rate of about 5% on the continued
bonus in the form of a population increase resulting from a high birthrate. The outflow ofhuman resources to overseas countries will slow along with an increase in domestic income.
A risk factor is a delay in establishing a favorable business environment, such as
infrastructure.
Kenji Yuasa , Yuki Masujima, Kengo Tahara, Takashi Onodera, Tamaki Sakura and Yuki Sotozono-1-Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

1.

China

Structural reform stalling, growth to slow down
The Xi Jinping administration aims for growth to stage a soft landing with a shift to a “newnormal,” but the growth rate will slow for the projection period of 2015 through 2025 (Figure 1-1)
due to a lack of progress in reforms for various structural problems that are bearing down on China.
The real GDP growth rate (annualized) for 2016 through 2020 will be at 5.9%, with 4.5% for 2021
through 2025. A shift from capital expenditures to personal consumption in terms of their share ofcontribution to the growth rate will proceed at a modest pace. However, the growth rate in
consumption will also slow moderately (Figure 1-2).
Figure 1-1: Projection for China’s economy

Figure 1-2: Contributions to real GDP growth

8.0 （％）

14

Forecast

7.0(y/y % chg.)
Net exports

12

Gross Capital
Formation
Final Consumption

10

6.0

Real Growth rate

8
5.0

6
IMF(WEO, April2015)

4.0

4

ADB(2011)

2

World Bank(2015)

3.0
2.0

World Bank&State Council of the People's Republicof China(2013)（C.Y.）
JCER

13 14 15 16 17 18 19 20 21 22 23 24 25
Note: Forecasts of ADB（2011）and World Bank&State Council of
the People's Republic of China(2013) are average growth rate in2016‐20 and 2021‐25.
Sources: IMF, World Bank, ADB, JCER

0‐2

Forecast
01‐05 06‐10 11‐15 16‐20
Sources: Haver Analytics; JCER

(C.Y.)
21‐25

The background to the slowdown in the growth rate is rooted in the decline in the potential
growth rate, which indicates the degree at which an economy could expand over the medium tolong term while maintaining a steady inflation (Figure 1-3). While temporary growth will bemaintained in 2015 through 2016 as a result of higher asset prices, such as in stocks, and a boost to
financial sector growth on the back of a rapid succession of monetary easings, the impacts will
weaken in 2017 and beyond and the economy will head toward an estimated potential growth rateof 5 - 5.5% on average for 2016 through 2020, with the real GDP growth rate expected to stage aturndown1. The potential growth rate was estimated by the Japan Center for Economic Researchbased on labor force population, capital stock and the pace of technological innovation.
1

For example, China’s Growth: Can Goldilocks Outgrow Bears? IMF Working Paper WP/15/113 by Maliszewski and
Zhang (2015) states that the potential growth rate – excluding the amount pushed up by the surge in credit and rising
housing prices because the rise in capital expenditures triggered by excessing monetary easing starting in 2008 is notsustainable – is lower than the estimate arrived at by using a standard production function approach.

-2-Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Capital stock expanded rapidly due to the rapid developments that took place in local areas, but
the rate of depreciation in capital will be higher due to an increase in the number of abandoned
facilities that will not be used at all, as some development projects will be forced to be scrapped on
the back of sluggish land prices. As a result, the contribution of capital stock to the potential
growth rate will sink below 2% in 2021 through 2025 from around 4% from 2011 through 2015.
The pace of improvement in the business environment will stagnate, with Total Factor Productivity(TFP) growth declining to around 2% in 2021 through 2025 from around 6% in 2006 through 2010
and around 4% for 2011 through 2015. This would conjure up an image of improvement of
productivity, based on technological innovation, not advancing as planned. This TFP growth isvirtually the same as the estimate given in the International Monetary Fund’s World Economic
Outlook (WEO) for April 2015.
Figure 1-3: Contributions to potential growth

Figure 1-4: Government income
from land transfers (sales)12(y/y % chg.)(y/y % chg.) 【IMF】【JCER】
Labor Force
Capital Stock

10

TFP

8

Potential
Growth rate

6

12
10

8
6

4

4

2

2
0

0
‐2

Forecast(C.Y.)‐2(C.Y.)

