Asia: Macro Outlook

Rising Risks From Uncertain Trade Outlook

November 2018
Contents

Macroeconomic Outlook
1 Asia overview and individual
profiles of key Asia Pacific
economies

Data Pack
2 Fitch Solutions versus
consensus; Key economic data

fitchsolutions.com | fitchconnect.com 2
Asia: Strong Growth, With Trade Risks
Real GDP Growth In India And Frontier Markets Outperforming
% (Av 2018-2019) • Growth in Asia will be underpinned by
strong fundamentals, an improving
8.0
business environment, trade integration,
7.0 reform momentum and strong
demographics.
6.0

5.0 • India, China and frontier markets such

4.0
as Vietnam and Myanmar will be the
fastest-growing economies.
3.0

2.0 • That said, trade tensions remain a large

risk given the region’s leverage to China
1.0
and the integrated nature of supply
0.0 chains across many economies.
Asia
Vietnam

China

Malaysia

Japan
India

Philippines

Indonesia

Thailand

Australia
Source: Fitch Solutions
South Korea

fitchsolutions.com | fitchconnect.com 3
 China: Policymakers To Cushion Growth Slowdown
Exports Growth Heading For Sharp Slowdown
Current Account And Financial Account Balance, % Of GDP • We expect real GDP growth to slow to
6.7% in 2018, and 6.4% in 2019, from
Exports, % chg y-o-y (3mma) New Export Orders Index (4-Months Advanced) 2017’s 6.9%.
50 56

40
54 • Exports will likely experience a sharp
30 slowdown over the coming quarters as
52
the US-China trade conflict escalates
20 and after what was likely a frontloading
of orders by US importers.
10 50

0
48 • Continued efforts to curb shadow
-10 financing will likely present headwinds
46
to investment growth.
-20

-30 44 • We see government support in the form

May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17

May-18
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
of tax cuts, frontloading of infrastructure
spending and easier monetary policy,
cushioning the deceleration.
Source: Bloomberg, Fitch Solutions

fitchsolutions.com | fitchconnect.com 4
India: Growth To Remain Resilient
Real GDP Growth By Broad Industry
% chg y-o-y • We forecast India’s real GDP growth to
accelerate to 7.3% in FY2018/19 (April–
Agriculture Industry Services
12.0 March) and 7.1% in FY2019/20.

10.0 • Private consumption will strengthen on

the back of rising incomes and labour
8.0 market reforms.
6.0
• Manufacturing and services to benefit
4.0 from strong foreign direct investment
inflow amid economic liberalisation.
2.0
• Public infrastructure drive to support
0.0 large scale infrastructure development.
Q1FY16/17

Q2FY16/17

Q3FY16/17

Q4FY16/17

Q1FY17/18

Q2FY17/18

Q3FY17/18

Q4FY17/18

Q1FY18/19
• Risks of rising inflation due to a weaker
currency and elevated oil prices.
Source: MOSPI, Fitch Solutions

fitchsolutions.com | fitchconnect.com 5
 Japan: The End Of Unorthodox Monetary Policy Not Yet In Sight
Inflation Trend Underscores QQE Continuation
CPI, Bond Yields & Policy Rate, % • We expect Japan’s economic growth to
remain subdued over the coming
CPI ex-Fresh Food (%; LHS) 10-Year JGB Yield (%; RHS) BoJ Policy Rate (%; RHS) quarters, coming in at 1.0% in 2018 and
3.5 1.00
0.5% in 2019.
3.0
0.75
2.5 • The uncertain global trade environment
BoJ’s 2% Target does not bode well for Japan’s export-
2.0
0.50 oriented manufacturers.
1.5

1.0 • The impending consumption tax hike to

0.25
10% in Q319 will likely weigh on
0.5
consumer confidence.
0.0 0.00
-0.5 • While inflation has been rising since
Q316, it remains far from BoJ’s 2.0%
-1.0 -0.25
target, and therefore, the BoJ is likely to
Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
keep monetary policy loose for longer.
Source: Bloomberg, Fitch Solutions

fitchsolutions.com | fitchconnect.com 6
South Korea
Weak Employment Outlook To Weigh On GDP Growth
New Jobs Added And Real GDP Growth, % chg y-o-y • We expect South Korea’s economic
growth to remain subdued at 2.5% in
New Jobs Added, 3mma, '000 (LHS) Real GDP, % chg y-o-y (RHS) 2018 and slow to 2.3% in 2019 (versus
2500 10
3.1% in 2017).
2000 8
• Consumption growth will likely weaken
1500 6 as the country continues to face a weak
employment outlook, with an average of
1000 4 just 17,000 jobs created in the last three
months.
500 2

