Economics: We expect Asia’s sweet spot of solid growth, strong capital inflows, tame inflation and low interest rates to stretch into 2018, underpinned by a durable global tech upcycle, continued quantitative easing by the European Central Bank and Bank of Japan and still-loose regional macro policies.
We forecast Asia ex-Japan’s aggregate GDP growth to rise, but this masks growing divergences such as faster growth in India, Indonesia, the Philippines and Thailand; stable growth in Malaysia and Korea; and slower growth in China, Hong Kong and Singapore. We believe that 2018 will be the year that China starts to address its moral hazard problem, with banks and bondholders repricing credit and demanding a higher risk premium. This would subsequently cause a continued widening of spreads between high yield and high grade credit. We forecast Consumer Price Index (CPI) inflation to rise in nearly all countries, albeit from low levels and mostly due to higher oil prices. We expect the central banks in Malaysia, Korea and Philippines to hike rates in 2018, but only Bangko Sentral ng Pilipinas (BSP) to hike more than the Fed.
However, Asia’s sweet spot looks stretched to us and we forecast a rising risk of a potentially painful snapback, possibly in Q2 and Q3. Asia’s high debt leaves it exposed to a global repricing of credit risk, possibly triggered by inflation surprises. Also, the recovery in Asian exports masks structurally weak private domestic demand in several economies, leaving the region more exposed than it may first appear to a number of downside risks. Looking further out, our fundamental view is that Asia’s “tiger cubs”, namely India, Indonesia and the Philippines will replace Northeast Asia’s ageing and debt burdened tigers as the core of the region’s economic dynamism, with scope to lift potential output growth.
Read the full report here for a more extensive outlook into 2018.
Head of Global Macro Research
Senior Economist Korea, Taiwan and Hong Kong
Chief Economist, India and Asia ex-Japan
Southeast Asia Economist
Chief China Economist
Global Head of FX Strategy
Asia Rates Strategist
Asia Rates Strategist
Head of Research, Korea and Pan-Asia Tech / Semiconductors Research
Head of Equity Research, India
This content has been prepared by Nomura solely for information purposes, and is not an offer to buy or sell or provide (as the case may be) or a solicitation of an offer to buy or sell or enter into any agreement with respect to any security, product, service (including but not limited to investment advisory services) or investment. The opinions expressed in the content do not constitute investment advice and independent advice should be sought where appropriate.The content contains general information only and does not take into account the individual objectives, financial situation or needs of a person. All information, opinions and estimates expressed in the content are current as of the date of publication, are subject to change without notice, and may become outdated over time. To the extent that any materials or investment services on or referred to in the content are construed to be regulated activities under the local laws of any jurisdiction and are made available to persons resident in such jurisdiction, they shall only be made available through appropriately licenced Nomura entities in that jurisdiction or otherwise through Nomura entities that are exempt from applicable licensing and regulatory requirements in that jurisdiction. For more information please go to https://www.nomuraholdings.com/policy/terms.html.