Asia Monthly Outlook Another Slow Year For Growth In 2020 November - - PowerPoint PPT Presentation

Asia Monthly Outlook

Another Slow Year For Growth In 2020

November 2019

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment

• n Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from

Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.

Disclaimer

Contents

1. Asia Pacific: Still Sluggish Growth Trajectory 2. China: Policy Measures To Cushion Slowdown 3. South Korea & Taiwan: Divergence Amid Trade War Woes 4. India: An Economic Goliath Under Pressure 5. ASEAN: Ample Space For Policy Support Amid Slowing Trade 6. Australia & New Zealand: Growth To Remain Weak Amid External Pressures 7. Fitch Solutions Macro Research Vs Consensus 8. Data Pack

• We expect growth to remain slow relative to

history in 2020.

• Sluggish growth will likely be driven by

pockets of growing political risks in the region, global trade tensions and weakening growth across major global economies such as China, the US and the EU.

• Over the long-term, growth will stabilize on

the back of policy support and a slight improvement in external conditions.

• Many countries will be forced to make

structural reforms in order to attract foreign investment which will therein support growth.

• Heightened political risk in key markets like

Hong Kong will exert downside risks to the region’s overall performance.

Asia Pacific: Still Sluggish Growth Trajectory

4

Growth Being Taken A Notch Lower

Real GDP Growth, % chg y-o-y

Source: Fitch Solutions

4 4.2 4.4 4.6 4.8 5 5.2 5.4 2017 2018 2019f 2020f 2021f 2022f 2023f 2024f

Q319 GDP Mixed Picture For Outlook

5

Market Q319 GDP Consensus Surprise Philippines 6.2 6.0 0.2 Taiwan 2.91 2.45 0.5 Thailand 2.4 2.3 0.1 Indonesia 5.0 5.0 0.0 China 6.0 6.1

• 0.1

Korea 2.0 2.1

• 0.1

Singapore 0.1 0.3

• 0.2

Malaysia 4.4 4.9

• 0.5

Japan* 0.2 0.9

• 0.7

Hong Kong

• 2.9
• 0.3
• 2.6

*Japan is q-o-q annualised. Source: Fitch Solutions

• A raft of GDP prints was released over the course of October, with

a mix of upward and downward surprises. Hong Kong came in weak due to ongoing political risk, but Taiwan significantly surprised on the upside.

• China’s growth continued to weaken in Q319 coming in at 6.0% y-
• -y, the slowest pace of growth in more than 27 years. We at Fitch

Solutions have therefore revised our 2019 real GDP growth forecast to 6.1% from 6.3% previously.

• External sector weakness dragged growth in many trade focused

countries like Japan, Malaysia and Singapore.

• For Hong Kong we now forecast a full year contraction of 1.2% in

2019, down from a 1.0% expansion previously. We expect the technical recession that began in Q319 to persist through 2020, and this is reflected in our 2.4% contraction forecast for 2020.

• We believe that investment will be a key drag on the economy, as

companies relocate to avoid higher US tariffs.

• While the US-China Trade War will weigh on the external sector,

we expect imports to fall in tandem with exports, cushioning the slowdown.

• We have revised our forecast for China’s real GDP to come in at

6.1% in 2019 from 6.3% previously, and 5.9% in 2020 from 6.1% previously.

• Consumption, though slowing, will remain a key growth driver as

the government will increase stimulus, including demand side measures.

6

China: Policy Measures To Cushion Slowdown

Source: Wind, Fitch Solutions

Services Supporting Growth

Real GDP, % chg y-o-y

Elevated Tariffs To Continue Weighing On External Sector

Exports & Imports In USD Terms, % chg y-o-y

• 30
• 20
• 10

10 20 30 40 50 60 70 Q110 Q310 Q111 Q311 Q112 Q312 Q113 Q313 Q114 Q314 Q115 Q315 Q116 Q316 Q117 Q317 Q118 Q318 Q119 Q319 Exports Imports 5.7 5.8 5.9 6 6.1 6.2 6.3 6.4 6.5 6.6 1 2 3 4 5 6 7 8 9 Q318 Q418 Q119 Q219 Q319 Primary (LHS) Secondary (LHS) Tertiary (LHS) Overall (RHS)

• In contrast, Taiwan’s real GDP growth is forcast to remain resilient

at 2.6% in 2020, as the re-shoring of Taiwanese companies from mainland China supports investments.