0 0 • Rising US-China trade tensions will

weigh on export performance due to
-500 -2 Korea’s high reliance on the Chinese
economy.
-1000 -4
Mar/01

Feb/04

Jun/06
Jan/07

Mar/08

Feb/11

Jun/13
Jan/14

Mar/15

Feb/18
Oct/01

Oct/08

Oct/15
May/02
Dec/02
Jul/03

Apr/05
Nov/05

May/09
Dec/09
Jul/10

Apr/12
Nov/12

May/16
Dec/16
Jul/17
Sep/04

Aug/07

Sep/11

Aug/14

Sep/18
• Hawkish signals from the BoK are
headwinds to economic growth.
Source: Statistics Korea, Fitch Solutions

fitchsolutions.com | fitchconnect.com 7
 Hong Kong: Trade And Property Market Woes
Real GDP Expenditure Breakdown
% chg y-o-y And Percentage Point Contribution • We expect Hong Kong’s deceleration in
Private consumption Government consumption Gross Capital Formation growth to remain in place over the
Net Exports GDP coming quarters.
12

10
• Following a cooling of real GDP growth
8 to 3.5% y-o-y in Q218, from the revised
peak of 4.6% y-o-y in Q118, we are
6
forecasting growth to come in at 3.6%
4 in 2018 and slowing to 3.0% in 2019.
2

0 • Hong Kong’s external sector will remain

under pressure as the ongoing trade
-2
conflict between the US and China is
-4 likely to be protracted.
-6
Sep-11
Dec-11

Sep-12
Dec-12

Sep-13
Dec-13

Sep-14
Dec-14

Sep-15
Dec-15

Sep-16
Dec-16

Sep-17
Dec-17
Mar-11
Jun-11

Mar-12
Jun-12

Mar-13
Jun-13

Mar-14
Jun-14

Mar-15
Jun-15

Mar-16
Jun-16

Mar-17
Jun-17

Mar-18
Jun-18
• Rising interest rates will likely dampen
consumer spending and also soften the
very expensive housing market.
Source: Censtatd, Fitch Solutions

fitchsolutions.com | fitchconnect.com 8
 Taiwan: External Challenges On The Rise
Official Manufacturing PMI And Expectations For Next Six Months
Diffusion Index • Taiwan’s export-oriented manufacturing
sector is already feeling the averse
Official Manufacturing PMI Expectations Over The Next Six Months
75 impact from the escalation in US-China
trade tensions and businesses are
70 pessimistic over the next six months.
65

60
• We believe that the ongoing slowing
economic momentum is likely to
55 intensify in 2019, and we forecast real
50
GDP growth to slow to 2.3% in 2019,
from 2.7% in 2018.
45

40 • The domestic investment outlook will

also be hampered as manufacturers
35
pare down their production capacity.
30
Oct-13

Oct-14

Oct-15

Oct-16

Oct-17
Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18
Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18
Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
• Consumption growth is also likely to
indirectly be negatively impacted.
Source: Wind, Fitch Solutions

fitchsolutions.com | fitchconnect.com 9
Indonesia: Growth Recovery To Remain Capped
Near-Term Private And Government Consumption To Remain Robust
Real GDP By Expenditure, % chg y-o-y • We forecast the economy to grow by
20 6.0 5.2% in 2018, and 5.3% in 2019, from
Private Consumption Government Consumption
Fixed Capital Formation Exports 5.1% in 2017.
18 Imports Overall (RHS) 5.8

15 5.6 • Private and government consumption

will continue to register robust growth in
13 5.4 the near-term due to the government’s
populist energy subsidies.
10 5.2

8 5.0 • Although exports performed well, we

5 4.8
expect the growth momentum to cool
due to rising global trade tensions
3 4.6 which could disrupt trade flows and
supply chain.
0 4.4
Q416 Q117 Q217 Q317 Q417 Q118 Q218
-3 4.2 • The business environment has
improved, but a reliance on external
-5 4.0
financing is causing vulnerability.
Source: Indonesia Statistics, Fitch Solutions

fitchsolutions.com | fitchconnect.com 10
Malaysia – Investment Growth To Remain Subdued
Softening Investment To Weigh On Growth
% • We forecast real GDP growth of 5.1% in
GDP, % chg y-o-y 4-Quarter Moving Average Gross Fixed Capital Formation, % chg y-o-y
2018, a significant deceleration from
8.0 2017’s 5.9%.
7.0
• Investment growth has been the main
6.0 cause of the slowdown in H118 and we
do not expect a recovery in H218, given
5.0 continued policy uncertainty.
4.0
• We expect this moderation to continue
3.0 in 2019 amid increased external
uncertainty, reflected in our 4.5% real
2.0 GDP growth forecast.
1.0
• The 2019 budget relies more on oil
0.0 revenues, instead of significant
Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Q216

