Asia Pacific

Economic Snapshot for Asia

October 22, 2014

The outlook for ex-Japan Asia deteriorated slightly this month, ending a streak of stable projections that lasted for five consecutive months. FocusEconomics Consensus Forecast panelists lowered their regional growth projections for 2015 by 0.1 percentage points to 6.3%. Although the 2015 outlook for 10 of the 15 economies surveyed—including regional heavyweights China and India—was stable, downward revisions to Hong Kong, Laos and Singapore led the regional projection to deteriorate. Conversely, prospects for Cambodia and Myanmar improved this month. Forecasters surveyed by FocusEconomics left their 2014 growth forecasts unchanged at 6.2%.

In the United States, economic growth remained strong, though it has moderated slightly in recent weeks. The ISM manufacturing PMI retreated from August’s three-year high in September, yet it did remain firmly entrenched in positive territory. Moreover, the unemployment rate fell to the lowest point since July 2008 in the same month. In the minutes from the Federal Reserve’s 16–17 September meeting that were published on 8 October, the Fed warned that the recent appreciation of the U.S. dollar and slower global economic growth could have adverse effects on the country’s external sector.

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On the other side of the Pacific, Prime Minister Shinzo Abe hinted that the government could move up talks on hiking the sales tax further next year to November with the aim of taking a final decision in December. Abe’s administration seeks to reduce the country’s debt burden without derailing the economic recovery, which is mainly fueled by bold economic stimulus policies. Recent data, however, are all but clear regarding the actual state of the economy. Consumer sentiment declined to a four-month low in September, while machinery orders expanded for the third consecutive month in August. The TANKAN business survey showed that large manufacturers were more optimistic in Q3, but prospects for the subsequent quarter deteriorated. 

Fears that the debt crisis may flare up again resurfaced in Europe. Economic growth in the Euro bloc remains lackluster and cooling global demand will likely put a dent in exports. Prime Minister Antonis Samaras’ statement that Greece would exit its austerity program next year and some countries’ inability to bring their budget deficit within the 3% of GDP target have added more pressure to the already fragile economic situation. Moreover, at the 2 October Governing Council meeting, European Central Bank President Mario Draghi disappointed investors when he failed to provide specific details on the bank's asset-purchase plan and did not provide hints regarding future measures aimed at propping up growth in the Eurozone and stemming deflationary pressures.

Within the ex-Japan Asia region, China’s economic growth decelerated in the third quarter. GDP expanded 7.3% in Q3, which was down from the 7.5% increase tallied in Q2 and represented the weakest pace of growth since Q1 2009. Although the National Bureau of Statistics does not provide a breakdown of GDP by expenditure, additional data suggest that domestic demand led Q3’s slowdown, as both nominal retail sales and urban fixed-asset investment moderated markedly in the three months up to September. Conversely, the nominal merchandise trade surplus recorded its largest surplus on record in Q3. FocusEconomics panelists expect the economy to expand 7.4% this year. The panel sees GDP growth decelerating slightly to 7.2% in 2015, which is unchanged from last month’s projection.

In order to avert a slowdown in the economy, the People’s Bank of China unveiled a series of measures in the last few weeks. On 20 October, local media reported that the PBOC is planning to inject around CNY 300 billion of liquidity with a three-month maturity into a selected group of mid-sized commercial banks via its Standing Lending Facility. In addition, the Bank cut the 14-day repo rate for the second time since mid-September and, on 23 September, the Bank eased credit conditions for the property sector, which includes lower mortgage rates and a sizeable reduction in the down payment required for second-home buyers. Moreover, the State Council continued to push its reform agenda ahead. On 2 October, the country’s cabinet promulgated regulation on local debt supervision and management in an attempt to strengthen the fiscal discipline of local government. According to the new directive, local governments cannot raise new debt using their own investment vehicles, while the central government claimed that it would not, in principle, bail out local governments.

The Communist Party of China (CPC) will hold its 4th Plenum on 20–23 October, which will be focused on strengthening the rule of law in an attempt to bolster investors’ confidence. The CPC is expected to improve the country’s legal framework as well as the checks and balances within the Party’s structure. While President Xi Jinping seems strongly committed to cracking down on corruption, critics maintain that the President is using the anti-corruption campaign launched in late 2012 to attack political rivals. 

In Hong Kong, although pro-democracy protests escalated in recent weeks, Chief Executive Leung Chun-ying reaffirmed that the Chinese government will not back off from his decision to restrict the nominees for the 2017 Chief Executive election to a handful of candidates that were previously approved by Beijing. While disruptions caused by the protest movement are taking a toll on the already-weak retail sector, the lack of a resolution regarding further political reforms could erode the business climate from now until the election year. FocusEconomics panelists expect GDP to increase 2.4% this year. The panel sees the economy expanding 3.1% in 2015, which is down 0.1 percentage points from last month’s projection.

Elsewhere in the region, recent data suggest that the Indian economy is less resilient than had been expected. In order to boost sentiment, Prime Minister Narendra Modi announced a set of measures to reform the country’s job market on 16 October, which include plans to increase transparency in work inspections and streamline labor laws. FocusEconomics panelists maintained India’s growth outlook for FY 2014/2015 unchanged from last month’s at 5.4%. The panel sees FY 2015/2016 GDP growth accelerating to 6.1%.

Prime Minister Prayuth Chan-ocha of Thailand announced new economic measures on 30 September that are worth THB 365 billion (USD 11.2 billion) in an effort to jumpstart the country’s economy, which has been severely damaged by months of political turmoil. Prayuth stated that the government will disburse THB 40 billion in one-off payments to rice farmers to support production. The rest of the funds will target public investment and job creation. FocusEconomics panelists expect the Thai economy to expand 1.5% this year. The panel sees 2015 GDP growth accelerating to 4.3%, which is unchanged from last month’s projection.

Prime Minister Najib Razak presented Malaysia’s budget for next year on 10 October. Although the 2015 budget includes the long-awaited goods and services tax, this will be almost completely offset by a long list of exemptions, social spending, and foregone revenues from discontinued sales and services taxes. The panel sees GDP growth at 5.7% for this year. For 2015, FocusEconomics panelists left Malaysia’s growth outlook unchanged at 5.2%. 

The central banks of India, Indonesia and Taiwan have decided to maintain their monetary policy rates unchanged since late September due to stable growth in the region and contained inflationary pressures. In addition, the Reserve Bank of India stated that its future policy stance will be determined by the Bank’s medium-term inflation target of 6.0%. Conversely, the Bank of Korea cut its key policy rate by 25 basis points to 2.00% in order to shield the economy against an uncertain global economic recovery, while also taking into account the current low inflation.

At its second semi-annual policy meeting, the Monetary Authority of Singapore (MAS) maintained its policy stance of allowing a modest and gradual appreciation of the Singapore dollar against its policy band. MAS made no change to the slope and width of the policy band, nor to the level at which it is centered, while it noted that the current stance is appropriate to ensure that inflation expectations remain well anchored.

According to preliminary data, inflation in ex-Japan Asia fell from August’s 2.9% to 2.4 in September. The monthly fall mainly reflects lower inflation in China and India. FocusEconomics Consensus Forecast panelists maintained their projections for 2015 at the previous month’s 3.5%. The panel, however, cut its 2014 inflation projections for ex-Japan Asia by 0.1 percentage points to 3.2%.

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