Asia’s Growth Slows Further

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Demand across Asia has been decelerating for years – not just in China, but elsewhere. The hope was that exports would spring back to life as Western growth recovers, but that's not happening, and it may not happen for a long time.

Despite all the stimulus applied by China this year, things there are steady at best, with manufacturing struggling to keep its head above the water. The stimulus stoked housing demand and fired up infrastructure (and some steel mills in the process) but weak global demand is weighing on much of the coastal economy with export orders dwindling.

Private investment, partly as a result, is also sputtering. Consumption is holding up, but with less panache than previously.

It is hard to see any of this turn up swiftly, least of all exports. One of the few bright spots in Asian trade this year was shipments to Europe, but Brexit – the UK’s withdrawal from the European Union – will put a brake on that.

That means still more stimulus, including in China. Expect the whole barrage – monetary and fiscal – but growth will probably continue to sag nevertheless. We now expect the Chinese economy to expand by just 6.5% in 2017.

Japan has already seen one effect of Brexit: a rapidly climbing currency. A stronger yen snuffs out exporters’ profits and thus puts a dent in local capital spending. And the 2% inflation target has moved further into the distance.

The higher the yen climbs, the more it will hurt. The Bank of Japan may thus ready another ‘bazooka’, though this round will probably be matched by a generous fiscal package. This may just about keep growth steady for now, but it does not address the country’s structural issues.

India’s growth, at just over 7%, looks impressive, given that its banks are credit-constrained while they spruce up their balance sheets. The world’s economic travails have relatively little effect on what transpires locally, but faster reforms would help.

Australia has had no recession for 25 years – which is not bad, considering its own massive mining boom-and-bust and what has happened elsewhere over the past decade or so. China’s slowdown means we have cut our 2017 growth forecasts for Australia, but we still expect 2.8%.

For New Zealand, the ‘rock-star’ economy that has switched from a dairy to a housing boom, our forecast remains 2.4%.

South Korea’s growth may slip further as demand for exports weakens, warranting additional interest-rate cuts. Taiwan and Hong Kong face weak demand too, but could see growth improve.

Meanwhile, the Philippines continues to power ahead and its new president may speed up infrastructure spending. Indonesia, too, has stable growth as reforms filter through and confidence is strong.

But Malaysia's economy is cooling, with the lower currency so far failing to spur exports.

However, Thailand’s tourists boost spending, which helps offset the economic effects of the severe drought that also weighs on growth in Vietnam.