Navigating Global Trends

Mitigating Risks, Seizing Opportunities

Cambodia Pentagon Strategy – Workshop
April 6th, 2023
 Near-term prospects are better than expected but growth
still projected to slow in 2023

Index China: manufacturing PMI Percent 2022 2023

China: services PMI 7
65
Global: manufacturing PMI
6
60 Global: services PMI
5
55
4

50 3

45 2

40 1
Jan-21

Jun-21

Feb-23
Nov-21

Apr-22

Sep-22

0
World US EU China EAP PICs
excluding
China
2
 Global Trends

• Decoupling
• Disruptive Technologies
• Decarbonization and Climate Risks

3
 From off-shoring to friend-shoring

Significant exporter characteristics associated with increased imports to the US

and EU
0.2 Manufacturing Consumption All goods

0.1

-0.1
UN voting Export-product Bilateral tariff Tariffs faced by UN voting Tariffs on
similarity with similarity w/ exporters similarity with imports
US-EU China china
4
 Growing barriers to trade, investment, and knowledge flows
Number Technical Barriers to Trade Sanitary and Phytosanitary Anti dumping
Countervailing Safeguards Special Safeguards
500 Quantitative Restrictions

400

300

200

100

0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
United States China

5
 Trade tensions offer short-term trade diversion opportunities

Percentage point Percentage point

3 Agriculture Electronics Metals 3 Agriculture Electronics Metals
2 Minerals Textiles Others Minerals Textiles Others
2
1 1
0 0
-1 -1
-2 -2
-3
-3
-4
-4
-5
-5
VNM

KHM

EUR
TWN
KOR

IND
IDN

JPN
CHN
HKG
MEX

MYS
THA

PHL

TWN

JPN
VNM
KHM

USA

KOR
IDN

THA
PHL

IND

EUR
HKG
MYS

MEX
6
 ..but raise short-term uncertainty…
Trade Uncertainty Contribution to World Uncertainty Index, %

7
Sources: IMF
 ..and create a long-term drag on growth

Geo-economic fragmentation
leads to inefficiencies
associated

 Trade diversion
 Diseconomies of scale
 Reduced innovation and
technology diffusion

8
 Demand is also shifting

Final destination for emerging East Middle-class consumer spending

Asia's gross exports (Percent of total)
100 26
(Percent of total Emerging East Asia's

24 Emerging East Asia

80
Rest
22

60 20
EU USA
exports)

18
USA
40 16
Japan
14 EU
20 East Asia: EM
Emerging
(excl. China)
East Asia: 12
12% China 31%
0 10
2000 2005 2010 2015 2020 2016 2019 2022 2025 2028 2031 2034

Source: OECD Inter-Country Input-Output (ICIO) Tables, World Data Pro! staff estimates.
 Global Trends

• Decoupling
• Disruptive Technologies
• Decarbonization and Climate Risks

10
 Trouble in the making
High income economies invest in automation… …developing countries deindustrialize at lower levels of
income
Industrial robots per worker vs Per Capita GDP
(2017 PPP adjusted US$)

60.0
Number of Robots per worker

Korea,
Republic of
50.0
Singapore
40.0
China
Japan
30.0

20.0
Phi…
Viet Nam Indon… Thailand
10.0

Malaysia
0.0
-20,000 0 20,000 40,000 60,000 80,000 100,000 120,000
-10.0
Per Capita GDP

Source: World Development Indicator (World Bank), World Trade Statistical Review (WTO)
 Digitalization is likely to increase productivity in services
Adoption of digital technologies accelerated during …and is likely to boost productivity especially in services
COVID
Percent of firms 90,000
3 80,000

Value Added per Worker (US$)

70,000
2 60,000
50,000
1 40,000
30,000
0
20,000
10,000
-1
0
-8 -4 0 4 8 12 16 20 24
0 20 40 60 80 100
Event Weeks Share of businesses with a website (%)

Source: World Development Indicator (World Bank), World Trade Statistical Review (WTO)
 Global Trends

• Decoupling
• Disruptive Technologies
• Decarbonization and Climate Risks

13
 Physical and transition risks

12

Cambodia
Mongolia
9 Vietnam

CO2 emission growth (%)

China
6 Indonesia
Malaysia

Philippines
3 Thailand

-3
-3 0 3 6 9 12
GDP growth (%)
Source: Global Climate Risk Index 2021 (GermanWatch)
 Adaptation investments could delivery triple dividends

Source:World Resource Institute

 The world economy is committed to net-zero

GDP covered under NDCs

GDP of new NDCs Cummulative GDP share (RHS)
 Costs of low carbon
40 100 technologies likely to fall
Trillion USD (constant 2017 $, PPP)

35
80  Market access for high carbon

Percent of global GDP

30
goods may decline (CBAM)
25 60
20
 Consumer preferences may
15 40
shift
10
20
5

0 0
Dec-19 Aug-20 Apr-21 Dec-21 Aug-22

Source: Climate Watch, Net Zero Tracker

 Policy Priorities

• Diversified trade and investment policies – RECEP, CPTPP, bi-lateral

FTAs, combined with structural reforms to boost competitiveness.

• Focus on technology diffusion and digitization, including in service

sectors.

• Focus on climate resilience (and no regret decarbonization options as

part of a competitiveness strategy).
17
 Thank you

18