Articles
11 July 2019

Asia week ahead: More central banks to join the easing bandwagon

Next week in Asia kicks off with China’s 2Q19 GDP report and progresses with some central bank policy meetings and lots of trade data – making it an interesting week for markets

6.2%

ING forecast of China's 2Q GDP growth

China’s growth lowest in three decades

Our house view of 6.2% growth in China’s GDP in the second quarter is in line with the consensus median - a deceleration from 6.4% in 1Q, making it the worst quarter in nearly three decades. Anything better or worse than this may move the market. However, deviations by one-tenth of a percentage point from consensus, which have been the norm for many quarters, are less of a concern than the direction that growth is going. Indeed, a downward trajectory will cast a shadow over investor sentiment as the trade dispute with the US continues to cloud the growth outlook for the rest of the year.

A silver lining in the dark cloud though, year-on-year growth may benefit to some degree from low base effects in the second half of the year. While it’s too soon to close a trade deal, our Greater China Economist, Iris Pang, sees a strong macro policy boost keeping the economy afloat with growth above 6%.

More central banks on course for easing

With a US Federal Reserve rate cut just around the corner, we expect more Asian central banks to join the easing buzz. Central banks in Korea and Indonesia are likely to be next in line to ease policy. Both the Bank of Korea (BoK) and Bank Indonesia (BI) are due to announce their policy decisions next Thursday 18 July, and we expect each of them to cut policy rates by 25 basis points.

Facing the brunt of the trade war and the tech slump, Korea’s growth is poised for more weakness ahead from export declines, which have now moved into double digits. The BoK policy decision will also be accompanied by the central bank’s quarterly economic outlook report. We anticipate further cuts to the BoK’s 2019 growth and forecasts, currently 2.5% and 1.1% respectively. If so, the fifth forecast cut in a year should force the BoK’s hand into easing. The economy is flirting with recession and the consensus has still to come to terms with this, with a split-view of a 25bp BoK rate cut and no cut in the current quarter.

The Korean economy may actually be in a recession right now, we're simply waiting for the data to confirm it. – ING Asia Chief Economist Rob Carnell

Meanwhile, BI has already started on an easing path by cutting banks’ reserve requirement ratio (RRR) by 50bp at the June policy meeting. With a Fed rate cut just around the corner, our Indonesia expert, Nicholas Mapa, now thinks the door is open to a BI rate cut, possibly as soon as next week. The appreciating currency (IDR) allows for some unwinding of aggressive BI policy tightening in 2018. Even as GDP growth remains well supported at a 5% level for the rest of the year, still a decent performance among Asian countries, an insurance rate cut won’t hurt when inflation is anchored around 3%.

And lots of data to gauge trade war impact

The trade figures from India, Indonesia, Singapore, and Japan will also be watched closely for what they say about the trade war impact.

Just like Korea, Singapore is one of the economies most impacted by the trade war and tech slump. June data on non-oil domestic exports (NODX) next week will reinforce this trend. The sustained deep declines in NODX depressing GDP growth are bringing the Monetary Authority of Singapore (MAS – the central bank) closer to reducing or even flattening the SGD-NEER appreciation path, possibly even earlier than the October meeting.

There is some good news from the Indonesian trade figures. A 10-fold widening of the trade surplus to our estimated $1.9 billion will relieve BI from worries of imminent policy rate cuts hurting the currency. Unlike Indonesia, India’s trade balance remains in red, likely posting a $15 billion deficit again in June – not good news for the Indian rupee despite its recent outperformance on the back of a weaker US dollar and lower global oil prices.

Asia Economic Calendar

 - Source: ING, Bloomberg, *GMT
Source: ING, Bloomberg, *GMT

Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).