East & South Asia Economic Forecast

Economic Snapshot for East & South Asia

May 22, 2018

East Asian economies are expected to slow this year compared to last year. 

East Asian economies are expected to slow this year compared to last year. Notably, these highly export-driven economies will face headwinds from weaker global growth and rising trade protectionism. That said, Chinese fiscal policy stimulus and accommodative monetary policy across the region should support activity in the months ahead.

East Asia's economy is projected to expand 5.7% in 2019, up 0.1 percentage points from last month's forecast. For 2020, the region is forecast to expand 5.5%.

South Asia economic growth set to slow in 2019

Economic growth is set to slow this year on weakness in Pakistan as its government adopts a tighter fiscal stance and implements structural reforms in line with its new IMF deal. In addition, Bangladesh is expected to post softer growth this year. Economic dynamics in India, however, should remain broadly stable thanks to generous government support.


South Asia's economy is projected to expand 6.9% in 2019, unchanged from last month's forecast. For 2020, the region is forecast to expand 7.0%.

China Economic Outlook

Although the economy expanded robustly in the first quarter of the year, growing 6.4% on an annual basis to match the previous quarter’s outturn, weak data for April suggests that growth will decelerate in Q2. All retail sales, investment, industrial production, and exports deteriorated markedly in April, increasing the likelihood that authorities will unveil further stimulus measures in the coming weeks. Against this backdrop, trade tensions with the United States have flared in recent weeks, which will likely further erode activity. On 11 May, the U.S. hiked trade tariffs for USD 200 billion of Chinese imports to 25%, to which China retaliated by increasing tariffs on USD 60 billion of U.S. imports. With Trump threatening to tax the remainder of Chinese imports in response, the conflict seems far from over. 

Economic growth is projected to slow this year due to weak global demand, domestic economic imbalances and financial deleveraging. Escalating trade tensions with the United States will add further downward pressure on growth. On the upside, authorities remain committed to easing fiscal and financial conditions in order to keep growth afloat.

Met the why particular panelists see the economy growing 6.3% in 2019, which is up 0.1 percentage points from last month’s forecast, before decelerating further to 6.0% in 2020.

India Economic Outlook

The ruling coalition government led by Prime Minister Modi’s Bharatiya Janata Party will likely hold onto power over the next five years, according to exit polls released on 19 May. This indicates continuity in economic policy going forward, notably rising government spending with a focus on infrastructure and financial support for farmers. Against this backdrop, private-sector PMI data in April hinted at potentially quicker economic growth going forward despite easing to the lowest reading since September 2018, as businesses were optimistic that economic conditions would improve once the political dust settles. This comes after the private-sector PMI edged slightly lower, on average, in January–March compared to the prior quarter, and industrial production decreased in March for the first time in over one-and-a-half years.

The economy should maintain momentum this fiscal year, which started in April, supported by robust government spending, looser monetary policy and greater political certainty following the elections. Weak public finances and rising global trade protectionism, however, weigh on prospects.

Our panelists expect GDP growth of 7.2% in FY 2019, which is unchanged from last month’s estimate, and 7.3% in FY 2020.

Korea Economic Outlook

The economy had a sluggish start to the year. In the first quarter, output grew at the slowest pace since the financial crisis, on the back of a fall in fixed investment. Particularly, business investment plunged owing to weakness in the semiconductor industry. Government consumption, however, grew robustly and the external sector contributed the most to economic growth in six years, although only thanks to lower imports. More recently, the economy has showed tentative signs of a small rebound in Q2: In April, the manufacturing sector narrowly expanded for the first time in six months and consumers became optimistic about economic conditions for the first time in seven months. Merchandise exports, however, fell for the fifth month running in April. Meanwhile, in the political arena, the government unveiled USD 5.9 billion in extra spending measures on 23 April, which should slightly lift growth later this year.

The economy is seen flagging slightly this year due to weaker job creation and rising household debt stunting private consumption growth. Moreover, fixed investment will likely continue to fall and global trade tensions will undermine the external sector. On the other hand, significantly higher government spending will support the economy.

Met the why particular panelists forecast the economy will grow 2.3% in 2019, which is down 0.2 percentage points from last month’s forecast, and 2.4% in 2020. 

East Asia Monetary & Financial Sector News

Inflation increased to 2.3% in April from 2.1% in March due to accelerating inflation in China, Korea, Mongolia and Taiwan. Meanwhile, April inflation data is still pending for Hong Kong. Inflation should be steady this year compared to last year, mainly due to subdued growth and relatively low oil prices.

The Bank of Korea maintained its base rate at 1.75% on 18 April due to low inflation and low inflation forecasts. The People’s Bank of China cut the reserve requirement ratios on 17 May and more cuts are in the pipeline. Going forward, a slowing global economy and tame inflation should underpin accommodative monetary policy across the region.

Currencies in East Asia largely depreciated in recent weeks following news of growing trade tensions between the U.S. and China, which weighed on the region’s export-orientated country currencies. Overall, with regional economic growth looking downbeat and monetary policy set to be loose, most currencies are seen depreciating slightly this year against last year.

South Asia Monetary & Financial Sector News

Inflation was unchanged in April from March’s 3.6%. This was due to steady price pressures in India, while inflation accelerated in Sri Lanka but decelerated in Pakistan. April inflation data is still pending for Bangladesh. Looking ahead, inflation is seen averaging higher across the region this year than last year, primarily due to intensified price pressures in Pakistan.

In recent weeks, monetary policy stances across the region have remained unchanged, except in Pakistan, where the Central Bank rose interest rates on 20 May to 12.25% from 11.75% due to still-high inflation and a weakening currency. Going forward, India is likely to maintain its relaxed stance due to low inflation, while Pakistan and Sri Lanka are likely to remain hawkish.

South Asian currencies have mostly been steady in the past few weeks, although news of the IMF deal weighed on Pakistan’s rupee given the Fund’s calls for a more market-determined exchange rate. Overall, this year, regional currencies are expected to depreciate from last year on the back of higher price pressures.

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