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Asian countries are showing stronger export trends as industrial production recovers in major advanced Asian countries. Industrial production rose at the highest annual rate in Taiwan in November (8.8 percent y/y) since Oct-2014, in Korea (4.8 percent y/y) in at least three years, and Singapore (11.9 percent y/y) since Mar-2014.
Research Team at Goldman Sachs expects Asia ex Japan growth to slightly accelerate from 2016 (their latest estimate for 2016 real GDP growth is 5.9 percent). The main driver according to Goldman Sachs is likely to be India’s growth which is expected to rebound significantly after the near-term blow from demonetization is absorbed.
India’s inflation is anticipated to have eased further in coming months due to the effect of demonetisation. The 2017-18 Union Budget, expected to be unveiled by February 1 is likely to incorporate a slash in the income tax bracket as well, allowing consumers to combat the negative effects of demonetization. The policy implementation is expected to boost consumer spending, allowing door for some recovery in inflation expectations. However, the full impact of the reforms are still very uncertain, and there is little clarity about the extent of near-term weakness in India and the pace of the rebound.
The benefits of better growth in the rest of the world may be limited for the smaller open economies of Asia. Export competition from a slowing and depreciating China, as well the possibility of greater US protectionism likely to weigh. These economies could also face challenges from a rising global rate environment and a stronger dollar.
“In Japan, we expect growth of 1.2%, versus 1.0% in 2016. In China, the challenge of maintaining high growth while attempting to fend-off financial and other risks is likely to intensify and the economy should decelerate slightly in 2017. In Indonesia and the Philippines, we expect growth to remain robust in 2017." said Goldman Sachs in a report.
