Asian Sky Quarterly Q2 2016

ECONOMICS
The absence of further policy easing, continued subdued external demand, and persistent structural headwinds in Asia (ex- Japan)
have led to recent weakness in aggregate demand growth in the region. The pass through of past policy easing had supported growth
in the past few months, but the pace of policy stimulus has waned, while structural challenges of elevated debt, persistent excess
capacity and deflationary pressures have persisted, adding headwinds to potential growth recovery in the region.
Source: Morgan Stanley
Australia
Overall domestic demand growth has weakened further,
as reflected by a broad-based slowdown in import growth.
Consumption growth has softened in recent months due
to weaker wage growth and elevated levels of household
debt. These sluggish trends may warrant more policy easing
measures.
Hong Kong
High frequency indicators on both domestic and external
fronts including retail sales, property transactions, loan growth,
exports grown and visitor’s arrivals have been hovering in the
contraction zone. The weakness in the external environment
has transmitted to the domestic sector via its impact on
corporate capex and softer labor market conditions, curtailing
private consumption as well.
China
Growth momentum will likely continue to improve in coming
months, as residential property sales and new housing starts
showed continued improvement. Policy makers will likely turn
monetary and fiscal easing to a more neutral stance.
Singapore
Facing recurring and structural constraints, domestic activity
showed mixed signals while the external sector continues to
dampen the growth prospects of Singapore. On the domestic
front, both car sales and retail sales extended their contraction
for another consecutive month on a three-month trailing basis.
At the same time, early signs of improvement appeared in the
property market and capital goods imports. Capital goods
import growth came in marginally positive on a three-month
trailing basis and property transactions have also picked up.
Indonesia
Passenger car sales were the only bright spot within
consumption in Indonesia, while trends in other consumption
indicators suggest a slight weakening. Given weaker than
expected Q1 GDP figures, the Bank of Indonesia has turned
more dovish, compared to in March when it characterized its
policy stance as ‘cautious’.
Malaysia
Growth indicators incorporating car sales, capital goods
import and export growth remain mired in negative territory.
In addition to weak private demand, public demand has
also been sluggish, as government expenditure has been
constrained by decelerating revenue growth and the
government’s commitment to a fiscal consolidation path.
Japan
The economy managed to avoid recession in Q1. However,
growth remains subdued as a strong yen and a feeble global
economic recovery are weighing on Japan’s economic
activity. Indicators suggest that weaknesses in Q1 carried into
Q2 as exports continued to decline in April. Growth in Q2 is
also suffering from the impact of recent earthquakes. Against
this backdrop, analysts suggest that Prime Minister Shinzo
Abe will resort to a new fiscal stimulus package to rekindle
growth, delaying his plan to hike the consumption tax in 2017.
Philippines
Domestic activity gathered pace, as evident in broad-based
indicators including industrial production, car sales and
imports of capital goods which ticked up on a three months
trailing basis. In addition, fiscal spending accelerated further,
augmenting robust private sector participation in driving
growth momentum. The key to watch is the new Duterte
administration’s ability to carry through reforms and the speed
of implementation to resolve infrastructure impediments and
microeconomic inefficiencies.
Taiwan
Although growth improved thanks to favorable exports and
passenger car sales, both domestic and external demand
momentum remain sluggish. Consumer confidence continues
to deteriorate as stress in the corporate sector is transmitted
to households via slowing wage growth.
India
There have been more signs of an improvement in
discretionary consumption growth, in both urban and rural
areas - lending further support to the idea that a recovery is
broadening out beyond public capex and FDI.
Korea
Consumption improved slightly with help from retail sales.
A renewed decline in non-commodity producer prices
and subdued capacity utilization rates suggest that the
manufacturing industry is still facing a challenge of excess
capacities. Government spending increased 24% YOY in
March, a sign that efforts to stimulate growth via fiscal policy
are underway.
Thailand
Despite cyclical improvement in growth indicators, aggregate
demand growth in Thailand has remained constrained by
structural headwinds of high debt, weaker demographics and
deflation. Policy actions are vital in supporting the near-term
growth outlook.
6 | ASIAN SKY QUARTERLY — SECOND QUARTER 2016