Asia Market Trends

Asia-Pacific: World’s Fastest Growing Region

The Asia-Pacific is the fastest growing region in the global economy, and its economic weight has increased in the last decade, reaching 31.5% of world GDP in 2015. APAC’s two economic giants, China and Japan, are the world’s second and third largest economies. The fast-growing consumer markets of China, India and ASEAN have a combined population exceeding 3 billion people, and are expected to become an increasingly important driver of global consumption over the next two decades, led by rapidly growing household incomes and a fast growing middle-class. This Asian ascendancy is resulting in a considerable refocusing of corporate strategies of Western multinationals towards the fast-growing emerging Asian economies, due to opportunities for more rapid revenue growth than in more matured developed markets. However this rapid APAC growth is also powering the ascendance of large APAC multinationals, which already comprise of 192 of the Fortune Globe 500, the world’s largest corporations. Nevertheless, much of emerging Asia remains relatively underdeveloped with low per capita incomes, and there are considerable near-term challenges in the APAC outlook.

P.R. China – Difficult Economic Transition Underway

Chinese economic growth has moderated in 2014, after large stimulus measures fueled growth in 2012-13. AIRP Management Solutions Ltd. expects GDP growth of 6.9% in 2015 and 6.7% in 2016, well below the average annual growth rate of 10% over the last three decades. While consumption and investment are still underpinning GDP growth, economic imbalances have increased. This reflects escalating local government debt, excessive dependence on exports and investment as growth drivers, and the rapid growth of the largely unregulated shadow banking system. Due to these significant imbalances, AIRP Management Solutions Ltd. has raised the probability of a China hard-landing scenario during the next two to three years from 20 to 25%. The government is reluctant to use further fiscal stimulus to support growth, preferring structural changes reforms to steer a transition to a more efficient economy. Catalizing consumption as a growth engine will be helped over the medium-term by rising household incomes, the fast growing middle class, and rapid urbanization of inland provinces.

China – Difficult Economic Transition Underway

apan - Abenomics Lead to Cautious Mood

Japan – “Abenomics” Lead to Cautious Mood

Since Prime Minister Shinzo Abe was elected in late 2012, Japan tried to reboud from recession, by implementing the first two of the “three arrows” of Abenomics, namely monetary and fiscal stimulus. The LDPs success in the upper house elections of the Diet in July 2014 also set loose the “third arrow” of structural reforms. AIRP Management Solutions Ltd. forecasts Japanese growth of -1.2% in 2015 and -1.1% in 2016. Monetary stimulus has so far been the key driver of recovery, with the Bank of Japan’s QE policies resulting in sharp yen depreciation, boosting export competitiveness and lifting corporate profits for exporters. However, Japan faces difficult medium-term challenges due to its contracting population, and high fiscal burden. The sales tax hike from 5 to 8% introduced in April 2014 has damped the consumer spending and a further tax hike has been postponed to 2017. Hampered by low productivity large Japanese enterprises are urged to increase workers salaries in 2015 to boost the economy further. Energy prices are still hampering the economy and it is expected that Japan will restart its nuclear power plants in 2015 and 2016.

India – “Make in India” A New Beginning

After sustained strong growth since 2003, Indian GDP growth has moderated considerably during 2013 and 2014, due to tight monetary policy imposed to curb rising inflationary pressures in 2011. AIRP Management Solutions Ltd. forecasts GDP growth of 7.4% in 2015 and 7.9% in 2016. In mid-2015, economic indicators remain soft, with no major growth rebound in sight. Despite some decline in inflation and cautious policy easing by the central bank, structural reforms as set out by Prime Minister Modi may attract more global investors and fuel the manufacturing sector. The government approved constitutional amendment to bring a new goods and services tax (GST) into effect will integrate state economies and create a single unified Indian market and gains of $15 billion a year are to be expected.

India - Make in India

ASEAN - Rapid Growth Continuing

ASEAN – Rapid Growth Continuing

Most of the largest ASEAN economies, including Malaysia, Indonesia, Thailand and the Philippines, have shown strong growth in 2014 and 2015, despite weak export demand due to the EU crisis and commodity import slump from mainland China. GDP growth has been supported by domestic demand, with buoyant private consumption and rapid growth in investment. This momentum is expected to continue in 2016. ASEAN growth has been helped by continued trade liberalization initiatives among ASEAN members and through a growing network of free trade agreements with other APAC countries and beyond, including the TPP. Low oil prices will support trade balances as most ASEAN economies are net-importers of oil and lower inflationary pressures.

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