Market Overview

January 2017 Economy Trends Update For Developed Asia Pacific:

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January 2017 Economy Trends Update For Developed Asia Pacific:

Japan’s economic growth slows; Australia posts trade surplus

Strong overseas demand for manufactured goods and a cheaper yen are expected to give a boost to recovery in Japan, the largest of the economies under our coverage in the Developed Asia region. While tepid consumer spending restrained economic growth in Japan during the fourth quarter, the cordial meeting between Prime Minister Abe and President Trump seems to have allayed short-term investor concerns about the new U.S. administration’s trade policy.

The rebound in commodity prices gave a fresh impetus to resource exporter Australia, which reflected in rising consumer confidence. The recovery in dairy prices, a smooth political transition and strong household consumption helped New Zealand’s economy clock a growth rate of 1.1% in the third quarter. The export-dependent economy of Singapore staged a comeback in the fourth quarter, thanks to strong demand from China, its major trading partner. Still, President Trump’s stated intent to impose trade tariffs on China has clouded the economic outlook for the city-state in the near term. The political situation in Hong Kong appears to be improving as a new chief executive is set to be chosen in March though the strong Hong Kong Dollar and expected interest rate hikes in the United States are seen as economic headwinds.

At a Glance

Japan: Despite the strong uptick in exports and investments toward the end of 2016, the economy expanded a meager 1% during the fourth quarter as consumer spending remained feeble. The economy had advanced 2.2% during the previous quarter.

Australia: The resources led economy of Australia recorded a trade surplus in December 2016, the first time in about three years, as the rebound in commodity prices gave a boost to export earnings and overall economic growth.

New Zealand:New Zealand’s economy expanded 1.1% in the third quarter, which came in above analyst estimates. Household consumption was the main driver of gross domestic product, supported by higher activity in manufacturing, construction, and tourism sectors.

Singapore:Thanks to a rebound in manufacturing powered by export demand, the economy expanded 12.3% on a quarter-on-quarter basis in the fourth quarter, exceeding analyst expectations. Compared to the year-ago period, GDP increased 2.9% during the quarter.

Hong Kong:Some economists have pointed out that a strong Hong Kong Dollar and expected interest rate hikes in the United States bode ill for the economy this year. Weak exports, slowing private consumption and a slumping property market would weigh on the economy, the South China Morning Post reported.

Japan: Growth slows as consumer spending remains tepid

Despite the strong uptick in exports and investments toward the end of 2016, the economy expanded a meager 1% during the fourth quarter as consumer spending remained feeble. The economy had advanced 2.2% during the previous quarter. While a weak yen helped large Japanese exporters such as automobile manufacturers and makers of smartphone components to register a 2.6% export growth in the fourth quarter, the reluctance of domestic firms to raise wages despite healthy earnings appears to be holding consumers back, a WSJ news report said. The sharp decline in consumer spending was particularly evident in sales figures reported by retailers such as department stores.

Strong growth in manufacturing activity in January, the fastest pace recorded in three years, provided further evidence that overseas demand remains strong. The purchasing managers’ index touched 52.7 in January, slightly higher than the 52.4 recorded in December 2016.

Meanwhile, the Bank of Japan raised its growth forecast for the year beginning April 2017 to 1.5%, from its previous view of 1.3% growth, citing improving economic prospects. But the bank also sounded a cautionary note on the possible after-effects of any policy decision by the Trump administration on the economy. The central bank left its inflation projection for the year unchanged at 1.5%. The bank also decided to maintain its current accommodative monetary policy.

Investors were initially uncertain about the impact of the Trump administration’s protectionist trade policies on the export-oriented economy of Japan, especially after the United States decided to pull out of the Asia-focused Trans-Pacific Partnership promoted by President Obama. However, the recent meeting between Prime Minister Abe and President Trump underlined the need for better economic cooperation between the two countries and also helped allay concerns regarding the continuity of the U.S.-Japan military alliance.

Australia: Posts trade surplus on rebound in commodity prices

The resources-led economy of Australia recorded a trade surplus in December 2016, the first time in about three years, as the rebound in commodity prices gave a boost to export earnings and overall economic growth. Exports increased 5.3%, helped by noticeable gains in coal and iron ore shipments to China.

