East & South Asia Economic Forecast

Economic Snapshot for East & South Asia

April 18, 2018

Growth in nearly all East Asia economies expected to slow this year

Growth in nearly all economies in the East Asia region is expected to slow this year compared to last year. Notably, the export-driven economies will face headwinds from weaker global growth and rising trade protectionism. That said, slightly loose monetary policy across the region should support economic activity in the months ahead.

East Asia is expected to grow 5.6% in 2019, unchanged from last month's forecast. In 2020, the region is expected to grow 5.5%.

South Asia economic growth set to lose steam in 2019

Economic growth seems set to lose some steam this year on the back of weaker growth in Pakistan as its government pursues a tighter fiscal stance. In addition, Bangladesh is expected to post softer growth this year, partly due to a high base effect. Economic dynamics in regional heavyweight India, however, should remain broadly stable on generous government spending.

South Asia is projected to grow 6.9% in 2019, down 0.1 percentage points from last month's forecast. In 2020, the region is expected to grow 7.0%.

China Economic Outlook

The economy appears to have bottomed out in March, with the manufacturing PMI returning to expansionary territory in the same month on the back of government support. Moreover, exports expanded at the fastest pace in five months in March. That said, the regular set of indicators for March, which will be released later this week, will corroborate whether the economy has entered into a cyclical upturn. On 11 April, U.S. Treasury Secretary Steven Mnuchin stated that China and the U.S. had made significant progress on the enforcement mechanism for the long-awaited trade deal, which is one of the cornerstones for a successful accord. Two days earlier, the National Development and Reform Commission relaxed residency restrictions (hukou) in some second- and third-tier cities, which could give a boost to the property market.

Economic growth will decelerate this year due to subdued global demand, domestic vulnerabilities and the government’s plan to transition towards a more sustainable economic model. Although fiscal support and loose credit conditions are expected to support the economy going forward, trade negotiations with the U.S. will shape the economic outlook for China.

Met the why particular panelists see the economy growing 6.2% in 2019, which is unchanged from last month’s forecast, before decelerating further to 6.0% in 2020.

India Economic Outlook

The economy appeared to grow at a steady, albeit slightly slower, pace in January–March, with survey data for the private-sector pointing to strong growth throughout the period. This comes after economic growth slowed in October–December. In recent days, the main political parties released their general election manifestos. The incumbent Bharatiya Janata Party (BJP) announced it would continue investing heavily in infrastructure and supporting farmers. Aside from putting more emphasis on social welfare spending than on infrastructure expenditure, the economic policy of the opposition Indian National Congress does not drastically differ from the BJP. Meanwhile, the World Bank warned on 4 April that public finances could become more fragile because revenue from the goods and services tax has been below expectations and political parties are making large spending promises.

Economic momentum is expected to remain steady this fiscal year, which started in April. Robust government spending should support growth, as should looser monetary policy and greater political certainty following the elections. However, weak public finances and global trade protectionism both weigh on prospects.

Our panelists expect GDP growth of 7.2% in FY 2019, which is down 0.1 percentage points from last month’s estimate, and 7.3% in FY 2020.

Korea Economic Outlook

Recent indicators suggest economic growth decelerated in Q1 2019 amid rising external headwinds. Industrial output fell in January and February, contrasting the growth recorded in Q4 2018 and dragged down by the manufacturing and construction sectors. Similarly in Q1, exports posted the first annual contraction in over two years, while the trade surplus narrowed. Moreover, the labor market has softened somewhat, with the unemployment rate averaging higher year-on-year. On 2 April, the government announced that it will present a supplementary budget later this month to strengthen job creation and ailing exports, which should provide a boost to the economy in the remainder of the year. A day later, Korean mobile carriers launched 5G services; Korean leadership in this field bodes well for long-run economic competitiveness and investment.

The economy is seen flagging slightly this year due to weaker job creation and rising household debt stunting private consumption growth, while fixed investment will likely continue to subside. On the other hand, significantly higher government spending will support the economy, and progress on U.S.-China trade negotiations would bolster external demand.

Met the why particular panelists forecast the economy will grow 2.5% in 2019, which is unchanged from last month’s forecast, and 2.4% in 2020.

East Asia Monetary & Financial Sector News

Inflation accelerated to 2.1% in March from 1.4% in February, largely due to accelerating inflation in China. In addition, higher price pressures were recorded in Taiwan. However, inflation moderated in Korea and Mongolia. March data is still outstanding for Hong Kong. Going forward, inflation appears set to be steady this year compared to last year.

The Reserve Bank of India cut policy rates at its 2–3 April meeting due to weak inflation. Pakistan’s Central Bank raised rates on 29 March due to higher inflation. Taiwan and Mongolia’s Central Banks kept rates unchanged on 21 March. Going forward, a slowing global economy and low inflation should underpin accommodative monetary policy this year.

Currencies in the East Asia region were largely stable in recent weeks. Going forward, with most central banks choosing accommodative monetary policy stances and regional economic growth looking downbeat, most currencies are set to depreciate slightly this year.

South Asia Monetary & Financial Sector News

Inflation accelerated to 5.5% in March from 5.0% in February. This was due to higher price pressures across all of the region’s four countries, especially so in Pakistan, where inflation hit a multi-year high. Going forward, inflation is likely to be relatively steady across South Asia as a whole.

In recent weeks, the Central Bank of Sri Lanka maintained its policy rate unchanged, the Reserve Bank of India cut policy rates due to weak inflation and Pakistan’s Central Bank raised rates due to higher inflation. Going forward, India is likely to maintain its relaxed stance due to low inflation, while Pakistan and Sri Lanka are likely to remain hawkish. 

In recent weeks, all regional currencies remained broadly stable against the U.S. dollar. Looking forward, however, they are expected to depreciate on the back of high price pressures, fragile government finances and mild economic growth.

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