Three dominant expectations were isolated in 2014. First, China would struggle to reform its economy amid slowing growth. Second, other major Asian powers would respond to China’s growing influence. Third, some developing states would become volatile as China slows and US monetary policy alters.
China did experience slowing economic growth in 2014, reaching GDP growth of 7.4%, down from 7.7% in 2013. Other Asia Pacific countries are steadily capitalising on a slowing China. Growth of about 5.5% is still expected in the region in 2015. Tightening global liquidity also remains a concern for regional stability in some economies.
Looking to the year ahead, China’s graduation to a consumer economy will see it hover near 7% GDP growth. Second, serious movement will be made to integrate Southeast Asia into a stronger regional community. Third, limited regional growth will benefit from low oil prices while struggling to contain political instability.
Low energy prices will be the central story in Asia for 2015 as each country takes advantage to boost GDP. However, countries with domestic energy sectors will see declines in revenue and potential cancellation of exploration and development contracts.
The US is also experiencing slower than expected growth, registering only 1% in the first quarter of 2015. This limits the likelihood of an increase in interest rates higher than 0.25% where they have stayed since 2008-2009. Although the US is unlikely to restart quantitative easing, a stuttering US economy may alter the growth calculations for the Asia Pacific.
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Indonesia (pop: 255 million)
Cheaper energy prices will affect Indonesia in different ways. The island of Java, Indonesia’s heartland will experience the greatest boon. The island houses 70% of the country’s population and the vast bulk of its factories. Other parts of the archipelago will suffer from low oil prices. Sumatra, East Kalimantan and Sulawesi rely on energy resource extraction to maintain the local economy. President Joko Widodo won the election as predicted in 2014. He began his first term with vigour, overhauling the costly fuel-subsidy programme. However, government effectiveness will be limited as he struggles to sustain political authority. Mr Widodo’s fuel subsidy reductions offer Indonesia a buffer to expand its dilapidated and inadequate infrastructure and social services should oil prices remain low. It also provides a healthy base for consumption growth. Total GDP growth for Indonesia is expected to reach 5.2%.
Japan (pop: 126 million)
The Liberal Democratic Party easily defeated competition in snap elections last December. The LDP’s leader Shinzo Abe will now be in power for the next four years. Mr Abe will use a strong position to push through politically sensitive structural and economic reforms important for managing the first two “arrows” of his so-called Abenomics strategy – monetary easing and fiscal stimulus. Japan’s agricultural lobbies are also firmly in his sights as tension on the Trans Pacific Partnership FTA rises. Low energy prices will benefit Japan as it currently relies heavily on fossil fuel imports. Japan may reinvigorate its nuclear energy portfolio, with attempts to change public opinion. Japan is also expected to deepen ties to the Association of Southeast Asian Nations (ASEAN). Improved consumer sentiment and sustained export growth is expected to push Japan’s GDP up 1.3%.
South Korea (pop: 49 million)
Southeast Asia will continue attracting serious investment interest from South Korea in 2015. New Zealand and South Korea signed a free trade agreement to boost trade ties. South Korea and China may pass a FTA in 2015, however other talks have stalled over a tripartite agreement between South Korea, China and Japan. Both agreements reflect the interdependency of the three Asian heavyweights. At home, president Park Geun-hye’s approval ratings slipped after a series of negative events last year, although she will remain leader until 2017. Economic growth has been due to high household debt and weak exports, a situation predicted to ease if the FTA deals pass. Ms Park is pursuing her “creative economy” agenda to fix structural challenges to South Korea’s economy. However, given the inherent lag in economic alterations those polices will take time for significant impact on the economy to filter down. GDP growth will reach 3.7%.
Asia’s other billions
Bangladesh (pop: 158 million)
With domestic demand in Bangladesh recovering as activities normalise following a year of political unrest, the country should experience swift growth. Although the current government should complete a full term, political tensions may deter higher foreign investment. The opposition party will pressure the administration, but snap elections are not expected. Bangladesh should grow by 6.8%.
Brunei (pop: 423 thousand)
Politically, the sultanate of Hassanal Bolkiah Mu'izzaddin is not expected to meet serious challenge over the next year. Brunei exports more than 70% of its GDP as oil and gas so low oil prices will diminish Brunei’s trade surplus, pushing its budget into deficit. Any resulting unrest should be contained with the tiny country. Should energy prices recover, Brunei’s GDP will grow by 2.3%.
Burma/Myanmar (pop: 53 million)
The country will seek to secure some accommodation with rebel groups as part of its optimistic process of long-term economic “reform and opening”. A deal will however remain distant this year. Aung San Suu Kyi’s National League for Democracy party should do well at the election in October-November, if the election is free and fair. Myanmar’s GDP growth should reach 7.8%.
