Developed Asia Pacific
Economy Trends Update January 2018
AT A GLANCE
Japan’s pace of growth slows; Australia wary on rate hike
Japan, the largest of the economies under our purview in the Developed Asia region, continued to expand in the fourth quarter, though the pace of growth slowed down to just 0.1% on a quarteron- quarter basis, compared to a 0.3% in the previous quarter. While both domestic demand and private consumption registered growth, capital expenditure fell short of expectations. The Shinzo Abe administration expressed confidence in Bank of Japan Governor Haruhiko Kuroda by re-appointing him for a new five-year term, signaling that the bank’s loose monetary policy would continue in the near term. The Reserve Bank of Australia is likely to maintain a cautious stance on increasing interest rates in 2018, given the tepid rise in wage growth and inflation in the country. The bank holds a healthy view of the domestic economy as unemployment has steadily declined amid a synchronized acceleration in the global economy.
While global factors have always impacted export-driven New Zealand’s economic fortunes, domestic factors now also appear equally important for the South Pacific economy. Based on its upbeat assessment for the city-state’s manufacturing sector, Singapore’s trade ministry expects the economy to expand above the middle of the 1.5%-3.5% range in 2018. The trade-dependent economy of Hong Kong recorded a blip in growth during the fourth quarter, expanding 3.4% year on year, compared to a 3.6% growth in the previous quarter. Taking into account the moderation in growth and the fiscal surplus the territory currently enjoys, Financial Secretary Paul Chan is likely to present an expansionary budget.
Japan: Pace of growth slows; Kuroda gets second term at BoJ
The world’s third largest economy continued to expand in the fourth quarter, though the pace of growth slowed down to just 0.1% on a quarter-on-quarter basis, compared to a 0.3% in the previous quarter. While both domestic demand and private consumption registered growth, capital expenditure fell short of expectations. External demand remained unchanged from the third quarter as exports rose 2.4%, while imports increased 2.9%. Thanks to the robust rise in shipments to China and Asia, exports jumped 9.3% year-on-year in December 2017. Despite the increase in exports, the rising yen appears to have dented business confidence.
Meanwhile, the Shinzo Abe administration offered a nod of confidence in Bank of Japan Governor Haruhiko Kuroda by re-appointing him for a new five-year term, signaling that the loose monetary policy would continue for the near term. In his new term, Mr. Kuroda faces challenges including a rising yen that threatens to undermine the profits of exporters.
With President Trump pulling the United States out of the Trans-Pacific Partnership (TPP), Japan has taken the lead to forge a new partnership among the remaining 11 members.
The new trade pact, tagged Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), is likely to be signed in Chile shortly. While Japan is still hopeful that the U.S. would return to TPP, Mr. Trump has said Washington would reconsider the pact if it got a better deal, according to a Reuters news report. Japan’s chief negotiator Kazuyoshi Umemoto said he was confident Canada would sign the deal.
Australia: Central bank to tread cautiously on rate hikes
Given the tepid rise in wage growth and inflation, the Reserve Bank of Australia is likely to maintain a cautious stance on increasing interest rates in 2018. The bank holds a healthy view of the domestic economy as unemployment has steadily declined amid a synchronized acceleration in the global economy. Still, annual wage growth has remained at 2%, much lower than the bank’s target of 3.5%.
The low rise in wages also constrains consumer spending amid rising levels of household mortgage debt. Yet, the pick-up in retail sales in the fourth quarter and increased government spending on infrastructure brought cheer.
Housing, a crucial segment of the economy, rebounded in the beginning of 2018 as the demand for apartments showed a phenomenal increase. According to statistics based on the number of new building approvals, January saw a 17.1% increase on a month on month basis, compared to a 20.6% fall in December, a Financial Times report said.
New Zealand: Uncertainties cloud economic outlook
The country’s services sector recorded slow growth in January 2018 as new orders fell to their lowest levels seen in 10 months, according to a Reuters news report. The index showed a reading of 55.8 during the month. Specifically, the index that keeps track of new orders and business dipped to 57.6, the first time it came below 60 since April 2017, the report added.
Global factors always had a bearing on the export-reliant economy’s fortunes. However, domestic factors also appear equally important for the economy in the present context. Though Jacinda Ardern’s election as prime minister appeared to clear political uncertainty in the South Pacific nation, business confidence has been on the wane with the center-left government coming to power. Besides the anticipated fall in home prices and the proposed reforms at the central bank, natural factors such as the prospect of a severe drought stare the economy in the face.
Singapore: Growth seen moderating in 2018
After expanding 5.2% year on year in the third quarter, the city-state’s economy seems to have slowed down in the fourth quarter of 2017. On an annual basis, GDP increased only 3.6%, compared to the same period a year ago due to the contraction in manufacturing and construction segments. The economy expanded 2.1% from the previous quarter. The services sector that accounts for two-thirds of the economy recorded a 6.3% annualized growth in the fourth quarter. Singapore’s economy expanded 3.6% in 2017, thanks to robust global demand for electronics goods and semiconductors.
Notwithstanding the quarterly contraction in manufacturing due to moderating demand, the prognosis for the sector that produces electronics goods and precision parts is positive for 2018.
Based on its moderately upbeat view for the manufacturing sector, Singapore’s trade ministry expects the economy to expand above the middle of the 1.5%-3.5% range in 2018, a Bloomberg news report said. Given the economic outlook for the year, the Monetary Authority of Singapore (MAS) might tighten policy in 2018.
Hong Kong: Increased spending likely as growth dips
The trade-reliant economy of Hong Kong recorded a blip in growth during the fourth quarter, expanding 3.4% year on year, compared to a 3.6% growth in the previous quarter. While strong consumption as well as exuberant stock and property markets boosted economic growth, potential headwinds include the likely increase in U.S. interest rates in 2018 and easing of capital inflows from China. However, the economy grew at the rate of 3.8% year on year in 2017, higher than analyst estimates, helped by healthy domestic demand and lower unemployment. The city’s government expects economic growth in range of 3 to 4% in 2018.
Taking into account the moderation in growth and the fiscal surplus the territory enjoys, Financial Secretary Paul Chan is likely to present an expansionary budget, according to a Reuters news report. Tax relief for innovative industries and investments in sectors such as fintech, biomedical science, and artificial intelligence could be included in the budget, the report pointed out.
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