The 2014 economic outlook for ex-Japan Asia remained stable for a third consecutive month. FocusEconomics panelists left their growth forecasts for 2014 unchanged at the previous month’s 6.4%. At the current projected growth rate the region will experience a modest improvement compared to the 6.3% expansion estimated for 2013. This month’s stable outlook reflects unrevised projections for 5 of the 11 economies surveyed, including regional behemoth China. Prospects for Hong Kong, India, Malaysia, Taiwan and Thailand deteriorated this month, while the outlook improved for Vietnam. For 2015, the panel expects the region to expand 6.5%.
At its 17–18 December 2013 meeting, the U.S. Federal Reserve announced that it would gradually taper its bond-buying program starting in January. That said, the Fed will likely not accelerate the pace of the tapering, as payrolls growth in December recorded its lowest reading in almost three years, suggesting a pause in the recent strength in the labor market. Economic data for the Eurozone still suggest that the region’s nascent recovery is on track. Industrial production expanded at the fastest pace in over three years in November, while in January the Markit PMI climbed to its highest level since June 2011.
Japan’s Abe submits record-high budget to try to sustain economy
Meanwhile, in Japan, Prime Minister Shinzo Abe submitted a record-high JPY 95.9 trillion budget for FY 2014 that would start in April to the National Diet. The budget is aimed at sustaining the economy following the sales tax increase that is set to take effect in April and at bolstering infrastructure projects ahead of the 2020 Tokyo Olympics. In regard to Abe’s so-called “third arrow”, which refers to his growth strategies for the country, Abe continued to pledge his government’s commitment to cut through red tape in order to promote business, although he failed yet again to put forth specific measures.
China government debt audit raises concerns arise over shadow banking, debt accumulation
Within the region, China’s economic activity moderated slightly in Q4 2013, with GDP expanding 7.7% annually (Q3: +7.8% year-on-year). Although the National Bureau of Statistics does not provide a breakdown of GDP by expenditure, additional data suggest that investment lost some momentum in Q4. On 30 December 2013, the National Audit Office (NAO) released the long-awaited results of the government debt audit, which provided the opportunity to assess the current state of local government finances. The total amount of debt held by local governments was CNY 17.9 trillion (USD 3.0 trillion) or 33.0% of GDP, which was well above the CNY 10.7 trillion reported in the 2010 audit. Analysts stated that, although debt is still at manageable levels, the government should be wary of both the increase in reliance on shadow banking and the rapid pace of debt accumulation.
At the end of 2013, according to local media, China’s State Council issued a document indicating new guidelines to limit credit growth outside of formal channels and to curb the country’s burgeoning shadow banking. The document—known as Document No. 107—officially defines the shadow banking system and strengthens the country’s regulatory framework at all levels. FocusEconomics panelists left their growth projections for China unrevised at 7.5% in 2014. The outlook for 2015 was also stable with a forecast of a 7.4% expansion in GDP.
Modi leads polls for India’s May parliamentary elections
India’s parliamentary elections in which citizens will vote for members of the 16th Lok Sabha (House of the People) are scheduled to be held before the end of May. On 3 January, prior to the All India Congress Committee meeting, incumbent Prime Minister Manmohan Singh ruled out serving another term and threw his support behind Indian National Congress Party (INC) Vice President Rahul Gandhi. Meanwhile, Nerendra Modi, leader of the opposition Bharatiya Janata Party (BJP), continues to lead in several opinion polls. In a speech that took place on 19 January, Modi presented the party’s development and economic plan in which he called for developing new infrastructure and modernizing existing infrastructure, improving education and health facilities, creating jobs and stabilizing inflation. FocusEconomics panelists cut India’s growth outlook for FY 2014/2015 by 0.1 percentage points to 5.3% this month, marking the ninth consecutive downward revision. The panel sees GDP for FY 2015/2016 accelerating to a 6.1% increase.
Political unrest persists, Thai government declares state of emergency
Political developments continued to dominate headlines in Thailand after the government declared a 60-day state of emergency in the capital and surrounding areas on 21 January to try to mitigate the political unrest that broke out over two months ago. The emergency decree expands the government’s power to detain citizens without charge, ban public gatherings and censor the media. The anti-government protesters who provoked the so-called “Bangkok shutdown” are calling for the suspension of the snap elections scheduled for 2 February and for the current government to be replaced by an unelected “people’s council”. Despite the public outcry, and the fact that the opposition Democrat Party has vowed to boycott the elections, Prime Minister Yingluck Shinawatra declared that the polls would not be delayed. Against a backdrop of a deep political crisis, FocusEconomics panelists shaved 0.7 percentage points off to the 2014 growth forecast, and now expect Thai GDP to expand 3.6%. For next year the panel sees growth at 4.7%.
RBI moves toward monetary policy reform
Regarding monetary policy developments, the central banks of India, Indonesia, Korea, Taiwan and Thailand have chosen to leave their policy rates unchanged since late December 2013. While most of the decisions were in line with market expectations, the Bank of Thailand’s announcement that it would leave its key policy rate unchanged surprised market analysts as they had expected a 25-basis-point cut due to the country’s current political unrest.
On 21 January, a panel created by the Reserve Bank of India (RBI) presented a proposal to overhaul the country’s monetary policy framework and to bring the Bank’s practices in line with other central banks. According to the panel, the Reserve Bank of India should formally target the consumer price index (CPI) instead of the wholesale price index (WPI) and it should establish a long-term inflation target. In addition, the Central Bank should set a five-member Monetary Policy Committee (MPC) that would be in charge of monetary policy. Monetary policy decisions are currently the preserve of the RBI governor.
Regional inflation moderates in December
Inflation in ex-Japan Asia moderated in December, falling from 3.7% in November to 3.2%, mainly due to lower readings in China and India. In the full year 2013, inflation fell from the 3.4% recorded in 2012 to 3.2%. FocusEconomics Consensus Forecast panelists expect inflation in ex-Japan Asia to average 3.5% in 2014, which is down 0.1 percentage points from last month’s estimate. The panel sees inflation inching up to 3.6% in 2015.Note: This is an excerpt from the FocusEconomics Consensus Forecast Asia – February 2014. Published January 28th, 2014. 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.