Tuesday, 13 May 2014

Asia Second half 2014 forecast


Overview

Aside from China and India, the remaining Asia Pacific nations boast a huge 1.024 billion people. Economically it is the world’s most dynamic region with 2013 GDP figures reaching $NZ13.85 trillion. This is forecast to grow by 5.2% in 2014 to $NZ14.57 trillion according to IMF data.

Three trends will dominate the Asia Pacific in 2014. First, China will struggle to reform its economy amid slowing growth. Second, other major Asian powers will respond to China’s growing influence. Third, developing Asian states will become volatile as China slows and US monetary policy alters.

Emerging Southeast Asian countries will take advantage of China’s gradual shift away from manufacturing and compete for market share. Coupled with this, varying levels of political instability and social discontent will persist across the region.

Asia is also a net importer of wheat. Prices for the commodity have risen more than 25% since the geopolitical tensions in Ukraine and weather-related effects. Much of Asia is vulnerable to food price spikes, which are expected this year. Diversifying food supply will be the policy answer, as well as releasing stockpiles.

The Economist reported that after years of strong growth, Asia’s luxury goods market is showing signs of a slow-down. However, a rising middle class and ultra-rich consumers offers huge long-term opportunity. Unlocking Asian potential will remain the priority for luxury brands out to 2030. The forecast for retail sales in Asia is stronger than in any other region with the middle class making up the bulk of this consumption.

Major trading partners

Indonesia’s (pop: 253 million) new government may struggle to maintain stability this year as budgetary, trade, and inflation pressures escalate. Economic growth will be hampered by nationalistic industrial policy and institutional corruption. Presidential elections set for July are now uncertain after no party gained the necessary 25% of the vote in recent parliamentary elections. The splintered legislative results will require a coalition to hold power which may impede quick government reform actions during the next term. Main opposition Indonesian Democratic Party-Struggle (PDI-P) leader Joko Widodo remains on course to win the presidential poll in July. Owing to the conflicting attitudes towards reform that exist within the current ruling coalition, and the presence in the country of various vested interests which will remain intent on preserving their privileged positions after a new government takes office in late 2014, reforms will move forward in a stop-start manner. Economic growth will slow from an estimated 5.8% in 2013 to 5.4% in 2014, but the country’s young population can expect steady 5% growth until at least 2030.

Japan (pop: 127 million) will continue developing its renewed sense of international purpose while gradually normalising its military and balancing relations with Russia and the US. Higher meeting frequencies between Chinese and Japanese political and business leaders reveal efforts to cool relations. Japan will focus on infrastructure exports and emerging markets this year, and work to solidify its supply chain security. By the end of 2014, Japan’s weak currency will benefit exports but the country is likely to run a current account deficit for the next several years. Due to skyrocketing energy prices, nuclear power may be controversially restarted this year, encouraging vocal political opposition but not threatening political stability. Growth of about 1.2% is expected in 2014 as “Abenomics” puts Japan on a path to address its huge public debt.

South Korea (pop: 49 million) can expect to grow in 2014 as the global economy strengthens, says HSBC, barring a sharp increase in domestic production costs. Relations with North Korea could deteriorate again, but outright conflict is doubtful this year. A series of scandals may further delay government effectiveness, but revision of policies instead of further resignations is the more likely step to recovery. A lack of differentiation between intermediate and end-consumer products means that South Korea’s dependence on a healthy Chinese economy is often overstated. Approximately half of South Korea’s exports to China are destined for other consumer markets. Also, their structural competitive advantage over Japan remains intact. South Korea is well-placed to prosper in an improving world trade climate as European economies emerge from hibernation and can expect an average GDP growth of 3% for out to 2030. Despite growing regional competition, South Korea will remain a major player in the global information and communications technology field. The government will continue to pursue policies aimed at bolstering the country’s trading position regionally and globally by concluding free-trade agreements with important trading partners.

Country profiles

Bangladesh (pop: 166 million) is attempting to reinvigorate its hurting garment industry while the country settles into its first civilian government since 1990. GDP will stagnate at 6% unless a political impasse is broken.
Brunei (pop: 423,000) will remain politically stable this year. Although high oil prices will produce trade and fiscal surpluses, economic growth will be sluggish. Recent implementation of Islamic Sharia law will worry investors.
Burma/Myanmar (pop: 55 million) continues its economic opening and political reform with only gradual improvements expected. An election scheduled for 2015 will encourage some political manoeuvring this year.
Cambodia (pop: 15 million) still struggles with the results of a controversial 2013 election. Political violence could devolve into serious unrest. The government will try to implement new tools to restore support.
Laos (pop: 6 million) faces rising rural-urban inequality and unpopular land policies, which could threaten political stability. However, the state is strong and there is no opposition party, so real GDP growth should accelerate.
Malaysia (pop: 30 million) will continue to see both growth and internal ethnic issues rise, which will frighten foreign investment. Political uncertainty has been a major impediment to the performance of the Malaysian stock market. A government subsidy rationalisation plan will increase consumer price inflation.
Mongolia (pop: 3 million) elected a dominant government, although political stability is tentative. Its mining industry will improve this year along with mineral exports. A weak banking sector will mitigate stronger economic growth however.
Papua New Guinea (pop: 7 million) might see an improved political situation this year as a strong government coalition forms. Economic prospects are subdued but should improve when a major natural gas project comes on stream in late 2014 and commodities output is increased.
The Philippines’ (pop: 107 million) economy will lift as reconstruction spending after Typhoon Haiyan gathers pace. The government will implement planned legislative reforms after the government weathered compounding scandals.
Singapore (pop: 5 million) dealt with tense immigration riots in December 2013 by expanding the social safety net. Economic growth will lift as external demand strengthens this year and the country leverages its technology industry.
Thailand (pop: 67 million) has not been able to break its political crisis and renewed clashes are likely. Royalist and populist movements will not reach a compromise this year. The economy is negatively impacted and will grow by only 2.5% in 2014.
Timor-Leste (pop: 1 million) has tumultuous relations with Australia following a controversial international natural gas arbitration. A period of political manoeuvring can be expected as the influential prime minister plans to step down in 2015.
Vietnam (pop: 93 million) will try to contain growing public grievances. Their trade balance remains in surplus with private consumption and investment accelerating. Reforms in state-owned enterprises and banking will be sluggish. Tensions with China may escalate as ties with the United States deepen.
Oceania (pop: 3 million)
  • Fiji should return to democracy in September, but a trade deficit is limiting what could be very strong economic growth.
  • New Caledonia may begin negotiations for independence from France this year. Nickel mining is the archipelago’s economic backbone, but high living and fuel costs are a major problem for policymakers.
  • Samoa remains devastated after Cyclone Evan but recovered well in 2013. GDP will grow by 2.2% this year due to promising agriculture, tourism, and rising remittances.
  • The Solomon Islands will experience a continued political impasse but will see rapid economic growth compared to other islands. The country’s forests are approaching exhaustion, which may strangle the log export industry if alternatives are not found. 
  • Tonga’s young democratic system will remain tense. A weak economy keeps the country reliant on foreign donors but tourism and worker’s remittances will increase GDP marginally.
  • Vanuatu’s string of no-confidence votes will keep their political system unstable this year. Fiscal and land reforms, as well as tourism and infrastructure growth will support a GDP rise of 4%.


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