China Slowdown Looms Large Over Japan, Other Economies
During the third quarter and in the beginning of the current quarter, economies in the Developed Asia Pacific region witnessed mixed economic trends even as the laggards explored new drivers of growth. Japan, the most prominent of the regional economies, recorded only a marginal increase in its overall exports, dragged down by a drop in exports to China. It appears that Japan’s hopes rest on increased household spending and strong growth in employment, as well as the Bank of Japan’s continuing stimulus program. Commodity exporter Australia, which has been reeling under the plunge in robust demand from China, has found a new source of economic growth in its housing construction sector, with the new prime minister anticipating increased spending on infrastructure. For dairy exporter New Zealand, which has been hit by the fall in prices, the central bank’s accommodative monetary policy has been a big shot in the arm. Meanwhile, the slowing global trade and China’s deceleration has affected the prospects of the export-oriented economy of Singapore. While growth in the services sector boosted the economy during the review period, the manufacturing and construction sectors disappointed. Amid faltering trade and a drop in tourists from mainland China, Hong Kong is looking toward domestic consumption to spur growth.
At a Glance
Japan: Japan’s economy contracted an annualized 1.2 percent in the second quarter, according to revised GDP data. As well, it is widely expected that the economy will shrink in the third quarter due to weak capital spending and a sharp slowdown in exports to China.
Australia: Australia’s economy, which has been on a downward trajectory since China’s appetite for its commodities started waning, appears to be transitioning from mining-led growth. Needless to say, interest rate cuts and a weaker Australian currency have been supportive in this shift.
New Zealand: Encouragingly, the recent commodity price data published by ANZ Bank New Zealand showed an uptick in dairy prices on a monthly basis. Despite the headwinds from lower dairy prices, the economic outlook for New Zealand remains stable, thanks mainly to the accommodative monetary policy of the central bank.
Singapore: The export-oriented economy of Singapore narrowly escaped a recession during the third quarter of 2015, posting an annualized 0.1 percent GDP growth compared to 1.8 percent in the quarter before. Singapore’s manufacturing sector, which fell an annualized 3.6 percent, was the biggest drag on growth, followed by the construction sector.
Hong Kong: Hong Kong’s economy expanded 2.8 percent in the second quarter from the year-ago period, helped by growth in private consumption. However, exports dropped 3.6 percent during the period due to the slowdown in China, its close trade partner. In fact, visitors from mainland China account for almost 80 percent of the number of tourists to Hong Kong.
JAPAN: BOJ KEEPS STIMULUS PROGRAM INTACT
The Bank of Japan left its monetary policy untouched at its October meeting, leaving its $663 billion stimulus program intact, taking its cue from a strong job market and increased household spending. Household spending, which had weakened in the aftermath of the tax increase, recorded a 2.9 percent year-on-year growth in the month of August, the latest month for which data is available. At the same time, jobs data also turned out to be positive in August as the unemployment rate stood at 3.4 percent.
Still, Japan’s economy contracted an annualized 1.2 percent in the second quarter, according to revised GDP data. As well, it is widely expected that the economy will shrink in the third quarter due to weak capital spending and a sharp slowdown in exports to China. Exports to Asia, which account for about half of the island nation’s shipments, fell 0.9 percent in September, while total exports increased a marginal 0.6 percent in the year to September, a Reuters report said. Though the weak yen helped push up the value of the country’s exports, volumes fell for the third month in a row. Technically, a contraction in the third quarter will lead Japan into a recession as it follows the negative GDP growth in the previous quarter.
AUSTRALIA: ECONOMY TRYING TO REBALANCE AWAY FROM COMMODITIES
Australia’s economy, which has been on a downward trajectory since China’s appetite for its commodities started waning, appears to be transitioning from mining-led growth. Needless to say, interest rate cuts and a weaker Australian currency have been supportive in this shift. To put things in perspective, the Australian Dollar has depreciated more than 30 percent in the last three years, which has boosted the competitiveness of domestic industries.
Exports increased 3 percent in September, compared to a dip of 0.7 percent in the previous month, which helped bring down the country’s trade deficit to A$2.32 billion, less than the Bloomberg estimate of A$2.9 billion.
