Economic Snapshot for East & South Asia

March 20, 2018

All countries are expected to post weaker growth in 2019 compared to the previous year. The export-driven economies will feel the pinch from weaker global growth, rising trade protectionism and moderating growth in China. However, still accommodative monetary policies, coupled with ample financial and fiscal buffers, will keep growth robust overall.

Policy support appears to have shored up economic growth at the outset of the year, with investment growth, especially property investment, accelerating in January–February and retail sales stabilizing in the same period. Industrial production growth, however, slowed to a multi-year low in the first two months of the year, mostly due to subdued global demand. Against a backdrop of struggling domestic growth and external headwinds, the government slightly lowered its GDP growth target for this year at the National People’s Congress (NPC). At the same event, the top-leadership signaled a more accommodative fiscal policy for this year and unveiled a series of tax cuts in order to support the economy. In terms of policy action, along with announcing reforms to

China Economic Outlook

Regional currencies were mostly flat in recent weeks, strengthening modestly on news that China and the United States could be close to a long-awaited trade deal, which would put an end to the trade war between the two countries. That said, still accommodative monetary policies and weak regional growth will lead most currencies to depreciate slightly this year.

Domestic vulnerabilities, a global export downcycle and authorities’ efforts to transition towards a more sustainable economic model will lead the economy to decelerate this year. China’s economic outlook will be shaped by a potential trade deal with the United States, the scale of policy easing and a sharp downturn in the property sector.

FocusEconomics panelists see the economy growing 6.2% in 2019, which is unchanged from last month’s forecast, before decelerating further to 6.0% in 2020.

India Economic Outlook

Economic growth slowed in the third quarter of fiscal year 2018, which ran from October to December, on a weaker expansion in private consumption owing to tighter financial conditions. Nevertheless, fixed investment increased at a faster rate in Q3, while export growth accelerated and import growth decelerated. The differing export and import dynamics can partly be attributed to the large currency depreciation, followed by the announcement of new import restrictions on some goods, in the immediate run-up to the quarter. Turning to the January–March period, the economy will likely grow at a steady pace, with survey data for the private-sector economy pointing to robust growth in both the manufacturing and tertiary sectors through February. Meanwhile, India’s electoral commission announced the upcoming general election will run from 11 April till 19 May, with the final vote count due on 23 May.

Economic momentum is expected to remain steady next fiscal year, which starts in April. Robust government spending should support growth, as could a possible sustained lull in oil prices and greater political certainty following the elections. However, weak public finances and global trade protectionism both weigh on prospects.

Our panelists expect GDP growth of 7.3% in FY 2019, which is unchanged from last month’s estimate, and 7.3% again in FY 2020.

Korea Economic Outlook

The economy appears set to decelerate in the first quarter of 2019 amid slowing global demand for Korean goods. This is reflected by a further decrease in the manufacturing PMI in February and merchandise exports falling in annual terms at the fastest pace in nearly three years in the same month. The labor market is also showing signs of weakness, with the unemployment rate increasing to a multi-year high in January, while consumer confidence remained in pessimistic territory despite picking up in February. This follows a second reading released by the Bank of Korea in March which confirmed the economy expanded at a significantly faster rate in the fourth quarter of 2018 than in the third quarter. Economic growth in Q4 was underpinned by exceptionally strong government consumption and a third consecutive contribution from the external sector, as well as from a more supportive base effect.

This year, the economy is seen slowing slightly due to moderating private consumption growth and another contraction in fixed investment, despite still-loose monetary policy. On the other hand, significantly higher government spending will support growth.

FocusEconomics pnelists forecast the economy will grow 2.5% in 2019, which is unchanged from last month’s forecast, and 2.4% in 2020.

ESA Monetary & Financial Sector News

Inflation declined from last month’s 1.6% to an over one-year low of 1.4% in February. The result reflected falling inflation in China, Korea and Mongolia, while price pressures were stable in Taiwan. Data for February is still outstanding for Hong Kong. Looking forward, inflationary pressures should resurface slightly on the back of higher commodity prices. 

The Bank of Korea left the policy rate unchanged at its latest meeting, while the People’s Bank of China signaled that it will not likely use the policy rates this year. Further down the road, an uncertain global economic outlook, the pause in the U.S. Fed tightening cycle and low inflation will allow the region’s central banks to keep accommodative monetary policies.

Regional currencies were mostly flat in recent weeks, strengthening modestly on news that China and the United States could be close to a long-awaited trade deal, which would put an end to the trade war between the two countries. That said, still accommodative monetary policies and weak regional growth will lead most currencies to depreciate slightly this year.

See the Full FocusEconomics East & South Asia Report