• Exports to the US will likely pick-up as American firms turn to

Taiwanese exporters to avoid higher tariffs on Chinese goods.

• We have revised down our forecast for South Korea’s 2019 real

GDP growth to 1.9% from 2.1%, following the release of Q3 GDP figures; our 2020 forecast remains at 2.1%

• Domestic demand will also remain sluggish due to high household

debt levels and weak employment growth.

7

South Korea & Taiwan: Divergence Amid Trade War Woes

External Headwinds A Drag On Growth

South Korea – Exports And Semiconductor Exports, % chg y-o-y

Taiwan Reaping Benefits Of Trade Diversion

Taiwan – Exports To USA, % chg y-o-y, 3mma

Source: Bloomberg, Fitch Solutions Source: Bloomberg, Fitch Solutions

• 40
• 20

20 40 60 80 Jan/11 Jun/11 Nov/11 Apr/12 Sep/12 Feb/13 Jul/13 Dec/13 May/14 Oct/14 Mar/15 Aug/15 Jan/16 Jun/16 Nov/16 Apr/17 Sep/17 Feb/18 Jul/18 Dec/18 May/19 Oct/19 Exports Semiconductor Exports

• 40
• 30
• 20
• 10

10 20 30 40 50 60 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Taiwan China

• We forecast India’s real GDP growth to

recover slightly to 6.6% in FY2020/21 (April – March) from our forecast of 6.4% in FY2019/20.

• Our view for only a modest recovery is

informed by favorable y-o-y base effects and for the existing NBFC credit squeeze to ease over the coming quarters, which should aid private consumption.

• The government’s corporate tax cut would

also somewhat present tailwinds for fixed capital formation.

• Risks to our forecasts are to the downside.

Poor growing weather during the 2019 summer crop will constrain the rebound in rural consumption, while a weak global

• utlook will continue to weigh on exports

growth.

India: An Economic Goliath Under Pressure

8

Strong Headwinds To Persist Into The Coming Year

Real GDP Growth, %

Source: Fitch Solutions

5.8 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 FY2017/18 FY2018/19 FY2019/20f FY2020/21f

• The ASEAN region will only make a modest

recovery in terms of growth in 2020 relative to 2019.

• We expect the Vietnamese and Malaysian

economies to continue slowing, but see a slight rebound in the Philippines, Indonesia, Thailand, and Singapore in 2020 versus 2019.

• Broad monetary easing in the region along

with expansionary fiscal policies should support growth.

• However, we note that the region’s high

exposure to global trade continues to put its

• utlook at risk of a further deterioration in

trade relations among global powers.

ASEAN: Ample Space For Policy Support Amid Slowing Trade

9

2020 To Match 2018 Performance At Best

Real GDP Growth, %

Source: Fitch Solutions

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Vietnam Philippines Indonesia Malaysia Thailand Singapore 2018 2019f 2020f

Australia & New Zealand: Growth To Remain Weak Amid External Pressures

10

Base Effect Driven Recovery in 2020

Real GDP Growth, %

• We revised down our growth forecast for 2019 from 2.3% to

2.0%, following the weak performance of the economy in Q219.

• A combination of low base effects and policy support will prop up

growth in 2020.

• Headwinds to the forecast will remain strong, however. Especially

as China’s growth slows, thereby hurting Australia’s exports.

• We forecast New Zealand’s growth to slow from 2.8% in 2018 to

2.4% in 2019.

• In 2020 the country will stabilize at 2.5% , but will struggle to

regain economic strength amid rising weakness in its external sector.

• Domestic demand will also remain sluggish due to poor business

sentiments and slowing job growth.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 2017 2018 2019f 2020f

Australia

0.0 0.5 1.0 1.5 2.0 2.5 3.0 2017 2018 2019f 2020f

New Zealand

Fitch Solutions Macro Research Versus Consensus

7

Fitch Solutions Macro Research Versus Consensus

Country Fitch Solutions Bloomberg Consensus Consensus Last Month Australia 2.0 1.8 1.9 Bangladesh 7.8 7.7 7.5 China 6.1 6.1 6.2 Hong Kong

• 1.2

0.6 0.6 India 6.4 6.2 6.5 Indonesia 5.3 5.0 5.0 Japan 0.5 0.9 0.9 Macau 4.1

• Malaysia

4.6 4.5 4.5 Myanmar 6.4

• New Zealand

2.4 2.3 2.4 North Korea

• 4.0
• Pakistan

3.3 3.3 3.3 Philippines 5.7 5.8 5.9 Singapore 0.5 0.5 0.7 South Korea 1.9 1.9 1.9 Sri Lanka 2.7 2.6 2.6 Taiwan 2.5 2.1 2.1 Thailand 2.8 3.0 3.0 Vietnam 6.9 6.8 6.7

