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Asia Economics Outlook 2018
Tom Orlik, Tamara Mast Henderson,
Bloomberg Intelligence economists
Asia’s major economies are poised for a year of
slowing growth and central bank transitions
In China, drags from property and deleveraging are expected to
shade growth down to 6.3% from 6.8% in 2017. In Japan, weaker
exports and capex will add headwinds to reflation. Elsewhere
in the region, the outlook is more mixed. India is poised for a
recovery as drags from demonetization and a new tax regime fade
– though RBI policy remains tight. In most of ASEAN, tepid private
demand will keep rate hikes off the table.
Central bank transitions add uncertainty. People’s Bank of China
chief Zhou Xiaochuan may step down after 15 years at the helm.
The Bank of Korea will likely have a new governor. The heads of
the Bank of Japan and Bank Indonesia will see their terms end in
2Q - though they may stay on.
China’s 2018 GDP a political choice as Xi ponders target
China’s growth path remains a political choice. Will President
Xi Jinping stick with the commitment to double the size of the
economy from 2010 to 2020, requiring a continued foot on the
accelerator? Or will China’s leaders recognize that the price in
debt and imbalance required to get there isn’t worth paying, and
accept a lower growth rate as they advance needed reforms? A
strong performance in 2017, with GDP poised for 6.8% growth,
provides a little more wiggle room.
Going forward, China could expand 6.3% a year and still stay on
track to double by 2020. Tolerance for growth below that level is
likely limited.
GDP forecast
Japan’s slower growth, BOJ uncertainty raise risk for 2018
Japan is heading into 2018 with its reflation agenda still a
work-in-progress. The task will get harder, with growth poised
to slow, fiscal policy limited by debt, and structural reforms
stalling. A potential change in leadership at the central bank
adds uncertainly. Even so, a weaker yen is likely to support the
economy, giving Prime Minister Shinzo Abe more time to put
Abenomics back on track.
Bloomberg Economics forecasts GDP growth at 0.8% in 2018,
down from 1.7% in 2017. The main drag – slowing exports and
investment, pressured by a slowdown in China and the risk that
protectionism could cap the passthrough of higher demand from
the U.S.
Growth to slow to economy’s potential rate
RBI holds the key to India growth pickup in year ahead
India’s growth is poised to pick up in the coming fiscal year, as
structural reforms clear bottlenecks and a streamlined GST framework
leads to increased efficiency. Government efforts to lower the budget
deficit will remain a headwind. Slowing inflation though, will allow the
RBI to cut rates - reducing high real borrowing costs that are crimping
investment. Bloomberg Economics sees growth in gross value added
(the RBI’s preferred gauge) rising to 7.3% in the year through March
2019, up from 6.4% this fiscal year.
A wide output gap means inflation will slow to 3.5% in 1Q 2019 from
3.8% in 1Q 2018. Inflation anchored below the RBI’s 4% medium-term
target will clear the way for it to cut rates by 50 bps next year, in BE’s
view.
Growth outlook hinges on RBI cutting rates
ASEAN’s tepid investment may deter rate hikes in 2018
Economies in Southeast Asia picked up steam in 3Q, but in most
cases private demand is not shouldering enough of the burden to
worry about rate hikes into next year. Malaysia may be an exception
though, with tightening possible as soon as 1Q 2018. Fading
momentum in private consumption and investment is likely to keep
the Philippine central bank on hold for now. Singapore’s central bank
will probably maintain a neutral bias on the exchange rate as long as
investment continues to contract.
Growth in ASEAN’s five largest economies accelerated to 5.5% year
on year on average in 3Q, up from 4.7% in 1H and 4.3% in 2016.
Singapore, Thailand and Malaysia - those more sensitive to shifts in
external demand - led the group.
