Asia set for rebound in 2020
Easing export headwinds, policy support and consumption will help, according to Deloitte
The Asian economy is set for a rebound in 2020 as some of the export headwinds seen last year ease and policymakers’ progrowth policies reinvigorate domestic economies. Southeast Asia continues to emerge as a global powerhouse, and consumption remains a bright spot, according to the latest “Voice of Asia” report by the accounting and professional services group Deloitte.
However, the report argues, three main downside risks must be contained for this predicted rebound to emerge. Economies should avoid excessive stimulus that could cause a boom-bust cycle, US policy needs to remain stable, and financial risks, particularly from quantitative easing, must continue to be reined in.
In Southeast Asia, pro-growth policies have been encouraged by rate cuts in the US and Europe, and economies including Indonesia, the Philippines, Malaysia and Singapore are expected to increase spending on public projects as a proportion of GDP.
“There are also positive signs on the trade integration front,” said Vivian Jiang, clients and industries leader with Deloitte Asia-Pacific. “The Comprehensive and Progressive Trans-Pacific Partnership gives its 11 members, including four Asean economies, enhanced market access, and the Regional Comprehensive Economic Partnership [not yet signed] will reduce export-import paperwork and has introduced a limited degree of service sector liberalisation.”
Addressing specific sectors, the report suggests the automotive and aviation sectors will be bright spots after a period in the doldrums, with electronics another highlight.
“The decline in the automotive sector since 2018 was caused by factors including new emission standards in several markets, and other restrictions on production. This decline is likely to reverse this year, with a further boost from continued luxury sales volume growth,” said Ms Jiang.
“Problems in the aviation sector are likely to ease as well, and there are signs of a resurgence in semiconductor billings, which should boost the electronics sector and regional exports.”
On consumption, the report suggests Asia can look forward to higher demand driven by labour market stability, increasing remittances and easing monetary conditions.
“China’s consumer story remains intact even as household leverage continues to increase,” said Sitao Xu, chief economist for China with Deloitte. “High debt is bound to limit people’s ability to consume, and banks’ non-performing loans could rise if home prices decline, but there tends to be more willingness among Chinese parents to help out their families if debt does become an issue.”
The report is also positive on prospects for the infrastructure sector. In Indonesia, the Philippines, Malaysia and Singapore, public works spending is rising as a proportion of GDP.
‘‘ Economies should avoid excessive stimulus that could cause a boombust cycle, and financial risks, particularly from quantitative easing, must continue to be reined in.
OUTLOOK BY COUNTRY
Australia: Australia’s economic slowdown has been caused by home-grown factors including worsening drought conditions and house price declines. Although tax and interest rates have been cut, there may not be a meaningful pick-up in the economy until 2021.
China: The mainland is regaining its balance despite a long-term, secular growth downtrend, and Hong Kong, despite turmoil in recent months, remains a world-leading financial centre, with its currency peg to the US dollar holding firm, and could benefit from government stimulus.
India: India’s economy has been suffering from the effects of the non-bank financial companies crisis after problems in its formal banking sector. Corporations are still highly leveraged. The economy probably bottomed out in 2019 but should remain subdued despite government stimulus and amid considerable downside risks.
Indonesia: Indonesia looks set to maintain steady growth of about 5% in 2020, with a young workforce, increasing urbanisation and monetary policy support for demand. The economy is becoming more stable but has yet to fully take advantage of the diversion of production out of China.
Japan: Exports have contracted and business confidence is subdued, and natural disasters have further depressed activity, but GDP growth has been quite resilient. Economic growth is expected to hold at about 0.5% over the next two years.
Malaysia: Strong domestic demand led by household spending underpins economic resilience, and exports have outperformed. Its competitive currency, growth in manufacturing activity and a resumption in infrastructure projects are expected to support continued growth.
New Zealand: The economy slowed in early 2019, largely due to global headwinds. It is expected to return to about 2.5% growth in the next couple of years, supported by factors including a tight job market, still-strong population growth and decent export prices and volumes.
The Philippines: The Philippine economy bottomed out in mid-2019, and is set to be boosted by a revival in the electronics sector, strengthening exports thanks to an expected pick-up in the Chinese economy, continued strength in remittances and policy support to drive consumption.
Singapore: Singapore is also expected to enter a recovery in 2020, supported by improving global growth and stronger electronics and precision engineering demand. There are also green shoots in finance, insurance, essential services and the “new economy”. The outlook for investment growth is also positive.
South Korea: We are upbeat about prospects for the South Korean economy in 2020, with an increase in demand for its manufactured goods. Government measures including a record budget of 513.5 trillion won ($4.36 billion) should protect against downside risks.
Taiwan: Taiwan’s economy was resilient in 2019 despite being caught in the crossfire of the US-China trade war and the step-down in the global electronics cycle. We expect the economy to outperform in 2020 on rising private investment and government policy to attract highend manufacturing.
Thailand: After a slow start, Thailand’s economy is expected to pick up in the second half of 2020, with export growth likely to have bottomed out, increasing tourist arrivals, rising farm incomes, positive fiscal policy and a recovery in private investment.
Vietnam: Vietnam is expected to remain one of Asean’s outperformers. It is one of the main beneficiaries of the relocation of production from China, which is prompting a surge in foreign investment. Its main challenges are manpower constraints, supply chain frictions and an infrastructure gap.