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Asia’s export stumble

Asian Economics Quarterly.

Some might wish to dwell on the bumps and bruises. But for all the knocks Asia’s economies received over recent quarters, the region has displayed remarkable resilience. Its stamina, however, is bound to get tested even more.

Exports, a key fuel for growth over the past couple of years, may finally buckle as pandemic-related goods demand fades and the global economy slows. And even if local demand and investment in most markets continue to expand at a decent enough clip, soaring living costs and tightening financial conditions are set to take a sizeable bite out of growth.

For central bankers, therefore, the path ahead is becoming harder and harder to discern. Lingering price pressures, and the slide in exchange rates, point to a further tightening in policy, but mounting risks to growth will require careful calibration.

And yet, and yet, our forecasts once more underline the region’s resilience. For all the headwinds, HSBC still expects GDP growth in Asia ex Japan of 3.9 per cent this year and 4.5 per cent in 2023. Nowhere near, of course, its pre-pandemic average (5.7 per cent), but respectable in the current circumstances nonetheless.

Mainland China is key

Much hinges on mainland China. Though growth has got pummelled so far this year, the bottom has now likely passed – even if the recovery will prove more gradual than in previous cycles. The property sector, to be sure, will likely remain under pressure, but its impact on growth should weaken over time. Stimulus measures, particularly for infrastructure, should also gain more traction, helping to stabilise construction more broadly. And even if virus control measures will likely persist well into next year, consumption should gradually recover as the prospect of ‘reopening’ looms.

We see mainland China growth reaching 5.2 per cent in 2023, though structural headwinds could pull this back towards to 4.8 per cent the following year – a still solid, if not extraordinary, growth rate for the world’s second largest economy. Taiwan’s economy, meanwhile, should feel the pinch of a rapidly cooling tech cycle, while Hong Kong is counting on reopening to lift growth after a tough 2022.

Forecast 2023 GDP growth, Asia ex Japan
Asia’s Export Stumble, HSBC Global Research, September 2022
Forecast 2023 GDP growth, mainland China
Asia’s Export Stumble, HSBC Global Research, September 2022

Elsewhere, Japan could lose further steam, especially as the trade cycle turns. ‘Reopening’ may still have some runway left, it is true, but not sufficiently for a lasting take-off. Korea, too, will feel the chill from cooling exports, while rising interest rates are also starting to bite into the local recovery.

In Australia, growth may still look punchy this year, with booming commodity exports adding to the local lift from ‘reopening’. But, as elsewhere, rising living costs and monetary tightening, plus a wobbly housing market, are bound to sharply curtail growth over the coming year. Property also looks a little shakier across in New Zealand, where growth is similarly decelerating.

India, despite the shock of higher energy prices earlier this year, and still stubborn price pressures, is proving remarkably resilient. Still, growth is set to weaken in 2023, as the tailwinds from ‘reopening’ are starting to fade. Sri Lanka has long endured its travails, but with IMF support beckoning, improvement should soon set in. Bangladesh, rattled by soaring global commodity prices, should continue to prove its resilience through it all.

Indonesia is still riding the commodity boom, although challenges may start to build over the coming year, amid rising prices locally and a sliding current account position externally. Like in Malaysia, growth may start to pull back as the export boom fizzles, even if less so than elsewhere. Thailand, by contrast, will count on tourists to see it through the region’s export stumble, possibly delivering a pick-up in growth in 2023.

The Philippines should cool over the coming months, constrained by large deficits internally and externally where adjustment is needed. Singapore, too, should see growth decelerate as fizzling trade takes its toll, even if services stay robust. Vietnam’s growth should also fall back in 2023, but it looks to remain among the fastest in Asia.

First published 29th September 2022.

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