Economic Snapshot Asia
February 25, 2014
The 2014 economic outlook for ex-Japan Asia remained stable for a fourth consecutive month. FocusEconomics panelists left their growth forecasts for 2014 unchanged at the previous month’s 6.4%. This month’s stable outlook reflects unrevised projections for 8 of the 11 economies surveyed, including regional behemoths China and India. Prospects for the Philippines improved this month, while the outlook deteriorated for Taiwan and Thailand. For 2015, the panel also maintained its growth projections unchanged at the previous month’s 6.5%.
The stable outlook came within a positive news flow from advanced economies, whereas developing countries continue to move sideways due to a sell-off in emerging market assets. In the United States, preliminary data indicated that the economy increased at a seasonally adjusted annualized rate of 3.2% in Q4 2013, which was below the 4.1% expansion tallied in the previous quarter. The minutes from the Fed’s meeting on 28–29 January showed that officials are facing a dilemma as the unemployment rate is nearing the 6.5% target, while other labor market indicators suggest weaknesses. Against this backdrop, policy makers stated that, “it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed.” The members of the Committee, however, were divided between adopting quantitative guidance or a qualitative approach.
On the other side of the Atlantic, economic news flow out of the Euro area is still encouraging. Eurozone GDP increased a seasonally-adjusted 0.3% over the previous quarter in Q4, supported by growth in Germany and France. Against a backdrop of positive economic indicators and expectations that the ECB will loosen its monetary policy, peripheral Europe bond yields tumbled to multi-year lows in recent weeks. Meanwhile, in Japan, economic growth disappointed in Q4, casting doubts on the country’s economic recovery as a sales-tax increase looms on the April horizon. In addition, a weak yen and the continued shutdown of nuclear plants after the Tohoku earthquake of March 2011 continue to push Japan’s trade deficit to record highs.
Within the region, China’s annual National People’s Congress (NPC) will begin on 5 March. The Congress is expected to set the country’s official GDP and CPI targets, among others, for this year. Although no major announcements are expected during the NPC meeting, analysts believe that it will be an opportunity to assess the pace and the scope of the reforms announced at the Central Committee’s third plenum in November and at the Central Economic Work Conference in December.
The People’s Bank of China (PBOC) released its quarterly monetary policy report on 8 February. The PBOC stated that it would maintain a relatively tight liquidity environment and it highlighted risks in local-government financing vehicles and in the property sector, as well as overcapacity in some industries. Meanwhile, January’s strong export expansion came as a surprise to the market, as they had expected that shipments would record a mild increase. Analysts warned that January trade figures could again reflect inflated trade invoices through which “hot money” can be brought into the country. FocusEconomics panelists left their growth projections for China unrevised at 7.5% in 2014. The panel, however, cut their growth projections for 2015 by 0.1 percentage points, and now they expect growth to slow to 7.3%.
In India, the government unveiled the interim budget, which provides for the expenditure necessary to run the administration until the new government is in place following general elections in May and the regular budget is approved sometime around July. The interim budget projects an improvement in the country’s fiscal position; the government estimates that the fiscal deficit for FY 2013/2014 will reach 4.6% of GDP, which is below the 4.8% of GDP projected in the budget. Moreover, the government expects that the fiscal deficit for FY 2014/2015 will fall to 4.1% of GDP. Following nine consecutive months of downward revision, FocusEconomics panelists left India’s growth outlook for FY 2014/2015 unchanged at the previous month’s 5.3%. The panel sees GDP for FY 2015/2016 accelerating to a 5.9% increase.
Thailand’s political situation continued to deteriorate last month, after rice farmers—who have traditionally been a key component of Prime Minister Yingluck Shinawatra’s support base—joined opposition protesters in Bangkok. Farmers demanded overdue rice payments under a controversial rice subsidy scheme, which involved government purchase of rice crops at up to 50.0% higher than global prices. However, the government has been unable to sell sufficient rice to clear delayed payments. In addition, Yingluck Shinawatra’s caretaker government has limited power to make spending decisions, thus it cannot raise funds in the market. Yingluck Shinawatra currently faces dereliction-of-duty charges over corruption related to the rice scheme and could be removed from office if found guilty. Against a backdrop of a deep political crisis, FocusEconomics panelists shaved off 0.3 percentage points from last month’s growth forecast and now expect Thai GDP to expand 3.3% in 2014. For next year, the panel sees growth at 4.6%.
Regarding monetary policy developments, the central banks of Indonesia, Korea, Malaysia and the Philippines have chosen to maintain their policy rates unchanged since late January. While most of the decisions were in line with market expectations, the Reserve Bank of India’s announcement to hike the repurchase rate came in as a surprise as market participants had expected monetary authorities to stay put. The Reserve Bank of India (RBI) hiked the repurchase rate from 7.75% to 8.00%, citing high CPI inflation and claiming that its decision was in line with the guidance it gave in the previous meeting. Most analysts agree that the RBI is gradually modifying the monetary policy framework towards inflation targeting, following the Urjit Pattel committee’s recommendations released in January.
According to preliminary data, inflation in ex-Japan Asia moderated in January, falling from 3.2% in December to 3.0%, mainly due to lower readings in India and Vietnam. FocusEconomics Consensus Forecast panelists expect inflation in ex-Japan Asia to average 3.5% in 2014, which is unchanged from last month’s estimate. The panel also left their projections unrevised for 2015 at the previous month’s 3.6%.
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