Resilient home demand boosts Asian economic growth

Loose monetary policy should support growth in Asia in coming months, economists say, but regional growth is likely to be negatively affected by a slowdown in China and possible fallout from UK citizens’ decision to leave the European Union.

The analysis comes as most Asian countries released second-quarter growth data that met or surpassed expectations on the back of resilient domestic demand.

Mainland China’s gross domestic product grew slightly faster than in the same quarter last year, while Hong Kong staved off a mild recession.

“Infrastructure spending continues to fuel growth in China, the Philippines, Indonesia and Thailand,” said HSBC economist Frederic Neumann, who added that a lack of emphatic recovery in exports would weigh down on activity in the region.

While constructive signs from the Philippines’ new administration strengthened the outlook for that country, budget cuts announced by Indonesia’s new finance minister, Sri Mulyani Indrawati, will weigh on the growth outlook in the latter part of the year.

Thailand will likely slow down amid a cooling of tourism. 

“Some clarity on the [Thai] domestic political situation following the passage of [the referendum on] the new constitution could encourage a return of foreign investment,” said BMI Research’s Stuart Allsopp.

China, the world’s second-largest economy, grew slightly faster than expected in the second quarter at 6.7 per cent from a year earlier. But reduced policy stimulus and excess capacity will drag down growth, economists from Capital Economics said in a note.

“Continued attempts by Chinese policymakers to temporarily prop up economic growth to meet growth targets at the expense of deleveraging the economy and enacting reforms ... [are] adding to the risk that China will enter into several years of economic stagnation,” said Andrew Wood, head of Asia research at BMI Research.

Mainland China’s problems will weigh on Hong Kong, as weak export demand and the downturn in the housing market affect growth. 

Regional rival Singapore will see restrained economic expansion due to subdued global demand, a weak housing market and tightening financial conditions, FocusEconomics said in a report released recently.

Malaysia, which slowed in the second quarter on poor commodity prices, will also feel the effects of a slowdown in its largest trading partner, China.

Japan’s growth ground to a halt in the three months to June 30 after a stellar expansion in the previous quarter, on weak exports, putting more pressure on Prime Minister Shinzo Abe to come up with policies that produce sustainable expansion.

Asia’s slowdown will continue over the next decade, mostly due to slower growth of the working-age population and increases in income, observed DBS chief economist David Carbon. But he added that it was not necessarily a bad thing. 

“What we need are higher incomes, and not higher growth,” he said.