Growth Round Up and Forecast for Asia-Pacific 2010: S&P
According to a report released by S&P, Asia-Pacific region will see a strong growth in coming quarters and will remain as the fastest growing region of the world. Here are few selected countries and their growth forecasts as given in the report.
India’s economy improved significantly in first-quarter 2010, underpinned by strong manufacturing-sector momentum and a sharp pick-up in investment. The central bank has raised key interest rates three times this year and is expected to hike rates further as core inflation has also climbed steadily. India’s 2010 economic outlook appears bright, with exports having recovered and domestic demand strong.
India’s GDP growth was 8.6% in first-quarter 2010, up from 6.5% in the previous quarter, underpinned by strong manufacturing-sector momentum and the government’s fiscal stimulus packages. From the demand side, gross fixed investment led growth while final consumption (both public and private) moderated. Improved business confidence, among other economic data, pointed to improving economic prospects. The industrial-production momentum of 2009 is expected to continue this year, with a slight moderation in the pace of growth in the services sector due to a significant reduction in government expenditure. Risks to growth stem from uncertainties around the global recovery, aggravated by debt crises in southern Europe, unpredictable monsoons, and the timing of the government’s exit from its overly accommodating fiscal and monetary policy.
Meanwhile, the external sector is improving in line with global recovery. Exports growth picked up by 34.3% in the first five months of 2010, while imports posted 50.2% growth during the same period. As a result, the trade deficit widened to US$48.9 billion in the first five months of 2010 compared with US$26.7 billion during the same period last year. This, coupled with a lower invisible surplus, resulted in a lower current account deficit of US$13.0 billion in first-quarter 2010 compared with US$12.2 billion in the previous quarter. We expect the deficit will widen this year due to higher imports and anticipated currency depreciation.
We forecast China’s GDP growth to lift to 10.3% in 2010. The main risk to its strong growth momentum is the sharp pick-up in property prices. Indeed, inflationary pressures have begun to emerge. First-half 2010 saw higher-than-expected growth due to domestic and external demand reviving nearly to pre-crisis levels, but this momentum will be constrained by recent monetary policy tightening, uncertainties in Europe, and the favourable base effect gradually wearing out.
China’s GDP growth was 11.1% in first-half 2010 on the back of high fiscal spending. This compares with first-half 2009 GDP growth of 7.1%. While an exports revival boosted growth, domestic demand continued to be the key driver. Retail sales of consumer goods–a proxy for domestic consumption–grew by 18.3% between January and June, compared with the 15.0% seen in the same period in 2009. Since March 2010, industrial output has moderated. Fixed-asset investments also softened in urban areas to 25.9% in the first six months, down from 31.9% during the same period in 2009. In this same period, investment by state-owned and state-holding enterprises increased 22.6% while real estate prices grew by 35%. Specifically, real estate investment in value terms grew by 42.5% during January-May 2010 and state-owned real estate grew by 82.3%, as property prices shot up. This is the root cause of property-bubble concerns in China.
External demand has improved. For the first six months exports grew by 35.1% and imports soared by 53%, narrowing the trade surplus to US$55.8 billion (almost 43% lower than the same period last year). In value terms, importantly, exports and imports have begun to converge to pre-crisis levels suggesting not just a base-effect-led improvement but increased external demand driven by restocking and consumption. The People’s Bank of China’s recent initiative to reform its exchange rate regime by allowing the renminbi to be more flexible should help correct China’s trade imbalance over the medium term. While China’s growth prospects remain strong, we expect some softening in the coming quarter largely on the back of uncertainty in Europe; stimulus exists in advanced economies; domestic monetary policy tightening measures; a turn in the inventory cycle in most economies; and the favourable base effect fading.
Strong government stimulus coupled with robust trade linkages with Asia helped Australia escape recession last year. First-quarter 2010 saw 2.7% growth supported by strong public sector investment. In view of solid economic growth, the central bank started tightening monetary policy and is expected to continue doing so in the second half of 2010. We expect inflation to rise in the second half on taxation policy changes and strong domestic demand. All up, the 2010 growth outlook depends on demand for Australia’s base metals (particularly from China) and government spending.
Australia’s economy expanded for the fifth consecutive quarter in the first quarter of 2010, but more slowly than in late 2009. GDP grew by a seasonally-adjusted 0.5%, quarter on quarter–weaker than the previous quarter’s 1.1% gain but 2.7% higher on an annual basis. A year ago the economy suffered only a mild downturn compared with other developed economies due to fiscal and monetary stimulus, strong trade linkages with Asia, and a sound financial system. Public-sector investment drove first-quarter 2010 growth by expanding by 39.5% and more than offsetting private-sector investment weakness. Household consumption remained at 3.1% in the first quarter due to an improving labor market and increases in household net worth is driven by solid growth in equity and property prices. The government expects GDP growth of 3.25% in 2010, underpinned by substantial public-sector spending and Asia’s (particularly China’s) demand for Australia’s base metals. There are risks around the durability of the global recovery and export demand for Australia’s base metals, and also around highly-indebted households remaining vulnerable to rising borrowing costs.
Due to lower contract prices negotiated last year for iron ore and coal, merchandise exports declined by a seasonally-adjusted 18% in first-quarter 2010 before growing by 8.2% in April. Merchandise imports also contracted by a seasonally-adjusted 7.5% in the first two months of 2010, before posting 4.1% growth in March?April. Recent currency strength is expected to bite into exports growth but we expect that relatively stronger demand from China compared with last year will help counter this. The current account deficit narrowed to a seasonally-adjusted A$16.6 billion in first-quarter 2010, from A$18.5 billion in the previous quarter. We expect this will widen in 2010 on robust imports demand, despite strong growth in exports to China.
