Asia’s growth slowdown may be nearing an end, despite gloomy global forecasts and the threat of a U.S.-China trade war. Are the good times back for the world’s most economically dynamic region?
Champagne corks have been kept idle lately, however. From Hong Kong to Washington, forecasters have lined up to downgrade their growth projections.
In its April 3 “Asian Development Outlook 2019,” the Asian Development Bank (ADB) forecast declining gross domestic product (GDP) growth for developing Asia, from 5.9 percent in 2018 to 5.7 percent this year and 5.6 percent by 2020.
“Risks remain tilted to the downside,” the Philippines-based bank said, pointing to threat of a drawn-out or deteriorating trade conflict between the United States and China, and uncertainties over U.S. fiscal policy and Brexit.
It projected China, the world’s second-largest economy, would slow from 6.6 percent GDP growth in 2018 to 6.3 percent this year and 6.1 percent in 2020, due to restrictions on the housing market and shadow banking, along with sluggish exports.
Southeast Asia could suffer the after-effects, although South Asia is expected to buck the trend, led by India.
“Delicate Moment”
Following the ADB’s gloomier forecasts, the International Monetary Fund (IMF) projected a slowdown in 2019 for 70 percent of the global economy.
The Washington-based institution’s latest “World Economic Outlook” sees global growth softening from 3.6 percent in 2018 to a subpar 3.3 percent this year, down 0.2 percentage point from its January projection on the back of negative revisions for several major economies.
In the Asia-Pacific region, China is seen slowing to a 6.3 percent expansion this year and 6.1 percent in 2020. Japan, the world’s third-largest economy, could cool from 1 percent GDP growth this year to just 0.5 percent in 2020.
Elsewhere, the ASEAN-5 comprising Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are seen broadly stable, with 5.1 percent GDP growth this year rising to 5.2 percent in 2020.
India is expected to set the pace, with its economy growing by 7.3 percent in 2019 and 7.5 percent in 2020, albeit 0.2 percentage points lower than the IMF’s previous forecasts.
The IMF said global growth should pick up in the second half of 2019, thanks to “significant” monetary policy accommodation by central banks in the United States, Europe, and Japan, along with stimulus efforts by China and an improved outlook for U.S.-China trade talks.
Nevertheless, the IMF’s Gita Gopinath described it as a “delicate moment” for the world economy.
“If the downside risks do not materialize and the policy support put in place is effective, global growth should rebound,” said the IMF’s economic counsellor and director of its research department.
“If, however, any of the major risks materialize, then the expected recoveries in stressed economies, export-dependent economies, and highly-indebted economies may be derailed.”
Policy Stimulus
Amid such warnings, other economists see signs that Asia’s downturn is bottoming out, starting with China’s surprisingly upbeat GDP growth data.
On April 17, Beijing announced a 6.4 percent GDP expansion in the first quarter, on the back of increased industrial production and rising consumer demand.
The expansion compared to a 6.3 percent GDP gain projected by a Reuters survey of analysts, and followed recent fiscal stimulus and increased bank lending.
“Admittedly, the latest surge in industrial production is hard to take at face value and is likely to be partially reversed in the coming months. And some downside risks to broader growth remain,” said Julian Evans-Pritchard, senior China economist, Capital Economics.
“But the big picture is that policy stimulus is clearly working and should help to shore up China’s economy in the coming quarters.”
ANZ Research’s Khoon Goh, head of Asia research, said it supported evidence that Asia’s growth slowdown “may be close to a trough.”
“China’s [first-quarter] GDP growth has beat expectations but more importantly, the activity indicators for March showed improving momentum,” Goh said in an April 18 report. Goh continued:
Across the region, export data for March has been mixed so far, but the latest PMI new export orders point to a likely improvement in the months ahead. A key leading indicator for the global technology cycle is pointing toward a rebound, which would bode well for Asia’s exports.
These signs, alongside our view that there would be further monetary stimulus from some central banks in the region, will help secure a growth recovery in the second half of 2019. Given the inventory overhang in some economies, the magnitude of the recovery is likely to be moderate in the initial stages. However, it should be sufficient to support risk appetite and sustain foreign portfolio flows into the region.
Significantly, Goh said the Australian bank had revised upward its China GDP forecast to 6.4 percent for 2019, from 6.3 percent previously, due to Beijing’s fiscal and monetary stimulus.
Asia’s currency and equity markets are expected to strengthen as a result of interest rate cuts along with stronger foreign equity inflows as the recovery takes hold.
However, Capital Economics is unconvinced, arguing that recent weak global growth will endure “much longer than is commonly assumed.”
“Previous policy tightening has yet to take its full toll on activity in the U.S. and China’s stimulus seems too modest to prompt a sustained pick-up in growth,” the London-based consultancy said in an April 18 report.
“Disappointing economic performance will cause monetary policy to be loosened almost across the board. But we do not see this prompting any meaningful recovery until 2021.”
In Asia, India is still viewed as “the best performing major emerging economy in the coming years.”
But for a region responsible for much of the world’s recent economic expansion, signs of emerging green shoots should give hope to policymakers and investors alike.