Growth in the ASEAN-5 has quickened
Bank Indonesia may wait for growth lift-off in 2018
Stronger investment and consumption in Indonesia may offset
weaker exports, pushing growth toward the upper end of the central
bank’s forecast range of 5.1-5.5% next year. Higher oil prices may lift
inflation into the upper end of the target band, which will drop to 2.5-
4.5% in 2018 from 3-5% now. For policy, this outlook suggests Bank
Indonesia will keep the reverse repo rate unchanged at 4.25% next
year. It will instead rely on easier reserve requirement rules set to take
effect in 2H 2018 to support growth.
Progress on reducing non-performing loans could further support
bank lending and economic momentum.
Further rate cuts may hinge on bank lending
Australia’s economy may outshine New Zealand’s in 2018
Australia’s economy could outpace growth in New Zealand in 2018,
after several years of underperformance. In recent years, a peak in
Australia’s mining super cycle has weighed heavily on investment. At
the same time, New Zealand benefited from strong inward migration.
These factors are showing signs of unwinding. What’s more,
migration to Australia appears to be picking up. Even so, central
banks in both countries appear a long way from tightening monetary
policy.
New Zealand’s expansion has been stronger than Australia’s since 2H
2014, with average annual GDP growth on an expenditure basis of
3.2% compared with 2.4% for Australia. Household spending is the
primary driver of growth in both countries.
Growth differential may start to favor Australia
South Korea’s trade, fiscal policy to offset drag as BOK hikes
Heading into 2018, South Korea’s economy is being buffeted by
conflicting forces. Strong global demand is a positive for the export-
oriented economy. Reliance on a handful of key conglomerates
though, means its fortunes are tied to the global electronics cycle.
President Moon Jae-in’s expansionary fiscal policy holds promise for
jobs, wages and spending. A potential roadblock: sizable opposition
in the legislature.
Growth above potential will keep the Bank of Korea on a tightening
path. But with inflation relatively benign, the pace of rate hikes will be
gradual - with the next move likely in 2H 2018.
South Korean GDP growth and components
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Asia Economics Outlook 2018

  • 1. Asia Economics Outlook 2018 Tom Orlik, Tamara Mast Henderson, Bloomberg Intelligence economists
  • 2. Asia’s major economies are poised for a year of slowing growth and central bank transitions
  • 3. In China, drags from property and deleveraging are expected to shade growth down to 6.3% from 6.8% in 2017. In Japan, weaker exports and capex will add headwinds to reflation. Elsewhere in the region, the outlook is more mixed. India is poised for a recovery as drags from demonetization and a new tax regime fade – though RBI policy remains tight. In most of ASEAN, tepid private demand will keep rate hikes off the table.
  • 4. Central bank transitions add uncertainty. People’s Bank of China chief Zhou Xiaochuan may step down after 15 years at the helm. The Bank of Korea will likely have a new governor. The heads of the Bank of Japan and Bank Indonesia will see their terms end in 2Q - though they may stay on.
  • 5. China’s 2018 GDP a political choice as Xi ponders target
  • 6. China’s growth path remains a political choice. Will President Xi Jinping stick with the commitment to double the size of the economy from 2010 to 2020, requiring a continued foot on the accelerator? Or will China’s leaders recognize that the price in debt and imbalance required to get there isn’t worth paying, and accept a lower growth rate as they advance needed reforms? A strong performance in 2017, with GDP poised for 6.8% growth, provides a little more wiggle room. Going forward, China could expand 6.3% a year and still stay on track to double by 2020. Tolerance for growth below that level is likely limited.
  • 8. Japan’s slower growth, BOJ uncertainty raise risk for 2018
  • 9. Japan is heading into 2018 with its reflation agenda still a work-in-progress. The task will get harder, with growth poised to slow, fiscal policy limited by debt, and structural reforms stalling. A potential change in leadership at the central bank adds uncertainly. Even so, a weaker yen is likely to support the economy, giving Prime Minister Shinzo Abe more time to put Abenomics back on track. Bloomberg Economics forecasts GDP growth at 0.8% in 2018, down from 1.7% in 2017. The main drag – slowing exports and investment, pressured by a slowdown in China and the risk that protectionism could cap the passthrough of higher demand from the U.S.
