The outlook for ex-Japan Asia stabilized after four months of deterioration. FocusEconomics panellists expect regional GDP to expand 6.3% in 2013, which is unchanged from last month’s forecast. The stable outlook mainly reflects that projections remained unchanged for four of the 11 economies in the ex-Japan Asia region, including regional behemoth China. Growth prospects deteriorated in India, Indonesia, Malaysia, Taiwan, Thailand and Vietnam, while panellists raised their projections for Singapore. For 2014, the panel expects the region to expand 6.6% in 2014, unchanged from last month’s estimate.
The region’s stable outlook comes within the context of improvements in economic data for most of the world’s major economies. In the United States, economic growth picked up in the second quarter, expanding an annualized rate of 1.7% in seasonally adjusted terms. The unemployment rate fell to 7.4% in July, its lowest level in over four years. Meanwhile, the Eurozone finally exited the longest recession in its history. In Q2, GDP expanded 0.5% over Q1. The expansion was mainly due to healthy growth in Germany and France, which account for nearly half of the Eurozone’s GDP. In Japan, however, economic activity decelerated in the second quarter. GDP expanded an annualized 2.6% over the previous quarter in seasonally adjusted terms, falling short of the 3.8% rise seen in Q1. Against this backdrop, speculation is mounting that the government may delay plans for the implementation of a controversial increase in the sales tax, which is scheduled for next year. While it is needed to restore government finances, the sales tax increase has the potential to derail Japan’s economic recovery. Prime Minister Shinzo Abe is expected to make a decision on how to proceed this autumn.
Outlook for China stabilizes amid improving economic indicators
Within the region, the outlook for China stabilized this month amid signals that economic activity had gained steam at the beginning of the second half of the year. The Purchasing Managers’ Index (PMI) unexpectedly improved in July, rising to 50.3 points. Industrial production accelerated to a 9.7% increase in the same month. Both exports and imports rebounded in July, after having contracted in June. Credit indicators started to recover in July—following the interbank liquidity squeeze observed in June—and the PBOC resumed injections of liquidity via its bi-weekly open market operations on 30 July. Although the government unveiled a “mini-stimulus” package that promises to rekindle the sluggish economy, most analysts expect authorities to announce a comprehensive set of economic reform measures. The announcement is expected to take place at the Communist Party’s 18th National Congress third plenary meeting slated for this autumn. FocusEconomics panellists maintained their 2013 GDP growth forecast for China at 7.5%, after shaving off 0.7 percentage points over the course of the last six months. The outlook for 2014 was cut by 0.1 percentage points and the panel now sees GDP expanding 7.5%.
India’s outlook deteriorates for seventh consecutive month
In India, industrial production declined 2.2% annually in June, marking the second consecutive month of decline. Conversely, the trade deficit showed some signs of relief in July. FocusEconomics panellists lowered their growth forecast for the seventh month in a row, cutting the previous month’s FY 2013/2014 projections by 0.1 percentage points to 5.5%. The panel sees growth at 6.3% in FY 2014/2015. Elsewhere in the region, Q2 economic activity showed mixed signals. GDP slowed in Indonesia and Thailand, but accelerated in Hong Kong, Korea and Taiwan.
Asian currencies continue to weaken
Financial market volatility continued in recent weeks, which reflected speculation that the Fed may soon scale back its quantitative easing (QE) program. Market attention was mainly focused on India and Indonesia—both of the Asian countries have substantial account deficits and their currencies continue to weaken—as well as on Malaysia. The Indian rupee’s relentless decline against the U.S. dollar continued despite a series of interventions by the Reserve Bank of India (RBI), which were aimed at tightening cash conditions
On 23 August, Indonesia’s government announced that it was considering a series of measures to address the widening current account deficit and support the weakening rupiah—which is currently trading at levels not seen since April 2009. The Malaysian ringgit reached its lowest level since June 2010, amid a narrowing in its current account surplus.
State Bank of Vietnam launches VAMC trying to rescue crippled banks
The central banks of India, Indonesia, Korea, the Philippines and Thailand have all kept their policy rates unchanged since late July. Meanwhile on 26 July, the State Bank of Vietnam (SBV) launched the Vietnam Asset Management Company (VAMC) with minuscule starting capital of just USD 23.6 million in an attempt to rescue dozens of banks crippled by non-preforming loans (NPLs). The VAMC will start by assuming up to USD 474 million in bad debt over the next two months. The SBV estimates that NPLs amount to USD 7.8 billion.
In July, regional inflation rose to 3.3% from 3.0% in June. FocusEconomics Consensus Forecast panellists have cut their forecast for annual average inflation in 2013 from last month’s projection of 3.3% to 3.2%. In 2014, the panel expects average inflation in ex-Japan Asia to edge up to 3.6%.Note: This is an excerpt from the FocusEconomics Consensus Forecast Asia – September 2013. Published August 27th, 2013. The full report (144 pages, covering 11 major Asian economies is available for immediate download at the FocusEconomics Online Store). For more information and a free sample of the report please visit our website.