Resilient domestic demand boosts growth in most Asian economies

Loose monetary policy should support growth in Asia in coming months.
Loose monetary policy should support growth in Asia in coming months. PHOTO: AFP

Loose monetary policy should support growth in Asia in coming months, economists say, but regional growth is likely to be negatively affected by a slowdown in China and a possible fallout from Brexit.

The analysis comes as most Asian countries released second-quarter growth data that met or surpassed expectations on the back of resilient domestic demand.

The Philippines led the pack in South-east Asia, with 7 per cent gross domestic product (GDP) growth year on year, followed by Indonesia at 5.2 per cent and Thailand at 3.5 per cent. China grew slightly faster than the same quarter last year, while Hong Kong staved off a mild recession.

"Infrastructure spending continues to fuel growth in China, the Philippines, Indonesia and Thailand," said HSBC economist Frederic Neumann, who added that a lack of emphatic recovery in exports will weigh down on activity in the region.

While constructive signs from the ruling Duterte government strengthened the outlook for the Philippines, budget cuts announced by Indonesia's new Finance Minister, Sri Mulyani Indrawati, will weigh on growth outlook in the latter part of the year.

Thailand will likely slow down amid a cooling of tourism. "Some clarity on the (Thai) domestic political situation following the passage of the new Constitution could encourage a return of foreign investment," said BMI Research's Stuart Allsopp.

China, the world's second largest economy, grew slightly faster than expected in the second quarter at 6.7 per cent from a year earlier. But reduced policy stimulus and excess capacity will drag down growth, economists from Capital Economics said in a note.

"Continued attempts by Chinese policymakers to temporarily prop up economic growth to meet growth targets at the expense of deleveraging the economy and enacting reforms... is adding to the risk that China will enter into several years of economic stagnation," said Mr Andrew Wood, head of Asia research at BMI Research.

China's problems will weigh on Hong Kong, as weak export demand and the downturn in the housing market affect growth. Regional rival Singapore will see restrained economic expansion due to subdued global demand, a weak housing market and tightening financial conditions, FocusEconomics said in a report released recently.

Malaysia, which slowed in the second quarter due to poor commodity prices, will also feel the effects of a slowdown in its largest trading partner, China.

Japan's growth ground to a halt in the three months to June 30 after a stellar expansion in the previous quarter, on weak exports, putting more pressure on premier Shinzo Abe to come up with policies that produce sustainable expansion.

Asia's slowdown will continue over the next decade, mostly due to a slower growth of the working-age population and increase in income, observed DBS chief economist David Carbon. But he added that it was not necessarily a bad thing. "What we need are higher incomes, and not higher growth," he said.

A version of this article appeared in the print edition of The Straits Times on August 22, 2016, with the headline 'Resilient domestic demand boosts growth in most Asian economies'. Subscribe