06‐10 11‐14
01‐05 06‐10 11‐15 16‐20 21‐25
Sources: IMF "World Economic Outlook", April 2015; JCER

(y/y % chg.)

60
50
40
30
20
10
0
‐10
‐20
‐30
‐40
‐50
13/01 13/07 14/01 14/07 15/01 15/05(Monthly)
Source: CEIC

Aging, local government debt, disparities amid urbanization
Problems abound, such as a decline in the ratio of the working-age population, sluggish realestate prices and the expanding indebtedness among local governments facing a dramatic drop
(Figure 1-4) in income from land transfers (sales) and a widening disparity between cities and rural
areas stemming from reasons including restrictions imposed on farmers from transferring theirfamily register. Stable growth can be sustained if these problems are resolved as a result of reform(the reform scenario), but on the other hand, if it ends in failure, the growth rate will plunge (China
slowdown scenario). Specifically, if resolving the debt problems of local governments ends infailure, not only will development projects come to a halt, but advances in urbanization also will
be impeded, which would widen the gap in regional disparities and in turn destabilize society.
Urbanization will progress at a good clip until 2025, while the working-age population will beon the decline after peaking at 1.06 billion people in 2013, according to a forecast by the United-3-

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Nations (Figure 1-5).
Looking at trends in wages and cash income per capita in urban as well as rural areas, income
per capita in rural areas grew by around 8% from 2001 through 2005, while wages in urban areas(non-private corporations) rose more rapidly at around 14%. Amid such trends, a pickup in thepace of those who move from rural to urban areas contributes to the increase of employees income
per capita nationwide (Figure 1-6). However, rural wage growth has been greater than that inurban areas in recent years as it supposedly reached the so-called Lewis Turning Point, as wages
rose in rural areas (agricultural sector) following a bottoming of surplus labor in these areas amid
industrialization in part due to a decline in the working-age population. Wage growth in rural areas
is expected to stagnate compared with that for urban areas, with the regional debt problem acting
as a drag for the next 10 years.
Figure 1-5: Working-age population

Figure 1-6: Changes in wages

and the ratio of urbanization
12(hundred million people)(%)

in urban and rural areas
120 18100 16
14
80
12

10
8
6

60

4

40

2
0

Working age population
the ratio of
urbanization(RHS)

20
083 86 89 92 95 98 01 04 07 10 13 16 19 22 25(y/y % chg.)
Forecast

1086Urban(wage rate)

4

Rural(cash income per person)

2

Whole country(C.Y.)

0
01‐05 06‐10 11‐15 16‐20 21‐25
Note: The data of whole country is estimatedby JCER.
Sources: Haver Analytics; JCER

（C.Y.）

Note: Working age population is defined as those aged
15‐64. The ratio of urbanization is the ratio of
population in urban area to the overall population.
Sources: United Nations; Haver Analytics

The Chinese government is pushing along with rapid urbanization by utilizing the state-run
China Development Bank, and is set to proactively advance infrastructure investment both at homeand overseas by utilizing the Silk Road Fund (established in December 2014), the AsianInfrastructure Investment Bank (AIIB, for which a signing ceremony was held in June 2015), theinsurance investment fund that was finalized in June 2015 and the New Development Bank (aBRICS bank). For example, if progress is made in infrastructure investments for the route that runs
through the South China Sea using the Silk Road Fund, China will have a closer economic
relationship with countries like Thailand and Malaysia. On the other hand, disorderly lending that-4-

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

does not consider a project’s profitability or efficiency would lead to a decline in China’s growthrate itself. In other words, looking at medium-term growth, the key will be whether China would
be able to steadily resolve the distortions that exist, such as seen in institutions, the businessconditions and environmental problems.
Financial structural reform is somewhat more advanced than that in other sectors. The
deregulation of bank interest rates is forging ahead, and the policy to abolish bank lending
restrictions, which is capped at 75% of bank deposits, was finalized in June 2015. Progress isbeing made in the internationalization of the Chinese yuan and its inclusion in the IMF’s Special
Drawing Rights (SDR) with the end of 2015 as the target. However, adopting such steps infinancial structural reform as a means of monetary easing could possibly create a breeding groundfor a structural bubble, which would not lead to sustainable growth. China would need to liberalize
the transfer of capital, which still has a lot of room for reform, in a steady and cautious mannerfrom a medium- to long-term standpoint

