According to the GDP data of the third quarter of 2014, economic activity was relatively weaker compared to the outlook presented in the October Inflation Report. In the third quarter, the GDP rose by 1.7 percent on an annual basis, while growth remained limited compared to the previous quarter with 0.4 percent (Chart 13). Analysis of national income components on the production side indicates that the contraction in agricultural value-added led by adverse weather conditions is an important factor in the low growth of the national income (Chart 14). Data on the expenditures side reveal that in the third quarter, final domestic demand compensated for the fall in the first half and stood slightly above its level in the last quarter of 2013 (Chart 13). Following an interval of two quarters, private consumption expenditures recorded a robust recovery. In addition, the languishing trend in private investments, which lasted for a long time, reversed due to the increase in machinery and equipment investments. These two factors supported quarterly growth. However, the relatively weak course of exports limited the growth in this period. We expect industrial production, which fell below its previous-quarter average during October-November 2014, to decrease on a quarterly basis in the fourth quarter in line with the decline in December’s PMI and BTS survey indicators. Yet, data for the fourth quarter of 2014 point to a quarter-on-quarter pickup in consumer demand, a moderate course in machinery-equipment investments and some recovery in construction investments.

With the US rate hike cycle drawing nearer, the window for the region to get prepared for a tightening in financial conditions is getting smaller. It is therefore important for policy makers to contain further build-up of leverage, and to ensure banks will properly manage interest rate and exchange rate risks, and can withstand any potential deterioration in loan quality. It is encouraging to see that policymakers in many economies in the region have taken pre-emptive policy actions to lower credit growth and slow house price inflation. The biggest challenge now is when and how to relax these measures when market conditions reverse. 6. Second, policymakers will need to have sufficient backstop to mitigate systemic risk in the financial system in the event of a disorderly exit of US monetary policy. In this regard, the ASEAN+3 Chiang Mai Initiative Multilateralisation Arrangement, the regional financial safety net, could help to mitigate the risk of financial contagion by providing financial resources to members in the event of short-term liquidity difficulties. BIS central bankers’ speeches  1  7. Third, structural reforms remain the best way to reduce vulnerabilities and achieve sustainable growth over the long-term. We have been moving forward on this front through a deepening of intraregional trade, strengthening private and public-sector balance sheets and improving market infrastructure. But a lot more needs to be done. There is still ample scope to tackle structural impediments to growth and stability such as further capital market development, product and labour market reforms and service-sector reforms.