The outlook for ex-Japan Asia was stable again this month. FocusEconomics panelists left their growth forecasts for 2014 steady at the previous month’s 6.4%. The stable outlook mainly reflects unrevised projections for China and Korea. Meanwhile, the outlook improved for Malaysia, the Philippines and Singapore. Conversely, Hong Kong, India, Indonesia, Taiwan, Thailand and Vietnam saw a deterioration in prospects this month. For 2013, the panel expects the region to expand 6.2%, which is unchanged from last month’s estimate.
Global economy continues to recover
The region’s stable outlook comes within the context of improving global economic data, which suggest that recovery from the financial and economic crisis continues to gain traction. In the United States, revised data for Q3 showed that the economy expanded a robust 3.6% over the previous quarter in seasonally adjusted annualized terms (SAAR), which marked the strongest expansion since Q4 2011. Moreover, the unemployment rate continued to decline, reaching a five-year low in November. As a result, rumors that the Federal Reserve might start tapering its quantitative easing program in the next few weeks intensified. Meanwhile, in the Eurozone, economic sentiment hit the highest level in over two years in November and the unemployment rate declined for the first time since March 2011 in October. On 5 December, the Japanese government unveiled details of the stimulus package that it had announced on 1 October, which aims at shielding the economy from an upcoming sales tax increase that is set to take effect in April of next year. The plan, which will amount to JPY 5.5 trillion (USD 53 billion), includes measures to strengthen competitiveness and bolster public works.
China’s leadership will maintain a proactive fiscal policy and a prudent monetary policy in 2014
Within the region, China’s top political leadership concluded its annual Central Economic Working Conference on 13 December. The conference’s final communique reaffirmed the government’s willingness to maintain a proactive fiscal policy and a prudent monetary policy in 2014, although it also acknowledged that the economy faces downside risks. The statement emphasized the need to address local debt risks; reduce overcapacity; improve social security; insure national food security; and push forward financial and exchange rate reforms. Moreover, the meeting called for a reduction in the country’s dependence on exports and investment, while simultaneously bolstering consumption. While the communique did not mention a growth target for 2014, it did state that the government would, “maintain sustainable growth.”
On 8 December, the People’s Bank of China (PBOC) announced that banks would be allowed to issue negotiable certificate deposits in the interbank market starting on 9 December. This move is largely seen as yet another step toward market-determined interest rates. Moreover, the PBOC unveiled a set of guidelines for the Shanghai Free Trade Zone on 2 December with the dual aim of promoting liberalization in cross-border investment and trade and promoting capital account convertibility. Recent economic data paint a mixed picture for the country. Industrial production and investment slowed down in November, whereas retail sales and exports picked up in the same month. FocusEconomics panelists left their growth projections unrevised at 7.6% in 2013. The outlook for 2014 was also stable with a forecast of a 7.5% expansion in GDP.
India’s recovery remains fragile
After bottoming out in Q1 of fiscal year 2013/2014, India’s GDP increased 4.8% annually in Q2 (Q1: +4.4% year-on-year). More recent indicators, however, suggest that the recovery remains fragile. Industrial production contracted an unexpected 1.8% annually in October, which contrasted the 2.0% expansion recorded in September. Conversely, the external sector continues to show signs of improvement; imports declined sharply in November, which mainly reflected the Government’s and Central Bank’s efforts to control the current account deficit. FocusEconomics panelists downgraded India’s growth outlook for FY 2014/2015 for the eighth month in a row, cutting their growth projections by 0.1 percentage points to 5.4%. Similarly, panelists cut their forecasts for FY 2013/2014 by 0.1 percentage points over the previous month’s estimate to a 4.7% increase.
Political tensions run high Thailand and the East China Sea
Political developments took center stage elsewhere in the region. Following a month of ongoing anti-government protests in Thailand, King Bhumibol Adulyadej complied with Prime Minister Yingluck Shinawatra’s 9 December request to dissolve the Parliament and call for early elections. The elections will take place on 2 February 2014. The decision was fuelled by all of the opposition deputies’ resignation from the Parliament on 8 December. The call for early elections failed to quell the anti-government protests and the unstable situation could lead to another military coup, as the opposition seeks to replace the current government with an unelected “People’s Council”.
In the East China Sea, tensions regarding territorial disputes between China and neighboring Korea and Japan resurfaced again after China unilaterality expanded its air-defense identification zone (ADIZ). The new ADIZ includes the Japanese-run Senkaku/Diaoyu islands and the Korean-controlled Ieodo Reef. China’s decision triggered United States intervention; the U.S. sent two unarmed B-52 bombers into the contested airspace without informing Beijing’s authorities. Korea responded by expanding its own defense zone and conducting a joint military drill with Japan inside the controversial defense zone. Early in December, U.S. Vice President Joe Biden met with authorities in China, Japan and Korea in an effort to avoid an escalation and to tame the ongoing tensions.
Regional inflation stabilizes at 3.6%
Regarding monetary policy developments, the central banks of Indonesia, Korea and the Philippines have chosen to leave their policy rates unchanged since late November. The Reserve Bank of India has not held a meeting in the past few weeks, but analysts expect the Bank to hike the main policy rate by 25 basis points in the meeting scheduled for 18 December. Conversely, the Central Bank of Thailand reduced the one-day repurchase rate by 25 points to 2.25% in an attempt to shore up the economy against a backdrop of political tensions.
Preliminary data showed that inflation in ex-Japan Asia stabilized at October’s 3.6% in November. FocusEconomics Consensus Forecast panelists expect inflation in ex-Japan Asia to average 3.6% in 2014, which is up 0.1 percentage points from last month’s estimate. The panel left their 2013 inflation forecast unchanged at 3.2%.Note: This is an excerpt from the FocusEconomics Consensus Forecast Asia – January 2014. Published December 17th, 2013. The full report (141 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.