2．Thailand
Low birthrate and aging population weigh on growth
The economy in Thailand grew at a high rate of around 5% in the middle of the 2000s, but
growth is rapidly decelerating after slumping in 2008 due to the global financial crisis, along with
the impact from flooding and political turmoil later on. The economy is not expected to return to ahigh growth rate of 5% in the future, with a gradual decline expected toward a growth rate ofaround 3% (Figure 2-1, 2-2).
Figure 2-1: Contributions to

Figure 2-2: Contributions toReal GDP Growth
8.0
6.0
4.0
2.0
0.0
‐2.0
‐4.0
‐6.0

the Potential Growth（y/y ％ chg.）

4.5
4.0
3.5
3.0
2.5
2.0
1.5
Net Export
1.0
Gross Capital Formation
Government Consumption 0.5
Private Consumption
0.0Real GDP‐0.5
96‐00 01‐05 06‐10 11‐15 16‐20 21‐25（C.Y.）
Sources: Haver Analytics; JCER

-5-

Capital Stock
Labor Force
TFP
Potential GDP（y/y ％ chg.）

01‐05

06‐10

11‐15

Source: Estimation by JCER

16‐20

21‐25
（C.Y.）

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Figure 2-3: Population of those aged 15 years

Figure 2-4: Labor participation

and up and Labor Force Population(y/y ％ chg.)

2.5
2.0
1.5
1.0
0.5
0.0
‐0.5
‐1.0
‐1.5
‐2.0
‐2.5

100
90
80
70
60
50
40
30
20
10
0

Population over
the age of 15
Labor force(C.Y.)
2005

2010

2015

2020

2025

Source: Haver Analytics; JCER

Rate by Age Group (2014)
(%)

male
Female15 20 25 30 35 40 50 60+‐19 ‐24 ‐29 ‐34 ‐39 ‐49 ‐59(age)
Source: Haver Analytics

Demographic changes are among the reasons behind the deceleration. A declining birth rate andan aging population is most pronounced in Thailand out of all Southeast Asian countries. The total
fertility rate, which estimates the total number of children one woman is to bear in a lifetime, stoodat above five in 1970, but broke below two in 1990 and was at 1.4 in 2013, which shows a rapid
decline to a level equal to that in Japan. The population is expected to start declining in the 2020saccording to a forecast by the United Nations, and the labor force population is expected to start
decreasing around 2020 (Figure 2-3).
The unemployment rate in Thailand was low at 0.8% in 2014, with the labor participation rateof women at 62% (Figure 2-4), which is higher than that in Japan (49%). Trends to move bases forlabor-intensive industries, such as the sewing industry, outside the country, such as to Bangladesh
and Cambodia, and incoming labor from surrounding nations to farms in Thailand can be seen as
tightening labor supply and demand as well as putting upward pressure on wages.
However, the backdrop to low unemployment rate and the high labor participation rate of
women shows that surplus labor has the tendency to be absorbed by agricultural, independent andFigure 2-5: Breakdown of Workers by Industry and Employment status (2014)
Male

Agriculture,
forestry & fishing
Manufacturing &MiningNonmanufacturing& Construction
Total

7,337
(35%)
3,300
(16%)
10,117(49%)
20,754(100%)

FemaleOwn
Account
Worker
4,630
(22%)
353
(2%)
2,542
(12%)
7,525
(36%)

UnpaidEmployees
Familyand Others
Worker
1,528
1,179
(7%)
(6%)
139
2,807
(1%)
(14%)
776
6,798
(4%)
(33%)
2,444
10,784(12%)(52%)

Source: National Statistical Office of Thailand

-6-

5,396
(31%)
3,162
(18%)
8,766
(51%)
17,324(100%)

Own
Account
Worker
1,699
(10%)
469
(3%)
2,394
(14%)
4,562
(26%)

