00:00It's interesting because you downgraded the forecast for growth in the broader region,
00:04but when it comes to advanced APAC, you actually upgraded it. Where's the divergence?
00:13Well, one thing that we have observed in the first quarter is very strong export growth
00:18in semiconductor AI-related production, and that has really benefited what we used to call
00:25the four dragons, Taipei, China, Korea, and Hong Kong, and it also has helped some of the Southeast Asian economies
00:37that have been connected to the semiconductor supply chain, like Malaysia, to some extent, Thailand.
00:45And so that has been a positive story, but the Middle East crisis is really the main story
00:51for the downgrade for developing Asia and the Pacific. In April, our previous forecast had been 5.1%
00:59for developing Asia and the Pacific, and now it's 4.9%, and that's really due to the more prolonged nature
01:06of the conflict, our concern that lag affects kind of the pass-through of higher energy prices
01:13to the supply of other goods and services, core inflation. These are all now risks for the region
01:19that are going to slow growth somewhat.
01:23When it comes to the impact from the Middle East conflict, it's interesting that at least
01:28developing China seems to have been more resilient. Are we seeing even divergence within developing Asia
01:33at this point from the crisis in Iran?
01:39I think most of our sub-regions we are downgrading because of the higher energy prices. As you know,
01:44Asia Pacific is particularly reliant on imports of oil, especially, and gas from the Middle East.
01:51But China has been somewhat resilient. They had very high oil reserves. They've pretty much protected
01:58their economy from severe disruption from the higher energy prices. And so they've also had very good numbers
02:06in the first quarter and a public stance of still accommodative monetary policy and fiscal investment plans
02:14that we think will raise growth somewhat in the second half. So that offsets, again, the challenges that everyone faces
02:20in terms of the higher energy prices.
02:24Albert, what are you seeing in terms of efforts from some of these developing nations that are very dependent on
02:31the energy
02:31that flows through the Strait of Hormuz when it comes to building greater energy resilience?
02:38Well, I think countries are trying to respond to the challenge in various ways. Some governments have been trying
02:45to protect their consumers and firms by continuing to subsidize oil prices or energy prices. But, of course,
02:52that really eats up into their fiscal space and so weakens their resilience kind of in the long term in
02:58terms
02:58of what they'll be able to do and raises debt and it leads to some kind of debt sustainability concerns.
03:06But, of course, other countries are trying to diversify energy sources. Some countries have announced
03:11that they want to shift more quickly to renewable energy sources to reduce dependence on fossil-based fuels
03:18because of the concentration risk of sourcing all of the supply from the Middle East.
03:25Do you expect to see AI-driven demand remain a big support for regional growth heading into next year?
03:34That's certainly been an important story for more robust growth, especially in some of the advanced Asian economies.
03:42We are overall bullish on the AI movement, but we recognize that there's a lot of volatility.
03:48There's certainly some risks of highly volatile equity markets in the AI space.
03:56I think, broadly, that's what we're going to see going forward, a lot of volatility, but continued investment,
04:02and eventually we should start to see higher productivity growth versus economies that start to adapt AI more broadly.
04:09Of course, that tends to be concentrated in certain economies, China, India, and advanced economies in the region.
04:18And one concern we have is that some of the less developed economies that have fewer capabilities in the digital
04:25space
04:25are going to find it hard to match this level of adoption, and this could lead to certain divergences
04:31in the opportunities that AI is creating for countries in the region.
04:36Right, Albert, I mean, we continue to see the haves and have-nots when it comes to this short-term
04:41impact of AI,
04:43but broader, longer-term, when we talk about labor market and structural changes.
04:47What is a time horizon when we can expect this divergence to deepen or measures that need to be implemented
04:55before that happens?
05:00Well, I think we're still in early stages in terms of understanding the true productivity effects of AI.
05:08We know in studies of specific firms and sector that it has been raising productivity.
05:14We also know that it's been challenging to certain types of jobs.
05:17For instance, the business process outsourcing sector in the Philippines is, I think, there's a lot of concerns
05:24about whether AI is going to replace employment in this kind of growth sector for the economy.
05:29And so I think governments just need to really monitor the situation carefully.
05:33I think it will be a gradual process as we see this impacts.
05:37ADB right now is really trying to support countries in their digital transformation
05:42so that fewer countries and fewer people are left behind in the AI race.
05:47ADB right now is one of those things!
05:47I know that inamos are right at the bonfires.
