Asia economic growth will be lacklustre: Poll

A worker walks in front of a storage area of a logistics centre at the Shanghai  Free Trade Zone. China’s economy is expected to slow further this year, as Beijing continues to make reforms its top priority and rules out major stimulus to spur short-term growth, a Reuters poll showed yesterday.

Reuters/Bangalore

Growth in emerging Asian countries will be lacklustre this year and contribute less to the global economy, despite signs of recovery in the region’s major trading partners in the West, Reuters polls showed yesterday.

Much will depend on how China – the world’s second-largest economy – performs. After clocking double-digit growth rates on average over the last three decades, China’s economy has slowed as the government repositions it to rely more on domestic demand.

The consensus from over 200 economists polled from April 15-24 was for growth in economies from China to India, Indonesia, Singapore and Thailand to be steady and near last year’s largely lacklustre levels.

That suggests contributions to the world economy from Asia – which for many years drove global growth – may diminish and the road back to strength could be long and slow.

These latest results are similar to a Reuters poll published last week which showed major global economies will only expand at a modest rate, while other emerging markets – particularly Latin America – are in for a challenging year.

“The region will continue to march forward at a low growth rate – not bad, not great, just what it’s done for the past two years. Grumble, stumble,” David Carbon, head of economic and currency research at DBS Bank, wrote in a note.

The poll results suggest that the run-up in many stock markets over the past few years on hopes for a strong global pickup that has not yet come may have been overdone.

China’s first-quarter growth weakened to its slowest pace in 18 months, highlighting signs of waning momentum, although the slowdown had been widely expected.

Economists predict a 7.3% average growth rate for China this year, which would be the slowest expansion since 1990, and a further cooling to 7.2% in 2015.

“Hard landing fears are escalating again even though estimates for GDP growth do not reflect such pessimism,” wrote Carbon.

What remains more of an unknown is how China will manage to ease itself off a credit-fuelled investment binge since the financial crisis hit and how well it will deal with the overhang and subsequent pressure on asset prices.

Policymakers in Beijing are unperturbed and say the modest slowdown is as expected and will continue. But that change has had knock-on effects on other countries in the region, as well as Australia, that fuel China’s appetite for commodities.

The latest poll shows Australia’s economy will expand 2.8% in 2014 before picking up slightly to 3% in 2015. Still, that would be short of the 3.25-3.5% pace that in the past has been considered “normal”.

Elsewhere in Asia, growth is expected to be tepid in 2014, with investors pulling funds out of the region and moving them into developed countries as the outlook there improves.

Prospects for a strong economic rebound in India are dim as industry remains weak, and although a business-friendly opposition party looks likely to form a new government, its ability to pass sweeping reforms is in doubt, a Reuters poll showed.

An anticipated victory for the Bharatiya Janata Party’s (BJP) at the conclusion next month of an ongoing election in the world’s largest democracy has pushed India’s stock market to a record high.

But many worry that its power to drive change will be muted if it has to form a coalition with other parties, which in the past have held policy hostage to local agendas.

The latest Reuters poll of over 20 analysts taken this week showed Asia’s third-largest economy likely grew 4.7% in the fiscal year that ended this March, with growth seen picking up to 5.5% in the current fiscal year.

Growth slumped to a decade-low of 4.5% in 2012/13 – less than half the almost double-digit rates in 2010.

Anubhuti Sahay, senior economist at Standard Chartered Bank, said that against that backdrop, and with chances of even higher inflation, a strong government with the ability to legislate change is needed to put the economy back on track.

“If we get into a situation where again the government, because of coalition politics, is not able to implement good policies, that is the biggest risk. We have seen such situations since 2010,” she added.

India’s economic gloom deepened in the first quarter of this year. Industrial output shrank and exports fell, underscoring the enormous challenges awaiting whatever new government takes over in May.

The current government has been heavily criticised for not implementing economic reforms and for being unable to control persistently high inflation – both leading to reduced foreign investment and low consumer demand.

The Reserve Bank of India (RBI), which recently shifted its focus to retail price inflation, aims to bring that down from 8.31% at present to 6% by January 2016.

But the poll shows inflation only coming down to 7.5% by then. That would leave a 1.5 percentage point gap to close.

The RBI is expected to keep its key repo rate steady for another year before a modest cut in the second half of 2015, the poll also showed.

A weak economic outlook for China and the eurozone, India’s two biggest trading partners, does not help the outlook for exports, either.

Meanwhile, China’s economy is expected to slow further this year, as Beijing continues to make reforms its top priority and rules out major stimulus to spur short-term growth, a Reuters poll showed.

The country’s gross domestic product is likely to grow 7.3% in 2014, according to the median forecast in a poll of 34 economists, a reading that is lower than 7.7% in 2013 and could mark the weakest showing in 24 years.

“Obviously, the top leadership has shifted more focus to reforms and employment,” said Xie Yaxuan, economist at China Merchants Securities, in a research note to clients. “And the weak economic data in the first quarter already signals that macro policy is firstly to serve reforms.”

The Chinese government has unveiled a slew of targeted measures recently to give a lift to the slowing economy, but analysts said most of the steps are aimed at improving the long-term economic structure rather than at generating a one-off boost to short-term growth.

Beijing has pledged to provide favourable tax policies for smaller firms and speed up investment to revamp shanty towns and hasten the construction of railways in the poorer western provinces.

Premier Li Keqiang also said on Wednesday the government will allow private investment in 80 projects ranging from the energy, information and infrastructure sectors as part of reforms to increase privatisation.

Analysts said slowing property industry investment, uncertainties over export demand and credit volatility stemming from shadow credit defaults could be the major downside risks for China’s economy this year.

The poll also showed that consumer inflation may remain steady at 2.6% this year, unchanged from the level in 2013 and comfortably within the government target of 3.5%.

Economists in the poll also believe the central bank will cut the amount of deposits that banks must hold as reserves by 50 basis points in the third quarter while keeping benchmark interest rates steady for the whole year.

The central bank unveiled a targeted cut in required reserve ratios for rural banks and credit cooperatives earlier this week to shore up the weaker agricultural industry in the economy.

But the central bank said the move does not suggest any change in the direction of its prudent monetary policy.

Some analysts also said the targeted RRR cut means the chance for universal monetary stance loosening is quite low, given the still accommodative liquidity condition in the economy.

“We do not think monetary policy should or will play a major role, as overall credit growth remains solid,” said Tao Wang, economist at UBS in a note to clients.

“It is the lack of final demand, excess capacity and barriers to private investment that are inhibiting growth,” she said.