The Japanese economy posted its first quarter of positive growth in 2010, after about seven quarters of contraction. Manufacturing production provided a spark, as did improved business sentiment. But with the economy operating below capacity, and falling prices deterring spending, weak domestic consumption continues to pose challenges. Exports could also slow down on weaker demand from its largest trading partners and the gradual strengthening of the Chinese renminbi.
The Japanese economy grew by 4.6% in first-quarter 2010 led primarily by a 43.2% surge in exports. For the first five months of 2010, manufacturing production grew by 25.7% on a month-on-month seasonally-adjusted basis. The Bank of Japan’s (BoJ’s) second-quarter business-sentiment survey shows improving business sentiment in both the manufacturing and non-manufacturing sectors. The main diffusion index turned positive for the first time in eight quarters. The survey also indicates a broad-based recovery with some reduction in overcapacity and improvements in the labour market and the CAPEX cycle. However, the economy continues to operate below capacity as industrial production remains below the pre-crisis peak. Weak domestic consumption continues to be a challenge, with any further boosts in industrial growth and exports hinging on sustained external demand. Private consumption remains weak and depends on improved corporate profits being passed-through to spending.
Japan’s merchandise exports rose by an average of 40.5% during the first five months of 2010, taking export revenue to ?5.1 trillion in May 2010 compared with ?4.1 trillion in the previous year. Seasonally adjusted growth stands at an impressive 36.8% for first-quarter 2010. Meanwhile, the current-account-to-GDP ratio rose to 4.2% in first-quarter 2010 from 2.7% in the previous quarter. Overall, exports will continue to recover in 2010 after a sharp fall in late 2008 and early 2009, led by relatively stronger global growth, particularly in China. However, a slowdown in demand from Japan’s largest trading partners will likely moderate export growth in the coming months. A strengthening yen is also likely to hinder Japanese manufacturers’ global competitiveness which, coupled with sovereign debt problems in Europe, poses a key risk to Japanese exports.
The Strong performance by domestic demand drivers drove first-quarter 2010 growth to a higher-than-expected 8.1%, prompting GDP forecasts to be revised upward on the back of strong domestic recovery and improving global conditions. Inflationary pressures have also accelerated; inflation is expected to rise in the next few quarters on demand-side pressures and higher asset prices.
Korea’s GDP accelerated to 8.1% in first-quarter 2010, the strongest since fourth-quarter 2002, aided by strong domestic demand drivers that included a 21.9% jump in gross capital formation. Buoyed by an improved labor market and robust consumer sentiment, private consumption grew by 5.7% in the first quarter. The government raised its 2010 GDP forecast to 5.8%, from 5.0%, even though slower second-half growth is anticipated because of fiscal tightening and less-supportive conditions in Europe. After dodging a recession last year, Korean will, in our opinion, experience a more-stable 2010 characterized by sustained and healthy growth. Solid recovery is underway, driven by export competitiveness, government stimulus, and consumer spending.
Exports growth climbed to 35.0% in the first six months of 2010 on the back of external recovery, while imports also grew by a strong 40.0% during the same period, underpinned by robust domestic growth. This saw the trade surplus narrow to US$18.9 billion in the first six months of 2010 compared with US$19.4 billion for the same period last year. In response to this year’s sharp won appreciation, the government has just announced long-anticipated curbs on banks’ currency trades. This will help rein in short-term foreign debt and volatile capital flows, which pose risks to exports growth. After posting its largest-ever current account surplus last year, the surplus narrowed to US$6.6 billion in the first five months of 2010 compared with US$16.3 billion for the same period last year due to a stronger won and higher imports growth. The current account surplus is expected to taper off this year in line with recovering domestic demand, which will boost imports.
We expect Singapore to post about 14% growth in 2010, underpinned by a strong manufacturing sector and global recovery. Inflationary pressures have also intensified, but we believe that the gradual appreciation of the Singapore dollar could help contain this. The outlook for the export-oriented economy depends on the durability of global recovery coupled with a rebound in Singapore’s electronic goods production. The fragile global environment is the key risk to Singapore.
Singapore posted spectacular 19.3% growth in second-quarter 2010, following an upwardly revised 16.9% in the first quarter, taking annual growth in the first half to 18.1%. All key sectors performed strongly. Manufacturing led the way, surging by 45.5% and aided by rapid growth in electronics and pharmaceuticals production. Industrial output expanded by an average 45.1% in the first five months of 2010, with the electronics sector soaring by 64.3%. After this record-breaking first-half growth, the government has lifted its 2010 GDP forecast range to 13%-15%. This exceptionally strong growth in the first half of 2010 will not be sustained in the second half, however, due to the moderating momentum of global economic recovery. While year-on-year growth rates in the second half will be healthy, sequential growth from current levels of economic activity will be low. If the global economy recovers as anticipated, growth in Singapore will be supported by IT manufacturing, trade-related services, and tourism. Sovereign debt problems in the eurozone and excessive asset-price inflation in emerging Asia (including Singapore itself) present some risks, however.
Rapid economic recovery has been aided by a significant improvement in the external sector. After contracting for the first ten months of 2009, exports posted 28.8% growth in the first five months of 2010. Singapore’s export-oriented economy got a boost from the global recovery, with electronics and the highly volatile pharmaceuticals sector contributing to sharp exports growth. Imports, too, picked up but exports growth outpaced them; the trade surplus jumped to S$19.4 billion during January 2010?April 2010 compared with S$12.0 billion for the same time last year. Consequently, the current account surplus widened to S$11.9 billion in first-quarter 2010, compared with S$10.2 billion in the same quarter last year.