  • 10. Growth to slow to economy’s potential rate
  • 11. RBI holds the key to India growth pickup in year ahead
  • 12. India’s growth is poised to pick up in the coming fiscal year, as structural reforms clear bottlenecks and a streamlined GST framework leads to increased efficiency. Government efforts to lower the budget deficit will remain a headwind. Slowing inflation though, will allow the RBI to cut rates - reducing high real borrowing costs that are crimping investment. Bloomberg Economics sees growth in gross value added (the RBI’s preferred gauge) rising to 7.3% in the year through March 2019, up from 6.4% this fiscal year. A wide output gap means inflation will slow to 3.5% in 1Q 2019 from 3.8% in 1Q 2018. Inflation anchored below the RBI’s 4% medium-term target will clear the way for it to cut rates by 50 bps next year, in BE’s view.
  • 13. Growth outlook hinges on RBI cutting rates
  • 14. ASEAN’s tepid investment may deter rate hikes in 2018
  • 15. Economies in Southeast Asia picked up steam in 3Q, but in most cases private demand is not shouldering enough of the burden to worry about rate hikes into next year. Malaysia may be an exception though, with tightening possible as soon as 1Q 2018. Fading momentum in private consumption and investment is likely to keep the Philippine central bank on hold for now. Singapore’s central bank will probably maintain a neutral bias on the exchange rate as long as investment continues to contract. Growth in ASEAN’s five largest economies accelerated to 5.5% year on year on average in 3Q, up from 4.7% in 1H and 4.3% in 2016. Singapore, Thailand and Malaysia - those more sensitive to shifts in external demand - led the group.
  • 16. Growth in the ASEAN-5 has quickened
  • 17. Bank Indonesia may wait for growth lift-off in 2018
  • 18. Stronger investment and consumption in Indonesia may offset weaker exports, pushing growth toward the upper end of the central bank’s forecast range of 5.1-5.5% next year. Higher oil prices may lift inflation into the upper end of the target band, which will drop to 2.5- 4.5% in 2018 from 3-5% now. For policy, this outlook suggests Bank Indonesia will keep the reverse repo rate unchanged at 4.25% next year. It will instead rely on easier reserve requirement rules set to take effect in 2H 2018 to support growth. Progress on reducing non-performing loans could further support bank lending and economic momentum.
  • 19. Further rate cuts may hinge on bank lending
  • 20. Australia’s economy may outshine New Zealand’s in 2018
  • 21. Australia’s economy could outpace growth in New Zealand in 2018, after several years of underperformance. In recent years, a peak in Australia’s mining super cycle has weighed heavily on investment. At the same time, New Zealand benefited from strong inward migration. These factors are showing signs of unwinding. What’s more, migration to Australia appears to be picking up. Even so, central banks in both countries appear a long way from tightening monetary policy. New Zealand’s expansion has been stronger than Australia’s since 2H 2014, with average annual GDP growth on an expenditure basis of 3.2% compared with 2.4% for Australia. Household spending is the primary driver of growth in both countries.
  • 22. Growth differential may start to favor Australia
  • 23. South Korea’s trade, fiscal policy to offset drag as BOK hikes
  • 24. Heading into 2018, South Korea’s economy is being buffeted by conflicting forces. Strong global demand is a positive for the export- oriented economy. Reliance on a handful of key conglomerates though, means its fortunes are tied to the global electronics cycle. President Moon Jae-in’s expansionary fiscal policy holds promise for jobs, wages and spending. A potential roadblock: sizable opposition in the legislature. Growth above potential will keep the Bank of Korea on a tightening path. But with inflation relatively benign, the pace of rate hikes will be gradual - with the next move likely in 2H 2018.
  • 25. South Korean GDP growth and components
  • 26. Bloomberg Intelligence offers valuable insight and company data, interactive charting and written analysis with government, credit insights from a team of independent experts, giving trading and investment professionals deep insight into where crucial industries start today and where they may be heading next.