East & South Asia Economic Forecast

Economic Snapshot for East & South Asia

August 21, 2019

East Asian economies are expected to decelerate in 2019

The regional economy is seen decelerating this year as export-driven economies will face headwinds from weaker global demand, escalating trade tensions between China and the United States, and an economic slowdown in China. More supportive fiscal and monetary policies in China should, however, support growth.

South Asia economic growth to slow slighlty in 2019

The South Asian economy should slow slightly in 2019 compared to 2018. This is primarily due to projected weaker growth in Pakistan and Sri Lanka, reflecting spillovers from the IMF-sponsored deal and the devastating Easter bombings, respectively. More positively, Bangladesh’s economy is expected to accelerate in 2019, while India’s is seen holding steady momentum.

 
 

East Asia Monetary & Financial Sector News

Inflation held steady in July at June’s 2.5% as increased price pressures in China were balanced by weaker pressures in Korea, Mongolia and Taiwan. Data for Hong Kong is still outstanding. Looking ahead, inflation is expected to accelerate this year from last year, partly on weaker regional currencies and the spread of African swine fever.

On 16 August, China’s Central Bank announced it would replace its key lending rate with a more market-aligned benchmark, hoping to lower borrowing costs. The Bank of Korea, meanwhile, cut interest rates for the first time in three years on 18 July, due to a slowing economy. As a whole, regional interest rates are expected to average lower this year than last year.

The Central Bank of China allowed the yuan to depreciate below CNY 7 per USD in recent weeks, likely in response to diminishing economic growth prospects, while the Korean won also depreciated. Looking forward, most currencies in the region are set to lose value against the greenback this year compared to last year on weaker economic growth.

South Asia Monetary & Financial Sector News

Inflation accelerated to 3.9% in July from 3.8% in June. This was due to greater inflationary pressures in Pakistan, whereas inflation held steady in India and slowed in Sri Lanka. Data for Bangladesh is yet to be released. Taking 2019 as a whole, inflation is seen accelerating compared to 2018, partly on subsidy cuts in Pakistan.

In recent weeks, the central bank of India cut interest rates on still-weak economic activity, while the central bank of Pakistan raised rates to tame accelerating inflation. Sri Lanka’s Central Bank will announce its next monetary policy decision on 23 August. In 2019 as a whole, interest rates are expected to average slightly lower than in the previous year.

The Indian rupee has recently depreciated against the USD, particularly after India’s government scrapped Jammu and Kashmir’s special status on 5 August, increasing instability in the region. The region’s other currencies, meanwhile, proved relatively more stable. This year, all currencies in the region are expected to depreciate against the USD.

 

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