What conclusions about Asia’s macroeconomic performance in 2018 can we draw?
Emerging Asia (excluding Japan) grew by 6.2% in 2018, unchanged from the previous year. The realities underlying this stability, however, are more uneven. Some countries experienced a slowdown. In China, economic growth slipped from 6.8% to 6.6% reflecting weaker foreign trade as well as weaker domestic demand. Industrialised Asia (South Korea, Hong Kong, Taiwan, Singapore and Malaysia) also decelerated. In contrast, India's growth was at full throttle, surging from 6.7% in 2017 to 7.4% in 2018.
Over the course of 2018, economic growth in China and the entire Asia region began to slow in the 2nd quarter, and weakened further in the 2nd half of the year.
The recent slowdown in China's industrial output reflects declining exports, as well as a cooling real estate market and slowing automotive sector.
Global trade slowed during the year, due to weaker demand from the US and the eurozone, fluctuations in the global consumer electronics cycle, and, at the end of the year, the increase in US trade tariffs.
Nonetheless, Emerging Asia’s foreign trade figures improved in the 3rd quarter following the launch of new hi-tech products and also due to the acceleration in shipments of goods to the United States in anticipation of higher trade tariffs. From November, the slowdown in foreign trade became obvious. And confidence indicators have fallen sharply since then.
Will the Asian continent remain the global economy's growth engine in 2019?
The slowdown in China and Emerging Asia is expected to continue with an estimated average growth of 5.9% in 2019 (BNP Paribas forecasts). This rate, however, is still much higher than other world regions: the projected growth rate for Emerging Countries is 4.7% (Asia accounts for 72% of their growth). The continent's downward trend reflects cyclical factors, external shocks, and structural changes.
In China, the net contribution of foreign trade (exports minus imports) is expected to remain negative. Monetary policy easing should lead to an expansion of bank lending growth and support domestic demand. Above all, the fiscal measures introduced by the Chinese authorities should encourage a recovery in consumer spending.
In India, growth is expected to continue, boosting the entire Asia Region. Although India's monetary policy tightened in 2018 – as it did in most countries in the region – the recent slowdown in inflation, thanks in particular to falling oil prices and the reappreciation of its currency, could halt its monetary tightening and serve to support domestic demand.
Economic activity in Asia remains highly dependent on external trade performance. The current trade negotiations between the United States and China remain a major source of uncertainty. Will the outcome be a significant agreement going forward, a continuation of the status quo, or indeed be a step backwards? We should find out in the coming weeks.
Photo : Christine Peltier
Interviewed on February 18, 2019
Credit photo : header ©leungchopan