The Reserve Bank of Australia, which left interest rates unchanged at a low of 2 percent in its latest meeting, seems to have taken note of the recent positive data. On the political front, the new Prime Minister Malcolm Turnbull has been talking about increasing government spending on infrastructure. While housing construction has benefited from lower interest rates, lending to business too increased 1.2 percent in September compared to August, the fastest pace of growth since 2008. Retail sales increased 0.4 percent in September. The unemployment rate remained constant at 6.2 percent in August and September, while job growth strengthened to 2 percent on a year-on-year basis in August, according to the Reserve Bank of Australia. The Bloomberg Survey reports that Australia’s economy is forecast to grow 0.6 percent in the third quarter of 2015, compared to the 0.2 percent expansion seen in the previous quarter.
NEW ZEALAND: OUTLOOK REMAINS STABLE, JOB MARKET DISAPPOINTS
In New Zealand, efforts to boost employment witnessed an unexpected setback during the third quarter. Employment registered a drop of 0.4 percent compared to the second quarter, while the total rate of unemployment rose to 6 percent from 5.9 percent, according to a Bloomberg report. The country’s economic growth has been affected by falling dairy prices, which dented business confidence, while immigration has kept wages low. Annual immigration to New Zealand increased to 61,200 in September.
Encouragingly, the recent commodity price data published by ANZ Bank New Zealand showed an uptick in dairy prices on a monthly basis. Though the index still showed a fall of 11.8 percent year-on-year, it registered a gain of 6.9 percent from September. Despite the headwinds from lower dairy prices, the economic outlook for New Zealand remains stable, thanks mainly to the accommodative monetary policy of the central bank. New Zealand’s central bank had maintained the official cash rate recently after three rate cuts. However, the disappointing jobs data is likely to prompt the bank to cut the interest rate in December, according to Bloomberg. Still, slowing economic growth will make it hard for the country to narrow its fiscal deficit.
SINGAPORE: ECONOMY POSTS SURPRISE GROWTH; HEADWINDS REMAIN
The export-oriented economy of Singapore narrowly escaped a recession during the third quarter of 2015, posting an annualized 0.1 percent GDP growth compared to 1.8 percent in the quarter before. Singapore’s manufacturing sector, which fell an annualized 3.6 percent, was the biggest drag on growth, followed by the construction sector, while the services sector posted a 0.8 percent gain. The economy had contracted 2.5 percent in the second quarter. The slowing of global trade and the headwinds from China’s deceleration have affected the island’s economic prospects in recent quarters, and are expected to persist in the near future. Accordingly, the central bank has forecast that economic growth will be moderate in 2015 and 2016 as export-oriented sectors are likely to struggle in the face of weak demand growth. The Monetary Authority of Singapore sees economic growth in the range of 2 percent-2.5 percent in 2015.
The central bank had two reasons to ease its monetary policy recently: the city-state’s anemic economic growth and falling consumer prices. The bank, which uses currency exchange as its policy tool rather than interest rates, said it will curb the appreciation of its currency versus its trade partners. Consumer prices recorded their tenth monthly fall in a row in August, while core inflation touched 0.2 percent, which gave the bank one more reason to act.
HONG KONG: FOCUS ON DOMESTIC CONSUMPTION AS EXPORTS FALTER
Hong Kong’s economy expanded 2.8 percent in the second quarter from the year-ago period, helped by growth in private consumption. However, exports dropped 3.6 percent during the period due to the slowdown in China, its close trade partner. In fact, visitors from mainland China account for almost 80 percent of the number of tourists to Hong Kong.
Encouraged by the GDP numbers, the government raised its growth forecast for 2015 to a range of 2 percent to 3 percent from its earlier view of a 1 percent to 3 percent. Hong Kong had witnessed street protests last year demanding an increase in democratic rights, which affected retail sales and raised doubts about the former British colony’s political and economic stability.
Financial Secretary John Tsang told Reuters that a growth rate of 2-4 percent would be considered “normal” given the challenges faced by the export, tourism and retail sectors. With trade faltering amid China’s slowdown, Hong Kong is tapping other avenues of growth like domestic consumption. Mr. Tsang also hinted that he plans to offer incentives to consumers to encourage spending, which has accounted for 1 percent of GDP growth on average.
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