Group Economics Emerging Markets
Asia outlook
Arjen van Dijkhuizen, +31 20 628 8052 arjen.van.dijkhuizen@nl.abnamro.com
Resilient, despite China-made slowdown
26 May 2015
Regional growth slowed in Q1 driven by China and manufacturing PMIs point to further weakening growth momentum. Still, we expect regional growth to remain resilient this year at 6.3%, outperforming other regions by a wide margin. We assume the Chinese authorities will keep adding stimulus to keep growth close to their 7% target. Expected pick-up in advanced economies and drop in oil prices also support regional growth. Key risks are related to a hard landing in China, disappointing growth in advanced economies, US dollar strength, market turmoil feeding capital outflows, high domestic debt levels, delays in structural reforms and geopolitics issues.
Regional growth slowed in first quarter Although Asia continues to outperform other EM regions and advanced economies by a wide margin, regional growth has slowed a bit in recent months. We expect that regional growth fell to 6.3% yoy in Q1 (Q4-2014: 6.5%). General factors behind the regional slowdown were a weakening of domestic demand in several countries and a drop in global growth affecting exports, although regional imports have also cooled. Asian export volumes dropped significantly in March. This partly reflects a slowdown in external demand and special factors (China), but for some countries also highlights the erosion of competitiveness (see below).
Regional manufacturing PMI index has fallen further % yoy^
index**
12
60
10
55
8
50
6
45 40
4
35
2 08
09
10
Asia real GDP (lhs)
11
12
13
14
15
Asia manufacturing PMI (rhs)
Sources: Bloomberg, HSBC/Markit, ABN AMRO Group Economics ^ 2015-Q1 is still a projection ** China: HSBC/Markit version
Slowdown largely ‘made in China’ The regional slowdown in Q1 was largely ‘maid in China’, where growth fell to 7.0% yoy (2014-Q4: 7.3%) due to weak domestic demand and the slowdown in the industrial sector. Growth also fell in other countries for which China is a key trade partner. In Hong Kong, which has the strongest trade and financial ties with China, growth slowed further to 2.1% yoy in Q1. South Korean growth fell to a two-year low of 2.4% yoy, while growth dropped to below 5% yoy in Indonesia. Compared to Q4-2014, annual growth in Q1 remained (fairly) stable in Taiwan, Malaysia and Vietnam. Growth accelerated
only in Thailand, on the back of a more stable political situation, and Singapore. While Q1 figures have not yet been published for India, activity data have cooled recently, but – as explained in our March outlook – methodological revisions have lifted India’s annual growth rates up by 1.5 – 2 %-points. Manufacturing PMIs edge downwards Manufacturing PMIs also point to a weakening regional growth momentum. Our regional GDP-weighted indices have dropped further over the past few months. Using HSBC/Markit’s figures for China, the regional index even dropped to below 50 (49.4) in April for the first time in a year. Using China’s official PMI, the regional index has fallen to the neutral 50 mark. Currently, the manufacturing PMI is below 50 in most countries for which these indicators are published, with Indonesia, Hong Kong and Korea ranking the lowest. Manufacturing PMIs remain above 50 only in India, Vietnam and China (official version).
Emerging Asia: Economic growth % yoy
2014
2015
China
Q3-14 7.3
Q4-14 7.3
Q1-15 7.0
7.4
7.0
2016 7.0
Hong Kong
2.9
2.4
2.1
2.5
2.5
3.0
India
8.2
7.5
-
7.2
7.5
7.5
Indonesia
4.9
5.0
4.7
5.0
5.0
5.5
Malaysia
5.6
5.7
5.6
6.0
5.0
5.0
Singapore
2.8
2.1
2.6
3.0
3.0
3.5
South Korea
3.2
2.7
2.4
3.3
3.0
3.5
Taiwan
4.3
3.4
3.4
3.7
3.5
3.5
Thailand
0.6
2.3
3.0
0.7
3.5
4.0
Reg. avg.
6.6
6.5
6.3
6.4
6.3
6.4
Sources: EIU, Bloomberg, ABN AMRO Group Economics
Some forecasts cut, but Asian growth still resilient Taking into account the latest developments, we recently cut our 2015 growth forecasts for South Korea and Singapore (from 3.5% to 3%). Still, despite these adjustments and China’s slowdown, we expect regional growth to remain resilient this year, although dropping a bit, to 6.3%.Assuming the authorities to keep adding stimulus to prevent growth from falling (too far) below their 7% target, we see China’s growth momentum improving in the second half of this year. In most