Consumer sentiment rebounded in February 2016, thanks to an improving economic outlook and a rise in domestic incomes, according to a Reuters news report. A consumer survey revealed that sentiment showed an increase of 2.3% in February, compared to a meager 0.1% rise in January. Increased consumer confidence was evident in the outlook for retail sales, which were subdued in 2016. Rising home prices and the specter of future interest rate hikes have made consumers cautious about new house purchases despite the Reserve Bank of Australia’s signal at its latest meeting that the current 1.5% interest rate policy may continue for some more time.

The Australian job market appears to be on the path to recovery going by the sharp increase in the number of job advertisements. Job ads increased 7.1% in January, compared to 3.7% in December, a Reuters report said. However, the unemployment rate has remained at 5.8% as part-time jobs make up the majority of the new jobs created.

New Zealand: Economy in expansion mode

In an attempt to expand the country’s trade horizons, New Zealand Prime Minister Bill English said he hopes to initiate talks with the European Union to sign a free trade deal soon. Mr. English added that the South Pacific nation also hopes to enter into a trade agreement with the U.K. after the Brexit process is complete. Notwithstanding the withdrawal of the United States from the 12-nation Pacific Trade deal, the prime minister said he was hopeful of engaging with the U.S. in Asia in the years ahead.

In an endorsement of the economy’s credentials, ratings agency Fitch affirmed New Zealand’s credit rating, citing prudent fiscal management and strong governance standards, a Reuters news report said. Fitch said though higher household as well as external debt are concerns, strong private consumption, low interest rates and construction activity bode well for the economy. The agency expects the economy to grow 2.9% in 2017 and 2.5% in 2018. Regarding the recent turnaround in the country’s important dairy industry, Fitch expects that the rebound in dairy prices will benefit the economy in the medium term.

New Zealand’s economy expanded 1.1% in the third quarter, which came in above analyst estimates. Household consumption was the main driver of gross domestic product, supported by higher activity in manufacturing, construction, and tourism sectors.

Singapore: Growth rebounds, yet concerns remain

Thanks to a rebound in manufacturing powered by export demand, the economy expanded 12.3% on a quarter-on-quarter basis in the fourth quarter, exceeding analyst expectations. Compared to the year-ago period, GDP increased 2.9% during the quarter. However, the economy expanded just 2.0% in the year 2016, the slowest pace of growth recorded since 2009. Analyzing the two main drivers of growth, manufacturing rose 39.8% on an annualized basis, while the services industry, a mainstay of the economy, grew 8.4% annualized in the fourth quarter. The manufacturing sector got a boost from increasing demand for semiconductors and semiconductor equipment. The government expects the economy to grow modestly in the range of 1-3% in 2017.

However, Singapore, which is reliant on exports for most of its income, is facing new challenges as the outlook for global trade remains clouded due to increasingly protectionist tendencies in Europe and elsewhere. Particularly worrying for Singapore is President Trump’s stated intent to impose trade tariffs on China, the island-nation’s main trading partner. Falling trade revenues have a direct impact on domestic incomes, which in turn would put pressure on a subdued labor market.

Singapore’s central bank said in October that it would keep its neutral currency policy intact for the near term. Taking into account the uncertain external environment, it is widely expected that Singapore’s central bank will leave the monetary policy unchanged in its April review as well.

Hong Kong: Stage set for change of guard

Following the political turmoil in Hong Kong over the swearing-in of two newly elected legislators, on March 26 the decision will be made to pick a new chief executive for the territory after the current incumbent Leung Chun-ying decided not to seek a second term. The main candidates who have thrown their hats in the ring are former Financial Secretary John Tsang and China-backed Carrie Lam, who had served as deputy to Leung Chun-ying. Tsang claims that he can handle the contentious issue of Beijing’s interference in the former British colony better, while Lam promises to revive Hong Kong’s sagging economic fortunes.

Meanwhile, some economists have pointed out that a strong Hong Kong Dollar and expected interest rate hikes in the United States bode ill for the economy this year. Weak exports, slowing private consumption and a slumping property market would weigh on the economy, the South China Morning Post reported. Investments in Hong Kong’s property market could also be hit as interest rate increases in the U.S. are likely to trigger capital outflows. The economy is expected to expand 1.8% in 2017, according to Bloomberg estimates.

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