Economic Snapshot Asia
April 22, 2014
The outlook for ex-Japan Asia stabilized this month following a deterioration in the previous period. FocusEconomics panelists maintained their growth forecasts for 2014 at 6.3%. This month's stable outlook mainly reflects unchanged projections for 11 of the 15 economies surveyed, including regional behemoths China and India. Prospects deteriorated in Brunei, Laos and Thailand, whereas forecasts for Myanmar improved this month. Forecasters polled by FocusEconomics, however, cut their growth projections for 2015 by 0.1 percentage points; they now expect an expansion of 6.4%.
In the United States, recent data suggest that the economy has emerged from the winter soft patch. The ISM manufacturing index improved modestly in March. In the same month, retail sales accelerated to an 18-month high, while the unemployment rate held steady at the 6.7% tallied in February. On the other side of the Pacific, pressure is mounting on the Bank of Japan to take further action in order to support the country's economy. April's sales-tax hike is expected to put a dent in growth in the coming quarters and concern is increasing that Abenomics has failed to revive the country's economy. Meanwhile, in Europe, at its 3 April meeting, European Central Bank President Mario Draghi opened the door to adopting unconventional monetary policy measures in the future in order to cope with risks, should a period of low inflation last too long.
Within the region, China's economic activity slowed in Q1, with GDP expanding 7.4% annually, which was below the 7.7% increase tallied in Q4. That said, economic activity may have bottomed out at the end of the first quarter, as both industrial production and retail sales gained some ground in March. On 2 April, the State Council unveiled a series of measures in an attempt to support China's economic growth. The measures include a tax break for small- and medium-sized enterprises, a plan to renovate shantytowns, and projects to step up investment in railway construction. Although the scale of the stimulus is modest, it may open the door to a batch of fine-tuning measures aimed at assuring a growth rate of around 7.5%.
In addition, on 16 April, the State Council announced a reduction of the reserve requirement ratio for some county-level rural financial institutions that "meet certain standards" in order to provide more financing to rural areas. That said, the statement following the State Council's cabinet meeting did not give details regarding the specifics of the aforementioned standards. Bearing in mind the recent economic slowdown, analysts have started to price in the possibility that the reserve requirement ratio for the entire banking sector may be cut and that credit conditions may be loosened. FocusEconomics panelists left their growth projections for this year unchanged at 7.4%. Similarly, growth prospects for 2015 were left at the previous month's rate of 7.3%.
India's general elections started on 7 April and will last until 12 May. While the opposition Bharatiya Janata Party (BJP) is expected to win the election, it is still unclear which parties will support the BJP if it does not come away with a clear majority. The ruling Indian National Congress party is expected to lose significant ground. Nevertheless, most analysts see BJP leader Narendra Modi as the favorite in the race to become India's next Prime Minister. Although Modi-currently Chief Minister of the State of Gujarat-has implemented significant economic reforms in his state and achieved strong growth, his bold nationalistic stance could generate conflict with the Muslim community.
On the economic front, industrial output tallied the largest drop in nine months in February, declining 1.9% annually. Meanwhile, the trade deficit reached a five-month low in March, mainly reflecting a contraction in imports. FocusEconomics panelists left India's growth outlook for FY 2014/2015 unchanged at 5.3% for the fourth consecutive month. The panel sees GDP growth for FY 2015/2016 accelerating to 5.9%.
On-going political unrest continues to put pressure on the Thai economy. Aside from charges related to the controversial rice subsidy scheme, caretaker Prime Minister Yingluck Shinawatra is also facing another case against her. Yingluck has been charged with nepotism for having removed a national security adviser in 2011. According to the constitution, King Bhumibol Adulyadej will appoint the next prime minister if she is found guilty. It doesn't seem as though this will settle the political crisis, however, as supporters of the government have threatened to take to the streets if their leader is removed from office by a "judicial coup". Against the backdrop of deep political crisis, FocusEconomics panelists shaved off 0.3 percentage points from last month's growth forecast and now expect Thai GDP to expand 2.6% in 2014, which is well below the 4.3% increase projected in January. For next year, the panel sees growth at 4.4%.
In light of the fact that financial conditions have improved and inflationary pressures are relatively anchored, the central banks of India, Indonesia, Korea, the Philippines and Taiwan have decided to maintain their policy rates unchanged since late March. Moreover, at the Monetary Authority of Singapore's first semi-annual policy meeting of the year, which took place on 14 April, the Bank decided to continue its monetary policy stance that allows for a modest and gradual appreciation of the Singapore dollar.
According to preliminary data, inflation in ex-Japan Asia accelerated in March, rising from 2.9% in February to 3.2%. The monthly increase mainly reflects a low base of comparison in February due to seasonal effects stemming from the Lunar New Year holidays. FocusEconomics Consensus Forecast panelists expect inflation in ex-Japan Asia to average 3.6% in 2014, which is down 0.1 percentage points from last month's estimate. The panel, however, left its inflation projection for 2015 at the previous month's 3.7%.
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