UnpaidEmployees
Familyand Others
Worker
2,941
756
(17%)
(4%)
216
2,478
(1%)
(14%)
1,227
5,144
(7%)
(30%)
4,384
8,377
(25%)
(48%)

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

similar businesses. The number of workers in the agricultural sector takes up over 30% of allindustries, and looking at data by employment status, those who own their business make up over
30% (of this total, around half is in the agricultural, forestry and fisheries industries). Also, arounda quarter of employed women work for free for their family businesses (of this total, around
two-thirds are in the agricultural, forestry and fisheries industries; Figure 2-5).
A majorgap

existsinincomeperpersonbetweentheagricultural

and

the

manufacturing/services sectors, with a shift in employment from the agricultural industry tocontinue going forward. It will become necessary to provide education and vocational training to
respond to changes in the industrial structure. Like Japan, it will become important to set up aframework that would allow the elderly, who have a desire to work, to participate in the labor force
in response to the aging of society.
The ratio of the population aged 65 years
and above (old-age dependency ratio) in
relation to the working generation (15 to 64
years old) is expected to rise from 12.4% in2010 to around 23% in 2025 (Figure 2-6). The
burden on the social security system is
expected to become greater.

Figure 2-6: Dependency Ratio in Thailand
100
90
80
70
60
50
40
30
20
10
0

The hike in the existing 7% value-added tax
to 10% has been mothballed as a special
measure, but a hike would be needed after
economic recovery is verified. If the tax system,
among other areas, do no change from the(%)

Elderly Dependency ratio
Child Dependency ratio
Dependency pop. ratio
Forecast

1970

1980

1990

2000

2010

2020

2030
(C.Y.)

Note: Child dependency is the ratio of under 15 years old population
to working age population. Elderly dependency is the ratio ofover 65 years old population to working age population. The
forecast follows the UN constant‐fertility case.
Source: United Nations, "World Population Prospects:The 2012
Revision"status quo, the fiscal balance of the overall government is expected to remain in the red.
Vigorous demand for infrastructure for transportation network in the Mekong region
The Thai government has announced an infrastructure investment plan to develop railroads,
roads, airports and others from 2015 through 2022. The plan is for the government, state-run
businesses, public and private partnerships (PPP) and other entities to invest a total of 2.4 trillion
baht (around 18% of GDP).
In terms of developing the great Mekong subregion, which includes the southern section ofChina, Thailand is positioned so that the North-South Economic Corridor, the East-West Economic
Corridor and the Southern Economic Corridor pass through it and thus transport development
would help invigorate trade within China and the ASEAN region. While it is still unclear whether
the infrastructure investment is to proceed at the scheduled rate, it would serve as a factor
buttressing growth over the medium and long term. Growth in domestic capital expenditures was
sluggish from the second half of the 2000s to the first half of the 2010s due to the impact of events-7-

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

including the global financial crisis and the domestic political turmoil, and is expected to grow atthe 3% level for the next 10 years.
In terms of imports and exports, trade in the ASEAN region is expected to increase further, but
exports from Thailand are expected to moderately slow along with decelerating growth rates in
China and advanced economies (Figure 2-7).
Thailand follows Malaysia among the ASEAN4 to already have a business environment in place.
However, one risk is the possibility of destabilizing politics. Corruption among politicians has
been criticized for many years, with a frequent occurrence of coup d’état and little trust inpoliticians among the citizens. A general election is to be held in 2016 with a new constitution to
be promulgated following a national referendum, but there is a need to closely monitor risks ofanother instance of political disorder.
Figure 2-7: Growth in Thailand’s Real Exports and the Global Growth Rate
20

(y/y % chg.)(y/y % chg.)

7.0

15

6.0

10

5.0

5

4.0

0

3.0

‐5

2.0

‐10

1.0

Real export growth

‐15

0.0

World GDP growth (RHS)

‐20
2000

2005

2010

2015

2020

Note: World GDP growth is an average of GDP growth of economies
weighted by the export value from Thailand.
Sources: Haver Analytics; JCER

‐1.0
2025
(C.Y.)

