Asian Economic Integration Monitor - April 2014

The Asian Economic Integration Monitor is a semiannual review of Asia’s regional economic cooperation and integration. It covers the 48 regional members of the Asian Development Bank. The April 2014 issue includes Theme Chapter: Insuring against Asia’s Natural Catastrophes.

Highlights

This issue of the Asian Economic Integration Monitor includes the following highlights:

• The external environment for developing Asia should improve through 2015 with the United States, Japan, and eurozone all showing signs that economic recovery is finally gaining traction.
• Even as growth in some of the region’s largest economies moderates, developing Asia should see a marginal increase in growth over the next 2 years as improved demand from advanced economies spurs exports and several economies boost investment.
• There are three main downside risks, none of which are new and all have been on policymakers’ radar for some time: (i) an economic shock or reversal in any G3 economy could derail the nascent global recovery; (ii) the People’s Republic of China (PRC) economy moderates too quickly, affecting the rest of developing Asia; and (iii) volatile capital flows affect financial conditions across the region.
• Global and regional supply chains continue to evolve, affecting the nature and dynamics of foreign direct investment and trade integration; this presents an opportunity to further open individual economies and strengthen trade and investment regimes.
• Asia's intraregional trade remains strong, if falling marginally from 54.9% in 2012 to 54.1% in 2013; nonetheless, inter-subregional trade between each subregion and the rest of Asia is rising, except for South Asia; Asia's intraregional trade bias also remains strong but is falling slightly—Southeast Asia has high intra-subregional trade bias and strong links with East Asia and South Asia.
• Financial integration across Asia continues to deepen both in terms of quantity and price measures; intraregional bank credit flows—particularly from Japan and Australia to other Asian economies—have emerged as an important source of external financing.
• Despite the sharp decline in global foreign direct investment in 2012, inflows to Asia decelerated much more slowly—due to a significant increase in intra-Asian foreign direct investment flows, especially from East Asia to ASEAN.
• There are strong trade, finance, investment, and tourism links between the PRC, Japan, and the Republic of Korea, with economic growth among the three becoming more correlated, and the PRC having a greater impact on growth in Japan and the Republic of Korea.
• People traveling within Asia continue to bolster economic and cultural ties, although emerging geopolitical trends may have hurt some tourist flows recently; worker remittances provide households a means to spread risk and mitigate income shocks.
• Deepening economic links imply more significant spillovers and increased contagion during crises; strengthening regional cooperation in surveillance and financial safety nets is imperative.
• As growth moderates in some of the region’s largest economies—and with the potential for increased geopolitical tension—it is critical Asia continues to strive toward broader and more effective regional cooperation.

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Theme Chapter: Insuring against Asia’s Natural Catastrophes

The theme chapter of the April 2014 Asian Economic Integration Monitor issue includes the following highlights:

• Over the past 20 years, Asia has borne half the estimated global economic cost of natural disasters—about $53 billion annually; this could potentially wipe out gains from economic growth in many economies.
• The gap between total economic losses and insured losses can be so wide that it may outstrip government’s ability to act as insurer of last resort. Regional cooperation along with better and more effective national policies to offer disaster risk financing instruments is therefore critical.
• Key priorities for developing disaster risk financing markets and strengthening financial resilience should include business continuity planning, enhancing technical and institutional capacities, and coordinating various governmental authorities across all levels.