ASQ7 EN (20170705)

2017 Q1 ECONOMICS
The improvement in external demand for the Asia Pacific (ex-Japan) has supported growth, improved capacity utilization and reduced the disinflationary
pressures in the region. As aggregate demand has stabilized, policy makers have been able to reduce policy support in a counter-cyclical fashion.
Source: Morgan Stanley & Focus Economics
Australia
Consumption indicators have stabilized, albeit at weak levels. Retail
sales picked up at the margin and employment growth has recently
stabilized. Export growth has picked up, primarily supported by a
rebound in commodities prices. The Reserve Bank of Australia (RBA)
left the key policy rate unchanged at 1.5% in the March policy meeting,
citing a stronger global backdrop and Australia’s transition as growthsupporting
factors.
China
The backdrop of a synchronous global recovery and policy makers’
tolerance for slower growth has meant that policy makers will reduce
the reliance on debt-fueled growth, both of which will lend support to
a more productive growth cycle. On the domestic front, retail sales
moderated at the margin early in the year due to slowing sales in
housing-related goods, while sales remained stable in both staples and
non-housing discretionary products. Export volume growth has also
picked up in recent months.
Hong Kong
Following unexpectedly solid GDP growth at the tail-end of 2016, the
economy looks poised to maintain some of that momentum. February’s
remarkable rebound in imports signaled improving demand at home.
The momentum did not carry over to the retail sector, however, where
a strong dollar and the notoriously volatile Lunar New Year holiday did
little to boost long-declining sales. On July 1, Carrie Lam will become
Hong Kong’s first female chief executive. The Beijing-favorite ran on
a platform of tax reform for small businesses and greater investment
in public housing. Lam will inherit a fragile economy tied to mainland
Chinese growth and a global marketplace increasingly under threat
from protectionism.
Taiwan
Retail sales weakened at the margin, while real wage growth and
consumer confidence both remained weak. In contrast, exports
posted strong gains, with both high tech and non-high tech products
accelerating to their fastest pace of growth in over six and five years,
respectively. On the fiscal policy front, the cabinet approved a special
budget of 28.9B USD for an eight-year infrastructure plan.
South Korea
Overall domestic demand is firming, with passenger car sales and retail
sales growth accelerating, reflecting an improvement in consumption
activity. Export growth marked a fourth consecutive month in positive
territory, with minerals, fuel, chemical and related goods continuing
to grow at a rapid pace. On the fiscal front, while recent political
developments may have removed some uncertainty, it is unlikely to
meaningfully influence any policy response.
Thailand
Overall consumption remained subdued, having decelerated after a
period of improvement. External demand has continued to be favorable,
with agriculture and automotive being the key contributors to the
uptick. The Bank of Thailand has kept its policy rates unchanged for an
extended period and no further rate cuts are expected.
Singapore
Despite registering a quarter-on-quarter contraction due to high base
effects, the economy expanded compared to the same quarter last year,
albeit at a reduced rate. Q1’s reading was underpinned by an expansion
in the export-oriented sectors, which benefited from strong external
demand, especially from China. Nevertheless, domestic demand
remains subdued, as evidenced by weak retail sales.
Malaysia
The economy’s two-year slowdown—brought on by low oil prices and
subdued global trade—likely bottomed out in 2016 and activity should
make a small recovery this year. A pickup in global trade and an expected
improvement in fixed investment because of higher oil prices should
fuel Malaysia’s export-led economy. Leading economic indicators for
Q1 already show signs of improvement: growth in industrial production
accelerated in February, while exports grew at a double-digit pace in the
first two months of this year.
Japan
Economic growth appears to have strengthened momentum at the
outset of the year as a relatively weak yen and strong global demand
fueled activity in the all-important external sector. In March, exports
rose at the fastest pace in over two years and expanded at a doubledigit
rate for the second consecutive month. The strong rebound in
exports since late 2016 prompted business sentiment to improve at the
outset of the year. Moreover, the economy is benefiting from a declining
unemployment rate, which decreased to a 22-year low in March.
India
Signs of normalization are emerging in household consumption,
following the currency-replacement program in November 2016.
Production growth in consumer durables returned to positive territory
in January. India’s export growth rose to a 64-month high in February
2017, with exports from the EU and ASEAN driving the uptick.
Philippines
The economy continues to enjoy robust growth. Strong external
demand, especially from China, caused exports to increase strongly
in the first two months of the year. Rising imports and retail sales
are a testament to steadily strong private consumption, underpinned
by strong remittances and moderate inflation. In addition, recently
published data show that tax collection grew at a double-digit rate in
Q1, which bodes well for the government’s plan to increase revenues
to boost infrastructure spending. On the downside, the labor market
showed some weakness in Q1 due to the two typhoons which have hit
the country in recent months.
Indonesia
The Bank of Indonesia has kept its policy rate unchanged since October
2016, signaling a shift in monetary policy focus from supporting growth
to protecting macro stability. Export growth slowed in the country, partly
due to base effect. This was driven by a sharper slowdown in non-oil and
gas exports growth at the margin, while oil and gas exports growth also
decelerated. One the domestic front, passenger car and two-wheeler
sales growth slowed, while consumer goods imports contracted.
4 | ASIAN SKY QUARTERLY — SECOND QUARTER 2017