德银-亚太地区-宏观策略-亚洲宏观洞察_滑坡-2019.9.11-56页_2mb

Asia Macro Insight Summary (11 September 2019)

Core Content

This report provides an overview of the macroeconomic and policy outlook for Asia, with a focus on the impact of US-China trade tensions and the global economic slowdown. It also includes detailed forecasts for major economies in the region, including China, Hong Kong, India, and others, along with insights on exchange rates, monetary policy, and fiscal measures.

Main Points

• Growth and Policy Rate Forecasts Revised Down: Due to the escalation of US-China trade tensions and a downward revision in the US and Euro Area economic outlooks, growth and policy rate forecasts for Asia have been revised down. Some central banks in the region have brought their policy rates back to record lows.
• US-China Trade Tensions Impact: The trade war has led to a significant slowdown in Asia's growth, with weaker investment and consumption. However, Taiwan and Vietnam have outperformed by seeing a surge in exports to the US.
• US Treasury Monitoring: The US Treasury has closely monitored the performance of Taiwan and Vietnam, and its stance against dollar appreciation may lead to interventions if Asian currencies depreciate.
• Monetary Policy Response: Asian central banks are expected to continue with monetary easing, including further rate cuts and MLF reductions. However, the effectiveness of such measures is limited due to the broader economic and geopolitical context.
• Fiscal Constraints: Fiscal support is limited for most Asian economies, especially China and India, due to budgetary constraints and the lack of room for significant stimulus.
• Exchange Rate Dynamics: The RMB is expected to remain volatile, with a forecast of 7.1/USD by year-end if trade talks avoid new tariffs, or 7.3/USD if they are imposed. The US Treasury's stance on currency manipulation could limit the effectiveness of monetary easing.
• Regional Overview: The report includes a comprehensive overview of all EM Asia economies, highlighting their respective growth, inflation, and policy outlooks.

Key Information

• Asia's Growth: Asia's growth momentum has weakened sharply, with a decline in exports, investment, and consumption. The region's simple average growth forecast was lowered by 0.3ppts for 2019 and 2020.
• Trade Tensions and RMB: The US-China trade war has pushed bilateral tariff rates to over 20%, with the RMB expected to depreciate further if the trade tensions continue.
• China's Economy: China's GDP growth is expected to slow to 6.1% in H2 2019, driven by slower consumer spending and declining exports. The Chinese government is adopting an "endurance" strategy to manage the trade war.
• Hong Kong's Economy: Hong Kong's GDP growth is forecasted to decline to -0.8% this year and 0.3% next year. The political crisis and trade tensions have led to a significant drop in retail sales and property prices.
• India's Economy: India's FY20 growth estimate has been revised down to 6.3% yoy due to a sharp slowdown in private consumption and the ongoing issues in the NBFC sector.
• Monetary Policy Outlook: Central banks in Asia are expected to continue with rate cuts and MLF reductions. The PBoC is anticipated to cut the MLF rate by 15bps in October and another 15bps in December.
• Fiscal Policy Constraints: Fiscal support is limited, especially in China and India, where the government lacks the room to stimulate growth through additional spending.

Economic and Financial Forecasts

• Growth Forecasts: The region's growth is expected to remain weak until 2H 2020. China's growth is projected to slow further, while Hong Kong and India are expected to see a decline in GDP.
• Inflation and Interest Rates: Inflation in Asia remains contained, and central banks are expected to respond with further rate cuts. The RMB is expected to remain at 7.1/USD by year-end unless trade tensions escalate.
• Exchange Rate Outlook: The report highlights the vulnerability of Asian currencies to US policy shocks, including potential dollar weakening and US Treasury intervention.

Regional Analysis

• China:

  • GDP growth is expected to slow to 6.1% in H2 2019.
  • RMB is forecasted to be at 7.1/USD if trade talks avoid new tariffs, or 7.3/USD if they are imposed.
  • The PBoC is expected to cut MLF rates by 15bps in October and another 15bps in December.
  • Fiscal support is limited, with the government unable to provide significant stimulus.

• Hong Kong:

  • GDP growth is forecasted to decline to -0.8% in 2019 and 0.3% in 2020.
  • Retail sales and property prices are expected to fall further due to the political crisis and trade tensions.
  • The HKD peg is not expected to be threatened, but the currency may spend more time near the weak side of the convertibility band.

• India:

  • FY20 growth estimate has been revised down to 6.3% yoy due to a sharp slowdown in private consumption and NBFC sector issues.
  • The RBI is expected to cut the repo rate to at least 4.75% over the next 6 months.
  • USD/INR is forecasted to be around 72 by year-end, assuming the CNH/INR cross rate of 10 is maintained.

Summary

The report underscores the significant impact of US-China trade tensions on Asia's macroeconomic outlook, highlighting the need for further monetary easing and the potential for US Treasury intervention. It also provides detailed forecasts for China, Hong Kong, and India, emphasizing the challenges posed by weak domestic demand, limited fiscal space, and the ongoing NBFC sector issues in India. The overall outlook for the region is cautious, with a focus on managing external shocks and maintaining economic resilience.