12

Currency Fitch Solutions Bloomberg Consensus Consensus Last Month USD/AUD 0.69 0.67 0.67 BDT/USD 85.30

• CNY/USD

7.25 7.16 7.19 HKD/USD 7.77 7.85 7.84 INR/USD 71.50 71.50 71.93 IDR/USD 14,100.00 14,275.00 14,300.00 JPY/USD 110.00 106.00 106.00 MOP/USD 7.99

• MYR/USD

4.17 4.21 4.22 MMK/USD 1,600.00

• USD/NZD

0.62 0.63 0.63 KPW/USD 143.00

• PKR/USD

175.00

• PHP/USD

52.30 52.00 52.50 SGD/USD 1.36 1.40 1.40 KRW/USD 1,220.00 1,200.00 1,210.00 LKR/USD 185.00

• TWD/USD

30.40 31.25 31.40 THB/USD 30.10 30.80 30.80 VND/USD 23,400.00 23,200.00 23,350.00

2019 Real GDP Growth

%

End Of 2019 Exchange Rate

Currency

Source: Bloomberg, Fitch Solutions, updated on October 10

Fitch Solutions Macro Research Versus Consensus

Country Fitch Solutions Bloomberg Consensus Consensus Last Month Australia 1.6 1.6 1.6 Bangladesh 5.5 5.5 5.5 China 2.7 2.5 2.5 Hong Kong 2.1 2.5 2.5 India 3.8 3.4 3.4 Indonesia 3.1 3.2 3.2 Japan 1.6 0.7 0.7 Macau 3.0

• Malaysia

0.7 0.9 0.9 Myanmar 8.6

• New Zealand

1.3 1.6 1.5 North Korea

• Pakistan

7.3 8.9 9.1 Philippines 2.7 2.8 2.9 Singapore 0.6 0.6 0.7 South Korea 0.5 0.5 0.6 Sri Lanka 4.8 4.2 4.4 Taiwan 1.0 0.7 0.9 Thailand 1.3 0.9 0.9 Vietnam 2.7 2.7 2.8

13

Country Fitch Solutions Bloomberg Consensus Consensus Last Month Australia 0.75 0.65 0.70 Bangladesh 6.00

• China

4.35

• Hong Kong

1.88

• India

5.00 4.95 5.00 Indonesia 5.25 5.35 5.35 Japan

• 0.20
• 0.10
• 0.10

Macau

• Malaysia

3.00 2.80 2.80 Myanmar 10.00

• New Zealand

1.00

• North Korea
• Pakistan

12.25

• Philippines

4.00 3.95 3.95 Singapore

• South Korea

1.25 1.25 1.25 Sri Lanka 8.00

• Taiwan

1.38 1.35 1.35 Thailand 1.50 1.30 1.35 Vietnam 6.00 6.20 6.20

2019 Average Inflation

%

End Of 2019 Policy Interest Rate

%

Source: Bloomberg, Fitch Solutions, updated on October 10

Data Pack

8

15

Data Pack

Growth Outlook Fiscal Outlook Current Account Outlook

0.0 20.0 40.0 60.0 80.0 Population (15-64 yrs old), % of Total (2019) 2023

Demographic Outlook

2019-2023 = Fitch Solutions forecast. Source: National Sources, Fitch Solutions

0.0 2.0 4.0 6.0 8.0 Average Real GDP Growth, % (2019-2023)

• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 Average Budget Balance, % of GDP (2019-2023)

• 5.0

0.0 5.0 10.0 15.0 Average Current Account Balance, % of GDP (2019-2023)

16

Data Pack

Per Capita GDP Per Capita GDP Fitch Solutions Risk Indices Manufacturing

20,000 40,000 60,000 80,000 Singapore Australia Hong Kong Japan South Korea Taiwan GDP Per Capita, USD (2018) 2,000 4,000 6,000 8,000 10,000 12,000 Malaysia China Thailand Indonesia Philippines India GDP Per Capita, USD (2018)

2019-2023 = Fitch Solutions forecast. Source: National Sources, Fitch Solutions

10 20 30 40 Manufacturing, % of GDP (2019) 20 40 60 80 100 Country Risk Score Operational Risk Score