Economic Snapshot for Asia
December 17, 2014
Weak Q3 growth momentum carries into Q4
Growth in most economies in the ex-Japan Asia region continued to slow in the third quarter, according to more complete data. The regional GDP increased 6.0% annually in the third quarter (Q2: 6.2% year-on-year), which represented the weakest growth since Q3 2012. More recent economic information suggests that growth will maintain virtually the same pace in the final quarter of 2014. Estimates for Q4 show that the region will expand 6.1%.
Growth in the majority of the economies in the region is expected to maintain the same pace of expansion in Q4 as in the preceding period. China, which accounts for the lion’s share of the region, is seeing growth moderating slightly. The downward trend in China’s growth continued in Q4, mainly due to a severe correction in the property market, overcapacity in some sectors and weaker domestic demand. Although Chinese authorities appear willing to tolerate a more moderate growth trajectory, they unveiled a series of measures to prop up growth in the last weeks. Recent data show that growth in Q4 also moderated in Korea and Thailand on subdued manufacturing output and weaker dynamics in the external sector. In India, however, there are signs that the economy is gradually picking up and that growth momentum will likely carry over into next year.
OUTLOOK | External headwinds and China’s economic slowdown weigh on economic outlook
The outlook for ex-Japan Asia deteriorated this month following a stable projection in the previous period. FocusEconomics Consensus Forecast panelists shaved off 0.1 percentage points from last month’s forecast and now expect GDP to expand 6.2% in 2015. This month’s downward revision stemmed from lower growth forecasts in 9 of the 15 economies surveyed, including regional powerhouse China. The only country for which panelists raised their growth estimates was Vietnam. Projections for the remaining five countries were left unchanged. Growth projections for 2016 were revised downward by 0.1 percentage points to 6.2%.
Singapore saw the sharpest cut to its 2015 projection on external headwinds and low productivity. China’s growth outlook for 2015 deteriorated as the country is adapting to a “new economic normal”, which comprises reforms and slower growth. In general, a tepid global economic recovery, the continued slowdown in China’s growth and domestic challenges will continue to weigh on economic performance next year in the ex-Japan Asia region.
CHINA | Slowdown in economic activity continues in November
Economic growth continued to slow in November, following the downward trend in economic activity observed throughout this year. A severe correction in the property market continues to dampen investment, while weaker demand is taking its toll on manufacturing. The all-important annual Central Economic Work Conference concluded on 11 December. While authorities maintained the overall policy stance of a “proactive fiscal policy and prudent monetary policy” for 2015, they also vowed to keep economic growth within a reasonable range and to promote the economic “new normal”. The final communique did not mention the long-awaited economic growth target for 2015, however, the media is reporting that the growth target for 2015 has been lowered from 7.5% in 2014 to 7.0%.
Economic growth is expected to moderate further in the coming year, as the government will continue to push forward economic reforms under the “new normal” approach, which comprises weaker but more sustainable growth. That said, a downturn in the real estate sector that was deeper than expected and flagging global demand could force authorities to act more aggressively to avert a hard landing. FocusEconomics panelists expect GDP to expand 7.0% in 2015, which is down 0.1 percentage points from last month’s estimate. Next year, the panel sees growth slowing to 6.9%.
INDIA | Economic data show improvement in Q4, reforms dominate the political landscape
Following a robust increase in the April–June period, GDP growth moderated in the subsequent quarter. The moderation mainly reflected a slowdown in agriculture and lackluster growth in the manufacturing sector. However, PMI data improved notably in November, which suggests that growth in manufacturing and services is firming up in the end of the year. Since Prime Minister Narendra Modi took office in May, poor progress has been made on the structural reform agenda. However, the National Democratic Alliance that is led by Modi’s Bharatiya Janata Party (BJP) has an outright majority in the parliament—the first in three decades—and the winter parliamentary session began on 24 November. The alliance has lined up 37 bills for debate. The bills include, among others, passing a nationwide goods and services tax (GST), which would be India’s most ambitious economic reform in years.
The country’s economic outlook is being supported by expectations that the government will in fact be able to pass India’s much needed structural reforms. FocusEconomics panelists expect GDP to increase to 5.5% in FY 2014/2015. For FY 2015/2016, the panel sees the economy expanding 6.2%, which is unchanged from last month’s forecast.
INDONESIA | Widodo pushes ahead reform agenda
President Joko Widodo’s bold decision to go ahead and introduce a hike of over 30% in subsidized fuel prices will relieve pressure on government finances and free up funds for much-need infrastructure and social spending. However, the move will put a damper on short-term economic growth, and passing further important reforms in 2015 will be a political and legislative challenge given the hostility of the opposition. Widodo also faces the tough task of revitalizing the economy after several quarters of decelerating growth.
Despite uncertainty regarding the political viability and short-term growth drawbacks, there is still a sense of optimism regarding the long-term potential of Widodo’s reform agenda. FocusEconomics panelists see the economy expanding 5.4% in 2015, which is down 0.1 percentage points. For 2016, the panel sees GDP growth picking up to 5.7%.
MALAYSIA | Malaysia scraps fuel subsidies ahead of new goods and services tax introduction in April 2015
Fuel subsidies in Malaysia were officially dropped on 1 December, with prices now linked to global rates. This is the latest in a series of moves designed to trim the government’s fiscal deficit, and comes just months before a new goods and services tax (GST) is introduced in April. While the government is showing strong commitment to improving its financial standing, there is concern that these measures will put an excessive damper on private consumption in the following year. Weak demand for Malaysia’s commodity exports and falling oil export revenues due to the current global price slump also pose an important risk to growth in the near term.
The government’s fiscal policies and weak external demand will keep economic growth below potential next year. FocusEconomics Consensus Forecast panelists expect GDP to expand 5.1% in 2015, which is down 0.1 percentage points from last month’s forecast. In 2016, the panel sees GDP also growing 5.1%.
INFLATION | Inflation decelerates in 2014 to the lowest rate in five years
Inflation in ex-Japan Asia is expected to close this year at 2.9% in 2014. If the current estimate is met, it will represent the lowest inflation rate since 2009. The subdued inflation reading expected for 2014 mostly reflects weak regional growth and falling commodity prices. Inflation is expected to remain low in the coming years, with FocusEconomics panelists expecting regional inflation to average 3.0% in 2015, which is down 0.3 percentage points from last month’s estimate. In 2016, inflation is seen inching up to 3.1%.
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