Q316

Q416

Q117

Q217

Q317

Q417

Q118

Q218
revenue-raising policies, posing risks to
fiscal consolidation.
Source: Bloomberg, Fitch Solutions

fitchsolutions.com | fitchconnect.com 11
Philippines: Growth Momentum Will Struggle To Recover
Widening Of External Deficit Not Offset By Increase In Financing
Current Account And Financial Account Balance, % Of GDP • We forecast real GDP growth in the
Philippines to come in at 6.3% in 2018
8.0 Current Account Financial Account and 2019, from 6.7% in 2017.

6.0
• Growth will likely be supported by the
4.0 government’s expansionary fiscal
stance, particularly in infrastructure.
2.0

0.0 • However, private investment is likely to

slow due to tightening monetary
-2.0 conditions, deepening global trade
tensions, and a sub-par business
-4.0
environment.
-6.0
• The peso has weakened considerably
-8.0 since 2016, suggesting that the
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q416
Q117
Q217
Q317
Q417
Q118
Q218
widening external deficit is
unsustainable.
Source: BSP, Fitch Solutions

fitchsolutions.com | fitchconnect.com 12
Thailand: Still Robust Growth But Political Risks Lurking
Real GDP Growth And Business Sentiment
% chg y-o-y And Index • We forecast Thailand’s real GDP
Headline Real GDP Growth, % chg y-o-y (LHS) Business Sentiment Index (RHS) growth to come in at 4.5% in 2018, its
6 58 fastest rate since 2012, driven by strong
private consumption growth and a large
57
5 investment pipeline, before moderating
56
to a still-resilient rate of 3.9% in 2019.
4
55
3
• Private consumption growth is likely to
54
benefit from rising consumer
2
confidence, while investment will likely
53 be supported by infrastructure
1 investment. Monetary policy remains
52 accommodative and supportive.
0 51
• With elections set to take place by May
-1 50 2019, there is risk of disruptive
Dec-13

Dec-14

Dec-15

Dec-16

Dec-17
Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18
Mar-13
Jun-13

Mar-14
Jun-14

Mar-15
Jun-15

Mar-16
Jun-16

Mar-17
Jun-17

Mar-18
Jun-18
demonstrations, weighing on investor
confidence.
Source: Bloomberg, Fitch Solutions

fitchsolutions.com | fitchconnect.com 13
Singapore: Growth To Persist Into 2019
Real GDP Growth By Production
% chg y-o-y • We forecast Singapore’s real GDP
growth to soften to 3.3% in 2018 and
GDP Manufacturing Construction Services 2.8% in 2019 (from 3.6% in 2017).
50

40 • Growth in the export-oriented

manufacturing sector will likely face
30
continued challenges from a prolonged
20 trade conflict between the US and
China.
10

0 • The services sector is also likely to

come under pressure owing to the
-10 negative spill-over effects from trade
-20
uncertainty and rising interest rates.

-30
• Existing macro-prudential measures are
Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18
Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Nov-13

Nov-14

Nov-15

Nov-16

Nov-17
Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18
likely to weigh on real estate activity
and mortgage loan growth.
Source: Bloomberg, MTI, Fitch Solutions

fitchsolutions.com | fitchconnect.com 14
Vietnam: Manufacturing Powerhouse To Sustain Growth
Still Room For Vietnam’s Tourism Share To Grow
Tourism Contribution, % Of GDP • Vietnam is likely to remain a regional
outperformer, with real GDP growth of
35
Direct Contribution Total Contribution 6.9% in 2018 and 6.5% in 2019.

30
• The manufacturing sector continues to
25 be the main growth engine and will
likely remain well-supported by the
20
government’s ongoing efforts to further
15 liberalise trade and streamline
bureaucracy.
10

5 • Positive demographics will provide a

tailwind for Vietnam’s industrial
0
success.
Vietnam

World
Laos
Cambodia

Brunei
Philippines

Malaysia
Thailand

Indonesia
Southeast Asia

Singapore

Myanmar
• The tourism sector has immense
potential and will help to underpin
robust growth in the tertiary sector.
Source: WTCC, Fitch Solutions

fitchsolutions.com | fitchconnect.com 15
 Australia: 2018 Economic Outperformance To Ease
Private Capital Expenditures By Industry
% chg y-o-y and pp contribution • We forecast Australia’s real GDP to
grow by 3.0% in 2018 and 2.5% in 2019
40
Mining Manufacturing Others Total
from 2.2% in 2017.