3. Indonesia
Recent high growth to slow as structural reform suffers
President Joko Widodo assumed office in October 2014. Flagging his concept of a maritime
nexus, and aiming at infrastructure development on Java and promoting shipbuilding and tourism
industries, Joko has made his intentions clear, among other items, that he would scrap fuelsubsidies in order to secure a budget to move forward with infrastructure development; terminate
the construction plan for the Sunda Strait Bridge, which entailed an enormous budget; and shift thefoundation of growth to processing and manufacturing industries from the main industries to date,including drilling and exporting crude oil and natural gas (The Nikkei Business Daily dated March
25). The forecast for growth is on the high side through 2017 compared with market projections,reflecting the progress made in recent large-scale infrastructure investments (Figure 3-1). However,-8-Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

structural reform will stall thereafter in part due to the impact of a divided parliament with the
opposition gaining a majority. The growth rate will fall off over the medium term, withimprovements in the business environment not making headway (Figure 3-2).
Figure 3-1: Contributions to the Real GDP Growth Rate
10.0(y/y % chg.)
Forecast

8.0
6.0
4.0
2.0
0.0
‐2.0

Net export
Gross capital formation
Government consumption
Private consumption

‐4.0
‐6.0
2000

2005

2010

2015

（C.Y.）

2020

2025

Sources: Haver Analytics; JCER

Figure 3-2: State of the Business Environment

Rank
Total
Starting a Business
Dealing with Construction Permits
Getting Electlicity
Registering Property
Getting Credit
Enforcing Contracts
Resolving Insolvency

2015
114
155
153
78
117
71
172
75

2014
117
158
150
101
112
67
171
71

Change in Rank
3↑
3↑
‐3 ↓
23 ↑
‐5 ↓
‐4 ↓
‐1 ↓
‐4 ↓

Note: The rank out of 189 countries.
Source: World Bank "Doing Business Index"

Indonesia’s strength lies in the continued year-on-year growth of around 1.5% in the labor force
population through 2025. Seen by age group, many of the working population are at the age of 50
or younger, generating a bonus in the form of population growth during the projection period, as
there are not as many in their 50s or older. The labor participation rate of women is at 47.2%(2010; Figure 3-3), which is around the same level as in Japan (46.2% in 2012). If this improves, itwould bolster the labor force population and could possibly push the growth rate higher.
Indonesia’s growth rate will be buoyed by the working-age population during the projection period.

-9-Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Also, there is room for the labor force population to rise if the labor participation rate for women is
given a boost. That said, a virtuous cycle in which urbanization leads to improved education levels
for women, and in turn, higher wages (employment rate) for women cannot be expected 2.
Figure 3-3: Labor Participation Rate (2010)

Figure 3-4: Share of destination
countries receiving exports

100
90
80
70
60
50
40
30
20
10
0

(%)

Male
Female（years old）

15‐ 20‐ 25‐ 30‐ 35‐ 40‐ 45‐ 50‐ 55‐ 60‐ 65‐
19 24 29 34 39 44 49 54 59 64
Source: United Nations, "World Population Prospects:
The 2012 Revision"

Current account will not move into positive territory
Looking at destinations of Indonesia’s exports, a shift to Asia from the United States and Europe
is clear. Meanwhile, Japan’s share is on the decline. Japan used to account for about half of thetotal in the early 1980s, but this has been limited to around 15% most recently in 2013. Exports to
the United States have also dropped to below 10% from around 20% during the same period andthose to Europe stood at around 15% in the second half of the 1990s, but have since dropped torecent levels of less than 10%. Exports to China (including Hong Kong) were less than 1% in theearly 1980s, but have continued to rise since the mid-1980s and surpassed those to the UnitedStates in 2008. Exports to Malaysia, Thailand and the Philippines were below 1% in 1990, buthave most recently risen to an aggregate total of above 10%. Exports to India were also below 1%
through 1995, but have grown to around 7% most recently. Since the 1990s, exports to South
Korea have been at 6% to 7%, 3% to 5% to Taiwan and around 10% to Singapore, all of whichhave been comparatively steady (Figure 3-4).
While the value of exports has been on the rise, the growth rate during the projection period will
be limited to between 4% and 5%, compared with 8.4% growth in 2006 through 2010. Like theother ASEAN nations, sustainable growth can be expected, given the rise in the trade ratio in the
Asian region, if it can make the most of the establishment of the ASEAN Economic Community
2

Taniguchi, K. and Tuwo, A. (2014). “New Evidence on the Gender Wage Gap in Indonesia,” ADB economics working
paper series No. 404.

