Entries for 'Asia Pacific'

We downgrade our forecast and now expect an output contraction of 3.2%. The collapse in tourism has had the most immediate impact on the region. Shutdowns weakened domestic demand and exports declined markedly. Monetary and fiscal countermeasures will only partially offset this effect.

The PBoC can assist fiscal functions by providing necessary liquidity and taking on some quasi-fiscal functions through relending and policy banks. The PBoC may have to support the issuance of special central government bonds. However, the PBoC is not going to explicitly monetize fiscal deficits.

China’s rising CPI, elevated debt, and deteriorating external positions prevented strong credit stimulus in 2019. Policy impulses came mainly in the form of fiscal spending in 2018 and tax cuts in 2019. Stimulus in 2020 requires better coordination among fiscal, monetary and credit policies.

We see the global economy in recession this year, as low oil and financial stress add to the Covid shock. The shock hits EM after years of already subpar growth. We project recessions everywhere in Latin America, and the lowest EM Asia growth since the 1997-98 crisis.

Hong Kong’s economy took a hit last year due to social unrest and trade tensions. Falling consumption, investment and foreign trade dragged its economy into recession. However, Hong Kong’s financial industry has proven resilient. The COVID-19 shock raises growth and other risks going forward. 

The picture of China’s overseas direct investment (ODI) is quite different from many people’s impressions.  

China’s SOEs are often criticized for being inefficient and highly leveraged, but the performance gap between SOEs and privately-owned companies is smaller than many think. SOEs gained advantages during the Supply-side Reform, while private companies have lost more to the trade war. 

The PBoC recently lowered interest rates for the first time in four years by 5 basis points, remaining more hawkish than its peers. The PBoC is constrained by elevated CPI, uncertain RMB & outflows, and the housing market. We expect additional slow, gradual interest rate cuts in the coming quarters. 

China’s $2 trillion external liability seems large, but is manageable given China’s GDP, exports, and foreign assets. FDI loans, trade credits, and bank deposits are relatively sticky. China’s external debt overhang should be a minor concern for BoP and RMB depreciation. 

Strong investment growth is a prerequisite for Indonesia to grow faster than 6% per annum. The global commodity cycle, competitive external investment environment, and limited policy stimulus are potential headwinds to a meaningful pick-up in investment. 

Household debt has fueled China's housing, consumption, and economic growth. Households' large financial and housing assets mitigate the risks of rising leverage. However, household leverage is no longer low relative to income, and can no longer be used to stimulate economic growth. 

Vietnam has further integrated into regional supply chains. It has benefited from US trade diversion away from China, and production reallocation and investment by Chinese firms. The key risk is the US changing its policy stance towards Vietnam.

High import content in export production and investment is evident across the region. Recent import compression should support current account positions amid weak exports. However, the multiplier effects of import plunge on investment will likely depress GDP growth.

China currently faces headwinds to growth from both US tariffs and weaker domestic consumption. Compared with 2016, another period of soft exports and weak demand, many cyclical indicators—such as investment and retail—are weaker now, but structural indicators are more promising. 

External imbalances are headwinds facing the fast-growing economies of Indonesia and the Philippines. We have a constructive view of the CADs in these economies as investment has been an important contributor. Reliance on portfolio and other foreign inflows is the key risk. 

The IIF released a collection of papers analyzing the state of the Chinese economy. This research coincides with the IIF’s 2019 China Roundtable, held on the margins of the IMF/World Bank Spring Meetings. 

Trade tensions raised fears of slowing global trade. We develop a model to track US trade in real time, based on detailed weekly customs information. The picture is more positive than in Asian data, as US trade stabilized in real terms in early 2019. We think that global trade fears are overblown.

Growth momentum continues, albeit at a slower pace in 2019 and 2020. Capital inflows will cushion pressure from weaker current accounts. Fiscal deficits and trade tensions are the main risks to the outlook.