Asia week ahead: Recession fears looms
The upcoming week in Asia is likely to see concerns about an economic recession intensify. China’s September data dump will tell us how the prolonged trade war is impacting the economy, while Singapore's central bank is likely to jump on the easing bandwagon too and the export-led economic slowdown means another rate cut from the Bank of Korea
China – steady grinding lower
The outcome of the trade talks will be one of the key drivers for global markets next week, while delayed US tariff hikes on $250 billion of Chinese goods from the US also come into effect on 15 October. The situation continues to be tense and hopes of a breakthrough in the near term remain slim as the US seems to be expanding the battlefield beyond trade and technology.
China’s September data dump will tell us how all of this is impacting the economy. With such an adverse backdrop, GDP growth is poised to be on a steady downward slope in the third quarter and beyond. A nearly two-decade low industrial production growth, 4.4% in August, would be tantamount to a recession, although that’s not reflected by the positive GDP growth as consensus forecasts 1.5% QoQ SA vs. 1.6% in 2Q. However, the consensus of just a small tick down in annual growth to 6.1% from 6.2% appears to be a tad optimistic.
China: Trade war is taking toll on economy
Singapore to start easing cycle
Singapore’s advance GDP release for the third quarter arrives on 14 October and it will be accompanied by the central bank's semi-annual monetary policy statement.
It will be another six months before the central bank is due to make a further adjustment, so underdoing it now will only condemn the economy to a longer period of inappropriately tight policy and slow growth. – ING Asia Chief Economist, Rob Carnell
Has the economy bypassed a recession? The consensus median estimate of 1.2% annualised GDP bounce in 3Q from the previous quarter suggests so, though we are sceptical.
On the contrary, persistently weak exports and manufacturing data suggests another quarter of negative GDP growth (following -3.3% QoQ SAAR in 2Q) is more likely than not.
Indeed, the economy needs policy support and no doubt the central bank lagging behind its Asian and global peers, will join the easing cycle by cutting the slope of the policy band or even flattening it entirely, implying a zero percent SGD-NEER appreciation, from the current ‘modest and gradual’ appreciation path.
Singapore: Manufacturing depresses GDP growth
Korea –BoK needs to ease more
The Bank of Korea will meet next Wednesday, 16 October. The central bank started its easing cycle in July this year with a 25 basis point rate cut and the arguments for more cuts has only become stronger.
The export-led economic slowdown is deepening with the escalation of trade tensions with Japan depressing electronics manufacturing and exports. Extending a streak of double-digit declines to the fourth month, exports contracted by 12% year-on-year in September, with semiconductor persisting to be the weak spot with over 30% fall. While this will be translated into continued GDP growth slowdown, consumer price inflation has also moved into the negative territory in September for the first time ever.
We believe the economy is flirting with a recession and, if so, it makes sense the BoK acts sooner than later. The consensus is solidly supporting a 25 basis point rate cut in the current quarter. There are only two meetings to go before the end of the year. In our view, there are greater odds of a 25bp cut next week rather than at the November meeting.
| 1.25% |
ING forecast of BoK policy rateA 25bp cut next week |
Asia Economic Calendar
Download
Download article11 October 2019
Our view on next week’s key events This bundle contains {bundle_entries}{/bundle_entries} articles"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).