30
• Rising global trade tensions to weigh on
export sector, with the slowdown in the
20
Chinese economy weighing on mining
exports.
10

• Falling housing prices across major

0
Australian cities will likely also slow
private investment over the coming
-10
quarters, while high personal leverage
will limit purchases.
-20
Sep-2003

Sep-2004

Sep-2005

Sep-2006

Sep-2007

Sep-2008

Sep-2009

Sep-2010

Sep-2011

Sep-2012

Sep-2013

Sep-2014

Sep-2015

Sep-2016

Sep-2017
Mar-2003

Mar-2004

Mar-2005

Mar-2006

Mar-2007

Mar-2008

Mar-2009

Mar-2010

Mar-2011

Mar-2012

Mar-2013

Mar-2014

Mar-2015

Mar-2016

Mar-2017

Mar-2018
• That said, robust hiring momentum and
rising wages will provide some support
private consumption.
Source: Australia Bureau Of Statistics, Fitch Solutions

fitchsolutions.com | fitchconnect.com 16
New Zealand
Decline In Business Confidence To Weigh On GDP Growth
Business Confidence Index And Real GDP Growth, % chg y-o-y • We expect New Zealand’s economic
Business Confidence Index (LHS) Real GDP, % chg y-o-y (RHS)
growth to weaken to 2.7% in 2018 and
80 7.0 2.3% in 2019.
6.0
60
• Business confidence remains poor, with
5.0
40 the index coming in near-multi year
4.0 lows of -38.3 in September, which will
20
3.0 weigh on investment growth.
0 2.0
• Continued depreciatory pressures on
1.0
-20 the NZD coupled with high levels of
0.0 household indebtedness will also weigh
-40
-1.0 on consumption growth.
-60
-2.0

-80 -3.0
• Macroprudential housing measures
coupled with unaffordable house prices
Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17
Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18
31/9/18
will reduce the incentive for housing
investment.
Source: ANZ, Bloomberg, Fitch Solutions

fitchsolutions.com | fitchconnect.com 17
2 Appendix
 Fitch Solutions Macro Research Vs Consensus
2018 Real GDP Growth, % End-2018 Exchange Rate
Bloomberg Consensus Consensus Last
Country Fitch Solutions Consensus Last Month Currency Fitch Solutions Bloomberg Consensus Month
Australia 3.0 3.2 3.2 USD/AUD 0.70 0.72 0.72
Bangladesh 7.7 7.9 6.9 BDT/USD 84.50 - -
China 6.7 6.6 6.6 CNY/USD 6.85 6.90 6.85
Hong Kong 3.6 3.6 3.6 HKD/USD 7.82 7.84 7.85
India 7.3 7.5 7.4 INR/USD 73.00 73.25 72.00
Indonesia 5.2 5.2 5.2 IDR/USD 14,800.00 15,078.50 14,906.50
Japan 1.0 1.1 1.1 JPY/USD 113.00 112.00 112.00
Macau 5.0 - - MOP/USD 7.99 - -
Malaysia 5.1 5.1 5.1 MYR/USD 4.20 4.15 4.13
Myanmar 6.6 - - MMK/USD 1,388.73 - -
New Zealand 2.7 2.8 2.8 USD/NZD 0.65 0.66 0.66
North Korea 5.0 - - KPW/USD 143.00 - -
Pakistan 5.4 5.4 5.4 PKR/USD 127.00 - -
Philippines 6.3 6.4 6.5 PHP/USD 54.80 54.30 54.00
Singapore 3.3 3.3 3.2 SGD/USD 1.38 1.37 1.37
South Korea 2.5 2.8 2.8 KRW/USD 1,150.00 1,120.00 1,120.00
Sri Lanka 3.7 3.8 4.0 LKR/USD 174.00 - -
Taiwan 2.7 2.7 2.7 TWD/USD 30.80 30.85 30.80
Thailand 4.5 4.4 4.4 THB/USD 32.90 32.70 32.95
Vietnam 6.9 6.9 6.8 VND/USD 23,400.00 23,400.00 23,400.00
Source: Bloomberg, Fitch Solutions. Last Updated: November 1 2018

