Asia Pacific Economic Forecast

Economic Snapshot for Asia

March 25, 2015

Growth expected to remain broadly stable in Q1

Final data for the region show that GDP expanded 6.3% annually in Q4, which was slightly down from the 6.4% increase tallied in Q3. As a result, regional growth for 2014 was on par with the 6.5% expansion recorded in 2013. Next year, growth in the ex-Japan Asia region will decelerate slightly mainly due to weaker economic dynamics in China. In this regard, and mainly due to recent revisions to the national accounts methodology in India, India is expected to grow faster than China in 2015. Estimates from FocusEconomics Consensus Forecast panelists show that the ex-Japan Asia region will expand 6.2% in Q1. 

Falling commodity prices, a more accommodative monetary policy stance across ex-Japan Asia and positive spillovers stemming from structural reforms in the region are expected to support growth going forward. Moreover, the healthy recovery in the United States’ economy and evidence that the Federal Reserve has pushed out interest rate hikes further will also boost economic dynamics in the region. The main downside risks to the economic outlook continue to be a potential severe downturn in China’s property market and faltering growth in Japan and the Euro area despite the fact that both have introduced massive quantitative easing programs.

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India’s GDP revision continues to drive up regional outlook

The outlook for ex-Japan Asia improved for the first time in 16 months this period, following stable projections for the previous two months. FocusEconomics Consensus Forecast panelists expect GDP to expand 6.3% in 2015, which is up 0.1 percentage points from last month’s forecast. This month’s upward revision mostly reflected India’s change in its national accounts methodology and its revised historical data, which brought panelists to raise India’s growth projections by 0.6 percentage points to 7.1%. That said, the panel also upgraded the outlook for the Philippines. Growth prospects for 7 of the 15 economies surveyed, including regional powerhouse China, were left unchanged. Conversely, projections for Brunei, Cambodia, Hong Kong, Korea, Laos and Malaysia were revised downward. The regional growth forecast for 2016 was revised upward by 0.1 percentage points to 6.3%.

Myanmar, Cambodia and Laos are expected to be the best performers in 2015. Among the major economies, India, China and the Philippines will grow the fastest, with a projected expansion of 7.1%, 7.0% and 6.4%, respectively. At the other end of the spectrum, Brunei is likely to be the worst performer, followed by Hong Kong and Singapore. 

CHINA | Growth momentum moderates at the start of the year

The economy lost further momentum at the outset of the year according to data for the January–February period; growth in fixed-asset investment, industrial production and retail sales all marked multi-year lows. Moreover, the PMI was in contraction mode for the second consecutive month in February. At the annual National People’s Congress held on 5 March, Premier Li Keqiang unveiled the government’s macroeconomic goals for 2015. The majority of the targets were lowered from last year’s targets. This included cutting the growth target from last year’s 7.5% to 7.0%. Chinese authorities also signaled that they do not plan to prop up the economy with an aggressive fiscal stimulus package. 

Although the economy will gradually slow in the coming years in line with the government’s strategy to promote more balanced economic growth, China will continue to be one of the top performers among the major global economies. Low oil prices and an accommodative monetary policy stance promise to spur growth this year. However, risks of a sharp correction in the property market and the high level of local government debt continue to loom over the economy. For this year, Consensus Forecast panelists maintained their growth projections stable at the previous month’s 7.0%. Next year, our panel sees growth at 6.8%.

INDIA | Modi’s administration presents FY 2015/2016 budget aimed at fostering investment

GDP slowed slightly in the quarter from October–December, growing 7.5% year-on-year. More recent data paint a cloudy picture of the economy. Industrial production eased in January and the manufacturing PMI fell in February indicating slowing economic momentum. However, on the flip side, the services PMI rose and the trade deficit shrank in February. Meanwhile, Finance Minister Arun Jaitley presented the budget for fiscal year 2015/2016 on 28 February. While it contains a number of potentially beneficial policies, including increased spending on infrastructure and significant tax reforms, it fell short of introducing any groundbreaking changes. 

While India’s economic outlook remains fairly stable, recent revisions to the national accounts methodology and the revised historical data are lifting the forecast. Our panel of analysts raised their projections by 0.6 percentage points this month and now expect GDP to increase 7.1% in FY 2015/2016. For FY 2016/2017, our panel sees the economy expanding 7.6%.

KOREA | Recent economic data suggest growth is recovering

Recent data provide a glimmer of hope for the Korean economy after it lost momentum throughout 2014. Business confidence remains in pessimistic territory, although it did jump to a ten-month high in March, and consumer confidence inched up in February. The PMI was positive again in February following a rebound from contraction in the previous month, and industrial production picked up pace in January. However, exports have been underperforming for several months, which poses a barrier to significant growth and recovery. Subdued global demand and a relatively weaker Japanese yen are hurting exports, which contracted at the fastest pace in two years in February. In an effort to reduce reliance on exports and boost domestic demand, President Park Geun-hye recently announced plans to cut business regulations to promote investment and growth in the services sector. Meanwhile, high household debt, which stands at more than 85% of GDP, continues to constrain private consumption. 

Challenging global conditions will likely keep Korea’s export-driven economy performing below potential this year. Our panelists expect GDP to expand 3.4% in 2015, which is down 0.1 percentage points from last month. Panelists project GDP growth of 3.6% in 2016.

INDONESIA | New budget expected to rekindle growth 

Expectations are high that government-led infrastructure spending will boost the economy this year following disappointing GDP growth in 2014. However, there are also doubts regarding whether the savings generated by fuel subsidy cuts will be enough to fund the near-doubling of capital expenditures as laid out in the 2015 budget, particularly in light of the expected drop in oil-related revenues. Moreover, it remains to be seen at what rate government funds will be disbursed and how many of the projects in the pipeline will materialize. The success of the government’s expansionary fiscal plans may well determine the fate of the economy this year, given that other sectors are stuck in low gear. No strong recovery of export growth is expected in the near term, with subdued global demand offsetting the effect of a depreciating currency. Exports of commodities such as coal and palm oil, but also manufactured goods, are stuck in a rut. In fact, the manufacturing PMI hit a record low in February. 

President Widodo’s growth-oriented policies are expected to boost the economy. FocusEconomics panelists see the economy expanding 5.4% in 2015, which is unchanged from last month’s forecast. For 2016, the panel sees GDP growth picking up to 5.7%.    

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INFLATION | Inflation picks up in February on seasonal factors

According to preliminary data, inflation in ex-Japan Asia rose from January’s 1.6% to 2.0% in February. While the pick-up in inflation mostly reflects spillovers stemming from the Chinese New Year, inflationary pressures remain at bay due to weak economic activity and falling commodity prices. Against this backdrop, FocusEconomics Consensus Forecast panelists expect regional inflation to average 2.4% in 2015, which is down 0.2 percentage points from last month’s estimate. In 2016, inflation is seen rising to 2.8%.

- Ricard Torné, Senior Economist

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