1 January 2019Reading time 5 minutes

Happy New Year - From ING Asia Economics Team

2017 was a good year for Asia, coming after a poor 2016. 2018 started well and finished badly. 2019...? It doesn't seem to be starting all that well, but it could end better.  

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Crystal ball gazing

After 26 years of this sort of job, I can honestly tell you that forecasting is over-rated - you knew that though didn't you? Moreover, all the fun stuff - Trump, Brexit are the responsibility of my colleagues - I don't want to step on their toes and make any predictions there, though it is tempting, and I certainly have some opinions. 

On Asia though, 2019 could provide some further headaches. 

Let's start with China, and the slippage of the manufacturing PMI at the end of December into contraction territory is not an encouraging place to start, although the non-manufacturing index was more upbeat. Declining industrial profits is also not a good story to start the New year with and soft retail sales also indicate that China's slowdown is domestic, as well as export based. This could show the impact of the trade war filtering through the broader economy, it could be residual weakness from earlier restructuring / deleveraging or a bit of both.

Notwithstanding the causes, and the stimulus the authorities will doubtless unleash on the economy (they have already started to do so), China's economy does seem to be losing traction. Moreover, the hotly debated question, "How much stimulus?", is really just a derivative of the alternate question, "How big is the loss of momentum?", and one where the answer does not adequately describe the end condition.  

However, there are reasons to be optimistic. A deal of sorts on trade with the US is possible this year, though I doubt it will come without considerable strings attached for China, and I don't see a rapid removal of all of the recently imposed tariffs by the end of March.  Also, a push towards greater self-reliance as some of President Xi's latest comments seem to reaffirm, is both possible and to some extent desirable in the current environment of mutual distrust that seems unlikely to dissipate this side of 2020. 

Elsewhere, politics dominates

It will be a busy year for politics in Asia this year, and upsets are possible. Elections are to be held in India, Indonesia, Thailand (possibly), and mid-term elections in the Philipines. Both the Indian and Indonesian elections could see changes in government. Economic difficulties can deliver a political pushback, even when the aggregate GDP figures seem to suggest all is going well, as they do in India. We aren't sure if the Thai elections scheduled for 24 February will take place - they have been delayed before, they could be again.  

Global headwinds may not turn out so bad

Polls of US CEOs suggest nearly half of them see the US in recession by the end of this year, and an overwhelming majority of them do so by the end of 2020. I would actually put rather more of my money on what they think than on what members of my profession think. The CEOs at least have the benefits of inside information of their firm or industry. My bunch of carnival fortune-tellers has to rely on only publically available data. 

But then a little slowdown (if that's what we get) isn't all that bad, more like the inevitable diet that follows the holiday season. We should view it as both cleansing and purgative. For Asia, that too may be on the cards. And headwinds of slower international trade growth could provide the necessary nudge to get governments thinking about economic reforms and productivity-enhancing policies. You are supposed to mend the roof when the sun is shining, but there's nothing like a light rain-shower to hasten your efforts. 

Moreover, the news on trade isn't all bad. The New Year ushered in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) trade deal for 11 countries including Japan and Singapore, Vietnam, Canada, Australia and New Zealand (but not the US or China). An ongoing trade spat between the US and China is never going to be an irrelevance for the region, but greater trade between the CPTPP countries can significantly reduce its significance for the rest of the region.

PMIs dominate today's data releases

In a short while, PMI data for Malaysia, Thailand, Philippines, South Korea, Indonesia, Vietnam and the Caixin China PMI will be released. The general picture is likely to be a sombre one, though probably not too alarming. China's private-sector focussed Caixin PMI will be worth close watching after the official index moved below the 50 mark, and after it confounded expectations of falling into contraction itself for the last two months.

Thai CPI will remain very weak, and after last month's hike, the chances of another upwards nudge this year look remote. Likewise, Indonesian CPI today is expected to ease back towards 3.0%, taking some of the pressure off Bank Indonesia to follow through as aggressively with rates hikes as it did in 2018. Hopes for some slowing in Fed tightening this year too from Jerome Powell and his US rate-setting team will make it easier for Asian Central Banks to take it easy with rates and give domestic growth a chance.