20150912-高盛-Emerging_Asia_Economic_Outlook_49页_1mb

Goldman Sachs: Emerging Asia Economic Outlook Summary

Core Content

Goldman Sachs provides an economic outlook for Emerging Asia, highlighting key macroeconomic themes and policy implications across the region. The report emphasizes the impact of global trends, domestic policy shifts, and structural challenges on growth and stability in the region.

Main Themes

1. Commodity Price Deflation

• Commodity price deflation is beneficial for most Asian economies, except Indonesia and Malaysia.
• This trend reduces input costs, easing pressure on inflation and supporting growth.

2. Divergence in Monetary Policy

• As the Fed nears tightening, emerging market (EM) central banks may not follow suit, leading to further FX weakness against the USD.
• EM economies face challenges in maintaining currency stability due to this divergence.

3. Debt Buildups

• Debt accumulation poses a significant challenge for growth, especially in China and Southeast Asia.
• The shift from reform to stimulus in China is driven by weak economic activity and equity market turmoil.

Key Challenges and Policy Responses

China's Economic Deceleration

• China's growth has been bumpy, with a continued deceleration in early 2015.
• Sharp credit deceleration in H2 2014, fiscal restraint, and CNY TWI appreciation have dragged on growth.
• Diminishing export and investment growth highlights the need for stronger support to the household sector.
• Lower interest rates, increased fiscal support, and eased housing policies are expected, despite long-term constraints on shadow banking and CNY weakness.

Domestic Growth Stories

• Asia is shifting from export-oriented growth to more domestic-driven models.
• Countries like India, Indonesia, and the Philippines have better demographics, less debt overhang, and greater potential for productivity catch-up.
• However, they face near-term political and market challenges.
• Smaller East Asian exporters are encountering weaker external demand and increased competition from Japan and China.
• Hong Kong and Singapore must adjust to the aftermath of a regional debt boom.

Global Context

The "New Oil Order"

• Shale oil has flattened the supply curve, contributing to lower equilibrium oil prices.
• Asia is a major oil importer, but oil intensity varies across economies.
• Lower oil prices provide a relief for most Asian economies, except those with higher oil dependence like Indonesia and Malaysia.

External Demand

• Demand growth outside the region has been sluggish but is expected to improve slightly in 2015.
• Japan and Europe are projected to grow faster than in previous years, offering some relief to Asian exports.

US Economic Outlook

US Growth and Monetary Policy

• The US economy is expected to grow near 3% after a weak first quarter.
• The Fed is likely to begin hiking rates in December, but overall DM monetary policy will remain loose.
• Lower long-term interest rates and continued monetary easing are expected to support growth.

"Lowflation" Trend

• "Lowflation" is a prevalent theme across the region, characterized by low inflation and slow growth.
• This trend provides some leeway for Asian economies to deviate from Fed policy.
• Potential and actual growth are decelerating significantly, with alternative indicators suggesting a deeper slowdown.

Fiscal and Administrative Policies

Fiscal Stimulus

• Fiscal and administrative efforts have become the preferred approach to boost growth.
• In 2015, a series of fiscal stimulus policies were announced, including:
  • Public-Private Partnership (PPP) projects with total investment of around 1.97 trillion RMB.
  • Pledged Supplementary Lending (PSL) to support infrastructure and shanty town redevelopment.
  • Reduction in corporate costs and introduction of an entrepreneurship fund to support emerging industries.
  • Tax reductions for certain consumer goods and investment in petroleum-related facilities.

Currency and FX Dynamics

CNY and FX Weakness

• The renminbi (CNY) has been trading on the weak side of its band, but has appreciated significantly on a trade-weighted basis.
• FX weakness is expected to persist due to divergent monetary policies and EM central banks not necessarily following the Fed.

Exchange Rate Vulnerabilities

• Indonesia and Malaysia are more vulnerable to FX issues due to higher reliance on foreign financing and weaker reserve adequacy.
• EM FX weakness against the USD is likely to continue, especially as central banks diverge from Fed policy.

Housing Market Analysis

Housing Trends

• Housing news is improving, but high inventory levels are a lasting headwind for construction.
• Mortgage affordability is closely linked to demand swings, and high housing inventories could slow down market activity.

Household Leverage

• Household leverage is not a major concern, as Chinese households are far less leveraged compared to US households.
• However, other types of property debt still pose a risk, especially in local government financing vehicles (LGFVs).

Regional Sensitivity to Chinese Demand

• Taiwan and Malaysia are most sensitive to Chinese domestic demand growth.
• Estimated impact of a 1pp slowdown in Chinese demand on emerging Asia growth shows considerable variance in exposure.

Conclusion

• Emerging Asia faces a mix of challenges and opportunities, driven by global macroeconomic trends, domestic policy shifts, and structural issues.
• The region's economies are adapting to lower commodity prices, divergent monetary policies, and the need for stronger domestic demand support.
• Continued fiscal stimulus and monetary easing are expected to mitigate the effects of debt buildups and slow growth.