Asia’s economies started 2018 strongly. Exports have held up nicely, despite signs that the global industrial cycle is cooling. Locally, too, things are chuggin’ along at a reasonably robust pace: for example, construction in China hasn’t stumbled, despite aggressive tightening of financial and environmental regulations.
None of this is to downplay the risks. US interest rates are rising, trade could get gummed up in the tussle between exporters and importers, and industrial indicators in the West are off their highs.
Nevertheless, mainland China should power through it all with relative ease. We expect 6.7% GDP growth this year, then a rise to 6.9% in 2019. Part of this acceleration will come from capital investment, fuelled by China’s 2025 industrial upgrading agenda, which should lift local demand when construction cools.
China’s growth provides a helpful cushion to economies elsewhere in the region that are exposed to rising US interest rates.
Hopefully, an escalation of the trade dispute with the US can be deftly managed. But ambitious trade liberalisation efforts under way could ultimately provide some offset to the risk of protectionism: 11 countries from the Pacific Rim have now signed the Comprehensive & Progressive Agreement for Trans-Pacific Partnership, a modified version of the TPP from which the US withdrew in early 2017.
The new pact will come into effect once six members ratify it, quite possibly this year.
India is already picking up steam after a challenging 2017. The disruptions of demonetisation are now over and the Goods & Services Tax is implemented. With an impaired banking system constraining credit, it will take time before the economy hits full throttle, but we forecast 7.0% growth for 2018 and 7.6% next year.
Sri Lanka also faced challenges last year, but a gradual recovery should take hold in 2018. Bangladesh remains a top Asian performer, riding the wave of strong exports.
Japan’s economy, after growing in excess of 1% over the past year, will continue to expand at an impressive rate in 2018, fuelled by increasing investment and soaring exports, especially to China.
We’re looking for 3.0% growth in New Zealand this year followed by 3.1% in 2019 while Australia slips from 3.2% to 2.8%. Their exports to China help, but local demand is strengthening too, allowing their central banks to raise rates this year while most others in the region hold tight.
Philippine interest rates may rise this year as inflation ticks up after years of soaring demand but Thailand’s central bank is expected to remain on hold, despite growth looking up.
Hong Kong’s shops are filled again with tourists from China but, at some stage, higher US interest rates will bite, not least affecting the highly-leveraged property sector. Meanwhile, cooling demand for consumer electronics could curtail Taiwan’s growth this year and next.
Singapore’s growth soared to 3.6% last year boosted by global trade, but we expect a retreat to 3.0% in 2018 and 2.8% next year. However, growth in Malaysia, helped by investment in infrastructure, and in Indonesia should exceed 5% again and Vietnam’s growth could dip to 6.5% this year before recovering to 6.7%.
By Frederic Neumann
Co-head of Asian Economic Research
HSBC Global Research