According to the International Monetary Fund (IMF), the Asia Pacific region is expected to grow by 6.5% in 2023, up from 5.8% in 2022 and 4.9% in 2021. This is higher than the global average of 4.9% in 2023, and reflects the strong domestic demand, robust exports, and effective policy support in most countries.
- China’s post-Covid recovery continued to lose momentum in May, with industry, housing and other private sector investment struggling. In response, the authorities implemented a round of interest rate cuts and property easing measures at the local level, and a further round of similar moves is likely in Q3. This support should be sufficient to keep the economy ticking over at a modest pace. We expect the Chinese economy to grow by 5.5% this year.
- By contrast, elsewhere in the region, the latest data showed a generally more positive spin on the health of the economies in Q2 than might have been expected (alongside reassuring signs of disinflation). However, we remain cautious about the outlook; few of the economies have any domestic drivers that can really sustain a decent pace of growth momentum and the monetary tightening of the last year is still feeding through.
- Moreover, the US economy was unexpectedly resilient in H1 2023, but we do not think this will last; clearer signs of weakness in the US in H2 will likely dampen Asian exports and investment.
PMIs: the surveys suggest Asian manufacturing remained fairly subdued in June; China’s is pointing to modest growth, while Taiwan’s and Vietnam’s are weak, and only India’s is suggesting robust expansion.
IP: Korea, Taiwan and Thailand reported a m/m rise in output in May, while Japan and Singapore IP fell m/m. The underlying trends (and outlook) remain weak but normalisation in the auto sector is providing some support and the downward pressures in the electronics sector are not as acute as they were.
Exports: the downhill path for APAC exports will likely continue as China’s recent export jump has unwound and US/EU demand is set to be weaker in H2 than H1. May saw sizeable m/m export drops in China, Japan and Singapore, though in June South Korean monthly exports reached a 9-month high (albeit helped by a jump in ship exports) and regional auto exports are rising strongly (as supply constraints fade).
Source: Oxford Economics