- 10 -

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4(AEC), but this would be dependent on easing regulations on foreign capital.
An urgent challenge is to do away with the twin deficits: a current account deficit associated with
net imports of oil and a fiscal deficit (the constitution calls for mandatory reduction when the
deficit is 3% or more of GDP). The trade balance will trend in positive territory in the first half ofthe 2020s, but the current account balance will not shift into the black during the projection period,
although the amount of deficit is to decline in relation to nominal GDP. Easing restrictions on
foreign capital, including foreign direct investments, as a way to increase investments in domestic
refinery facilities of raw materials, including oil, is necessary for sustainable growth.
Monetary policy will remain on the tighter side until 2018 as a way to prevent upward pressure
on prices and excessive weakness in the country’s currency, amid a continued weakening in therupiah through 2020 on the back of steady interest rate hikes in the United States. As monetary
policy eases thereafter, the rupiah will strengthen to 11,000 against the US dollar into 2025.
Growth in gross fixed capital formation is to remain at 1.5% in terms of its contribution to GDP,
while wages will rise by 10% or more in 2021 through 2025, along with moderate deceleration in
consumption.

4．Malaysia
Poised to become a high-income country around 2020
Prime Minister Najib Razak announced a new five-year plan, the 11th Malaysia Plan, for 2016
through 2020 in May. The plan consists of six strategic measures: (1) enhancing inclusivenesstowards an equitable society; (2) improving wellbeing for all; (3) accelerating human capitaldevelopment for an advanced nation; (4) pursuing green growth for sustainability and resilience;(5) strengthening infrastructure to support economic expansion; and (6) re-engineering economic
growth for greater prosperity. The five years to 2020 marks the final years of Vision 2020, adopted
in 1991 by the Mahathir administration, which aimed to become a high-income country by 2020.
The government is planning to spend 260 billion ringgit for the 11th Malaysia Plan (around 20%
of GDP). Meanwhile, the federal government will also work to restore fiscal health and aims forfiscal equilibrium in 2020, given that the federal government debt was at 54.5% of GDP in 2014,
which is close to the legally-binding ceiling of 55%. The goods and services tax that was adopted
in 2015 is positive for fiscal conditions, but additional tax hikes or a cut in outlays is necessary toachieve a fiscal surplus.
Malaysia surpasses other ASEAN nations in its level of income per capita at over 10,000 dollars
as of 2014. The growth rate will gradually slow to 4-5% in 2015 through 2020 (Figures 4-1, 4-2),
but GNI per capita will exceed $15,000 around 2020, which means that it will become ahigh-income nation then (Figure 4-3). Achieving the highest productivity among the ASEAN4 wasa result of the government pushing along with improving a liberal business environment, such as- 11 -

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Figure 4-1: Contributions to Real GDP Growth

Figure 4-2: Contributions to the
Potential Growth

12

(%)

Net export
Gross capital formation
Gov. consumption
Private consumption
Real GDP
Forecast

10
8
6

6.0

CapitalLabor
TFP
Potential growth(%)
Forecast

5.0
4.0
3.0

4

2.0

2

1.0

0

0.0

‐2

01‐05 06‐10 11‐15 16‐20 21‐25(C.Y.)

91‐95 96‐00 01‐05 06‐10 11‐15 16‐20 21‐25(C.Y.)
Sources: Haver Analytics; JCER

Source: Estimates by JCER

infrastructure development and trade liberalization, and working on the popularization ofhigh-school education. In addition, preferential policies for Malay residents, who earncomparatively less income, kept disparities in check, enabling a major reduction in poverty.
Figure 4-3: Forecast for GNI per capita
20000

(US$)
Baseline

Government's target:$15,000 by 2020

15000

Pessimistic
Scenario

10000
Forecast

5000

high‐income

upper
middle‐income

0
2000

2005

2010

2015

2020

Note: Income thresholds are defined by World Bank.
The values in the projection period are estimated by JCER.
Sources: Haver Analytics; World Bank; JCER

2025
(C.Y.)