Cambodia (pop: 15 million)
Falling global energy prices will benefit Cambodia, which imports all 43,000 bpd of oil. Both the ruling CPP and the opposition CNRP parties are willing to cooperate on electoral reform following a significant political strife in 2014. Along with strengthening external demand for its garments and higher domestic consumption due to low inflation, Cambodia looks set to grow by 7.3%.
Laos (pop: 6.8 million)
The ruling Lao People’s Revolutionary Party should win the National assembly election in 2016 stabilising the country as a one-party state. Civil service pay has being halted to address the country’s fiscal debt, however a large current account deficit will be recorded this year. GDP growth will rise to 7.6% supported by rising tourism and the recovery of the neighbouring Thai economy.
Malaysia (pop: 30 million)
As a net oil exporter, Malaysia is most at risk from falling oil prices. Not only will it affect oil exporters, but the dip will tighten the government’s coffers which earned 29.5% in 2013 from taxes on energy exports. Prime minister Najib Razak is expected to retain his position until 2018. Domestic demand will remain the engine of Malaysia’s growth which will grow 5.6%.
Mongolia (pop: 2.8 million)
Should two massive mining deals with Rio Tinto – developing the Oyu Tolgoi mine and the Tavan Tolgoi coal mine – succeed, Mongolia will see significantly increased GDP growth. If the shaky deals do go ahead, the landlocked country may reach 11% growth this year.
Papua New Guinea (pop: 7.4 million)
Rapid growth fuelled by a liquid natural gas boom will propel Papua New Guinea’s economy to an estimated 15% growth. Once again, low energy prices may negatively affect government revenues although the enormous LNG refinery has come online since 2014. Political instability however could return as prime minister Peter O’Neill fights off scandals over alleged illegal payments.
The Philippines (pop: 100 million)
The central government still battles rebel Muslim groups in the south of the country. The popularity of the president Benigno Aquino has suffered from the raids, one of which resulted in the deaths of 44 police commandos. Infrastructure development will remain a top priority along with greater employment generation. Boosted by post-typhoon spending, private consumption will help grow the economy by 6.7%.
Singapore (pop: 5.5 million)
The death of Singapore’s leader Lee Kuan Yew makes the future of the ruling People’s Action Party uncertain. Geography and strict immigration laws will constrain Singapore’s labour pools. Along with expanded welfare benefits for elderly and low-income workers, Singapore will struggle to cover rising costs. A higher tax on the top 5% of earners will assist in reaching 3.8% GDP growth.
Thailand (pop: 67 million)
Unity and cohesion remian priorities for a government still reeling from recent political unrest. A looming royal succession indicate elections are unlikely this year. Nevertheless, the military remains in control, stabilising Thailand’s politics. Large infrastructure projects and minor political reforms will see a rise in GDP of 4.2% after a sharp slip in 2014.
Timor Leste (pop: 1.1 million)
New prime minister, Rui Maria de Araújo, will lead a national unity government. However, low oil and gas output will hamper GDP growth this year expected at -0.7%. As energy prices decline, Timor Leste’s oil investments will provide a diminished income stream sufficient to cover a budget deficit.
Vietnam (pop: 92 million)
While the country’s economic expansion continues apace with a 6% GDP rise predicted, Vietnam’s energy outlook is less certain. The benefits of cheap oil will be positive for consumers and industry but could hurt government revenues. But low oil prices should keep Vietnam’s monetary policy in check. The economy continues to diversify its exports and new regulations should help encourage investment activity.
Oceania (pop: 3 million)
Last year’s election cemented Voreqe (Frank) Bainimarama’s place in Fiji’s politics. The largely democratic election will increase its foreign relations. Both a rising consumer base and heightened investment, along with a continually developing tourism sector, will lift the country’s GDP to 3.2%.
The territorial government collapsed in December over fiscal reforms only six months into a five-year term. The reconfirmed government of Philippe Germain’s Caledonie party may now improve stability. The country’s nickel mining, and financial transfers from France, will boost GDP by 3.2%.
The political situation is likely to remain steady over the next few years as the ruling Human Rights Protection Party should win elections in 2016. Consumer prices are predicted to surge due to a depreciating tala while inflation will rise. A contraction in the agriculture, construction and manufacturing sectors continues, slowing Samoa’s GDP growth to 1.4%.
The Solomon Islands
The government of prime minister Manasseh Sogavare’s Democratic Coalition for Change still struggles to find an alternative to the country’s overdependence on logging. Forests remain near exhaustion. Progress on reforms will be hampered however by the administration’s limited capacity while political loyalties to Mr Sogavare are tenuous. Its GDP will expand by 4.1%.
Recently elected Samiuela 'Akilisi Pohiva wishes to implement minor political reforms but will be constrained by the country’s reliance on foreign aid. An increase in tourism and remittances, including some new construction projects, should however bump the country’s GDP to 2%.
Cyclone Pam smashed parts of the island chain in March causing widespread damage. International relief efforts are in process but building damage will isolate aid and construction work in the year ahead. Many industries are affected, including tourism, and GDP will rise only 4%.