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ECONOMICS
A still subdued external demand environment and fading policy pass-throughs are weighing on aggregate
demand in Asia (ex-Japan). In the near-term, the growth trajectory will depend on the trend in external
demand, and monetary and fiscal policy response, which will likely remain defensive in nature.
Source: Morgan Stanley
Australia
Domestic demand remained weak, as the unwinding of the
resources boom continued to weigh on the economy. The
current setup of increased political uncertainty post elections
and the move by one of the rating agencies to move Australia
to a negative ratings watch has arguably increased the
constraints for a fiscal policy response.
China
The combination of the fading impact of previous policy
stimulus and no new incremental policy support in recent
months has been weighing on the domestic trend. Fiscal
spending and infrastructure investment growth have
slowed down. Property investment growth, which had been
one of the key drivers to the mini-cycle recovery, has also
decelerated, as property sales growth has moderated due to
the implementation of tightening measures in select cities
with strong growth in property prices. Policy makers will likely
implement defensive easing measures if growth continues to
slow, but the pace of policy support is likely to be slower in the
second half of the year, as compared to before.
Hong Kong
All growth indicators in Hong Kong paint a picture of persistent
weakness in aggregate demand. Retail sales, property
transactions, loan growth, and exports growth are still in the
contractionary territory and in some cases for an extended
period of time. Retail sales declined for the 16th consecutive
month, a further indication of the broad-based, persistent
slowdown in the Hong Kong economy.
India
Within domestic demand, two wheeler sales remain at robust
levels and passenger car sales have rebounded in July. The
pick-up in food prices over the last four months has meant
that the transition to lower inflation has been delayed. In the
last three months, the government has also embarked on a
higher fiscal deficit.
Indonesia
Consumption-related indicators have shown some signs of
stabilization recently, led by improving passenger car sales.
The Bank of Indonesia has kept its policy rate unchanged after
having cut it by a cumulative 100 basis points. No further rate
cuts are expected from the central bank.
Japan
Weak wage growth, an uncertain global economic outlook
and a strong yen limited growth in Japan. Businesses and
consumers have been reluctant to spend, resulting in negative
GDP numbers in five quarters over the past three years. The
government has unveiled a 269B USD stimulus package, in an
attempt to jumpstart the economy.
Korea
Passenger car sales contracted by 10% YOY, in July, after the
expiration of tax benefits in June 2016, which has boosted
car sales in the preceding months. Retail sales had improved
further in the month, which was largely down to a favorable
base of comparison. After cutting policy rates in June, the
Bank of Korea has stayed on hold in its subsequent monetary
policy meetings. The fiscal stance is likely to stay conservative,
due to concerns stemming from aging demographics,
particularly the weak financial position of pension funds as
well as financial stability risks.
Malaysia
Export growth remained in the negative territory for the 21st
consecutive month, which has displayed signs of sluggishness
compared to earlier in the year. Overall domestic demand is
still subdued and car sales have continued to contract. Capital
goods imports have bounced back into positive territory but
have slipped at the margin.
Philippines
The strong run of growth in domestic demand has continued
almost unabated, as capital goods import growth stayed well
above 50%, while passenger car sales continued to expand at
a double-digit growth rate. Export growth remained negative
for the 15th month and has slipped further at the margin.
Singapore
Most growth indicators continued to contract on a YoY basis,
indicative of the cyclical and structural headwinds that the
economy is facing. The sluggish global growth environment,
coupled with headwinds to domestic demand, will continue to
weigh on aggregate demand trends.
Taiwan
Consumption indicators including retail and auto sales have
moderated, as subdued wage earnings growth continues
to weigh on consumer demand. Recently, the government
announced plans to boost investment through the provision
of infrastructure support. These measures are expected to
improve the domestic investment environment while enticing
participation from the private sector.
Thailand
Growth within private consumption has held up relatively
well, largely attributed to durable goods posting positive
growth after a period of nearly three years. The economy has
experienced a repeated pick up in the last couple months,
but durability of this improvement in growth trajectory will be
dependent on the policy response going forward, as well as
external demand conditions.
4 | ASIAN SKY QUARTERLY — THIRD QUARTER 2016