Moderate rise expected for labor participation by women
The labor force population through 2020 is expected to grow at an annualized rate of just below
2%, but will decelerate to around 1.5% into 2025. The labor participation rate of women in
Malaysia stood at 54% in 2014, which was substantially lower than that of men, which is around80%. The participation rate is around 70% for women in the latter half of their 20s, but many end
up leaving work for childcare, among other reasons, and the participation rate falls as they getolder (Figure 4-4). Creating a working environment conducive for women is critical for sustaining- 12 -

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Figure 4-4: Labor participation rate of women

Figure 4-5: Forecast for laborin Malaysia and other countries
100

participation rate of women in Malaysia

(%)

70

90

(%)
Forecast

60

80
70

50

60

40

50
40

30

Thailand

30

Japan

20

Malaysia

10

Female labor participation rate

20
10

0
15 20 25 30 35 40 45 50 55‐19 ‐24 ‐29 ‐34 ‐39 ‐44 ‐49 ‐54 ‐59(age)

Source: ILO

0
2000

2005

2010

2015

2020

Sources: Haver Analytics; JCER

2025
(C.Y.)

a high rate of growth amid expectations of slower population growth. The government aims toraise the participation rate of women to 59% by 2020, but the rate of increase is expected to bemoderate, with an estimate of just below 60% in 2025 (Figure 4-5).
The Malaysian government has unveiled policies to lower its dependency on foreign laborers
with limited skills because it aims to shift to knowledge-intensive industries and boost the earningsof low-income groups. Wages per person will slow down, but will rise by an annualized rate of 5%or above and the modest rise in labor share is expected to continue for a while.
Current account surplus to be sustained, currency to strengthen moderately
Exports will be limited to modest growth given a slowdown in overseas economies, even thoughindustrial products, such as electric and electronic products as well as natural resources, havehelped drive growth in exports. That said, growth in imports will also slow, resulting in narrower
but sustained trade and current account surplus levels during the projection period. In terms of theforeign exchange rate against the US dollar the next several years, the ringgit is expected to
weaken on the back of interest rate hikes in the United States, but the currency should strengthen
moderately thereafter with a modest recovery in crude oil prices.
If the currently negotiated TPP comes to fruition, it will serve as a tailwind for the Malaysian
economy as Malaysia is already involved in negotiations. According to a calculation by Petri &Plummer3, adoption of the TPP will shore up income in Malaysia by at least 5% as of 2025.
Malaysia, which is expected to become one of the high-income countries, enjoys substantial
3

Petri, Peter A. & Michael G. Plummer (2015) “Asia-Pacific Integration and Structural Change in the United States” in
JCER’s Medium-term Forecasts of Asian Economies (http://www.jcer.or.jp/eng/economic/asia_forecast.html)- 13 -

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4technological contributions from multinational corporations. On the other hand, technologicaltransfers have not gained ground compared with South Korea and Taiwan, with a relative delay
seen in technological development among domestic corporations 4 . Other factors of concern
include the possibility of state-run companies prompting inefficiency and the possibility of themobstructing negotiations on trade liberalization.

5．The Philippines
High population growth to continue, with the birth rate at 3
The Philippine economy is expected to sustain high growth among the ASEAN4, based on solid
domestic demand benefiting from the bonus of population growth stemming from a high birth rate.
The total fertility rate in the Philippines was a high 3.3 as of 2014 (Figure 5-1), with the population
reaching 100 million in 2014. The population is expected to rise by between 1.5% and just below
2% for the next ten years.
The economic growth rate will decelerate but remain at around 5% in 2025, with domestic
demand growing at a healthy clip centered on consumption (Figure 5-2, 5-3). GDP per capita willreach the $7,000 level in 2025, compared with around $3,000 at the moment.
Figure 5-1: Total fertility rates and population growth of Asian countries (2005-10)