fitchsolutions.com | fitchconnect.com 19
 Fitch Solutions Macro Research Vs Consensus
2018 Average Inflation, % End-2018 Policy Interest Rate, %
Bloomberg Consensus Consensus Last
Country Fitch Solutions Consensus Last Month Country Fitch Solutions Bloomberg Consensus Month
Australia 2.1 2.1 2.1 Australia 1.50 1.50 1.50
Bangladesh 5.8 5.8 5.8 Bangladesh 6.75 - -
China 2.3 2.2 2.1 China 4.35 - -
Hong Kong 2.2 2.3 2.3 Hong Kong 1.75 - -
India 5.0 4.8 5.0 India 6.75 6.60 6.75
Indonesia 3.4 3.5 3.5 Indonesia 6.00 6.00 6.05
Japan 1.2 1.0 1.0 Japan -0.10 -0.10 -0.10
Macau 3.0 - - Macau - - -
Malaysia 1.4 1.3 1.3 Malaysia 3.25 3.25 3.25
Myanmar 6.0 - - Myanmar - - -
New Zealand 1.3 1.6 1.6 New Zealand 1.75 - -
North Korea - - - North Korea - - -
Pakistan 3.9 4.5 5.0 Pakistan 6.50 - -
Philippines 5.3 5.0 4.9 Philippines 4.75 4.75 4.15
Singapore 0.5 0.6 0.7 Singapore 2.25 - -
South Korea 1.3 1.6 1.6 South Korea 1.50 1.60 1.65
Sri Lanka 4.5 4.5 4.5 Sri Lanka 8.50 - -
Taiwan 1.6 1.5 1.5 Taiwan 1.38 1.40 1.45
Thailand 1.3 1.2 1.2 Thailand 1.50 1.55 1.60
Vietnam 3.7 3.8 3.8 Vietnam 6.25 6.25 6.25
Source: Bloomberg, Fitch Solutions. Last Updated: November 1 2018

fitchsolutions.com | fitchconnect.com 20
 Data Pack
Growth Outlook Fiscal Outlook
8 3
7 2
6 1
Average Real GDP Growth, 2018 - 2022 0
5 -1
4 -2
3 -3
-4 Average Budget Balance, % Of GDP (2018-2022)
2 -5
1 -6
0 -7

Japan

Hong Kong
India

Indonesia
China

Thailand

Taiwan

Australia

South Korea
Malaysia

Philippines

Singapore
Hong Kong

Japan
Indonesia
India

China

Thailand
Malaysia
Philippines

Singapore

Korea

Taiwan

Australia
25 Current Account Outlook Demographic Outlook
100
20 90
Population, 15-64 yrs, % Of Total, 2017 2022
80
15 Average Current Account Balance, % Of GDP (2018-2022) 70
10 60
50
5 40
0 30
20
-5 10
Japan

Hong Kong
Indonesia
India

China

Thailand
Philippines

Australia

Malaysia

Taiwan
South Korea

Singapore
0

Japan

Hong Kong

India

Indonesia
Australia

China

Thailand
South Korea

Taiwan
Philippines

Malaysia

Singapore
2018-2022 = Fitch Solutions forecast. Source: National Sources, Fitch Solutions

fitchsolutions.com | fitchconnect.com 21
 Data Pack
Per Capita GDP Per Capita GDP
60,000 12,000
GDP Per Capita (USD), 2017 10,000 GDP per Capita (USD), 2017
50,000

40,000 8,000

30,000 6,000

20,000 4,000

10,000 2,000

0 0
Hong Kong

Japan
Australia

South Korea

Taiwan
Singapore

Indonesia

India
Thailand
Malaysia

China

Philippines
Fitch Solutions Risk Indices Manufacturing
100 35
90 Operational Risk Score, 2018 Country Risk Score, 2018 Manufacturing, % of GDP (2017)
30
80
70 25
60 20
50
40 15
30 10
20
10 5
0 0
Hong Kong

Japan

Indonesia
India
China

Thailand
Singapore

Taiwan

Australia
South Korea

Malaysia

Philippines

Indonesia
Japan

India
Taiwan

China

Thailand

Australia
South Korea

Malaysia

Philippines

Singapore
2018-2022 = Fitch Solutions forecast. Source: National Sources, Fitch Solutions

fitchsolutions.com | fitchconnect.com 22
Disclaimer

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS

MACRO RESEARCH and is NOT a comment on Fitch
Ratings’ Credit Rating. Nor is any of the background
obtained from, or in conjunction with, Fitch Ratings credit
analysts.

fitchsolutions.com | fitchconnect.com 23