Population growth (%)

3.0
2.5

Singapore

Laos
Malaysia
Brunei
Philippines
Mongolia
Indonesia Cambodia

2.0
1.5
1.0

Viet Nam
China Myanmar
ThailandJapan

South Korea

0.5

Hong Kong

0.0
0.0

0.5

1.0

Source: United Nations

1.5
2.0
2.5
Total fertility rate

3.0

3.5

4.0

Slowdown in the rush of workers moving to other countries
Filipinos who work overseas account for around 10% of the population, but the draining of
human resources due to their move overseas should gradually come to a halt with the rise inincome at home. The amount of funds remitted by those who work overseas stood at 10% of GDP
in 2005, falling to around 7% by 2014. The rate at which workers move overseas has declined as
4

Cherif, Reda & Fuad Hasanov (2015) “The Leap of the Tiger: How Malaysia Can Escape the Middle-Income Trap,”
IMF Working Paper, WP/15/131- 14 -

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

Figure 5-2: Real GDP Growth
8.0

Figure 5-3: Contributions to the Potential Growth

Net export
Gross capital formation
Government consumption
Private consumption
Real GDP

(%)

7.0
6.0

7.0

(%)
Forecast

6.0

5.0

5.0

4.0

4.0

3.0

3.0

2.0

CapitalLabor
TFP
Potential growth

2.0

1.0
0.0

1.0

‐1.0

0.0
91‐9596‐0001‐0506‐1011‐1516‐2021‐25(C.Y.)
Sources: Haver Analytics; JCER

01‐05 06‐10 11‐15 16‐20 21‐25(C.Y.)
Source: Estimates by JCER

the economy in the Philippines has strengthened compared with overseas economies in recent
years. The surplus in the balance of secondary income, which includes remittance from overseas
workers, will gradually narrow going forward. Still, the current account surplus is expected to be
maintained until 2025 (Figure 5-4).
Figure 5-4: Changes in current account balance15(% of GDP)
Secondary income
Primary income

Forecast
10

Goods & services
Current account balance

5
0
‐5
‐10
2005

2010

2015

2020

Sources: Haver Analytics; JCER

2025
(C.Y.)

Infrastructure development to continue at a moderate pace
Infrastructure development, which has been relatively slow, and the improved businessenvironment, including an easing of restrictions on foreign capital, will be crucial in raisingdomestic productivity. The quality of infrastructure, such as ports, is low in the Philippinescompared with surrounding countries (Figure 5-5), and logistics costs are relatively high.
Infrastructure development is necessary if the country is to benefit from the AEC or free trade- 15 -

Medium-term Forecasts of Asian Economies
Economic Prospects in China and ASEAN4

agreements. The Philippine Development Plan 2011-16 aims to increase the infrastructure-related
budget to at least 5% of GDP in 2016 from 2.2% in 2012. Infrastructure development is expectedto advance at a moderate pace for the next 10 years, although uncertainties exist surrounding
progress, given that many projects have been delayed in the past due to investments not advancing
as planned.
Figure 5-5: Quality of infrastructure in Asian countries

MyanmarCambodia

Philippines

Lao PDR

VietnamIndonesia

China

Thailand<Electricity & telephony>

Malaysia

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

MyanmarCambodia

Lao PDR

VietnamPhilippines

Indonesia

Thailand

China<Transport infrastructure>

Malaysia

7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Note: The scores ranging from 1 to 7, calculated by WEF.
Source: World Economic Forum, "Global Competitiveness Report 2014‐2015"

The background to the delay in infrastructure development to date is due to the Philippines
continuing to lag behind other countries in developing a business environment conducive toinvestment. According to the World Bank’s Doing Business 2015, the Philippines ranked 154th outof 189 countries in terms of investor protection, and stood at 124th place in the enforcement ofcontracts, making it the lowest among China and the ASEAN4.
Under the Aquino administration, which took office in 2010, the government has gradually
moved forward with improving the business environment, but many uncertainties exist
surrounding improvement going forward. President Benigno Aquino cannot run in the presidential
elections in 2016. The risk of stagnant growth will rise if the next president favors populist
policies.

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