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Asia's economies to transition to a new normal in 2024

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Asia will shift to a new normal in the Year of the Dragon, as buoyant consumption offsets subdued demand for exports.

The Year of the Dragon will be a period of transition for Asian economies, as the region pulls away from the shocks that have held back growth in recent years – most notably, the pandemic.

“In 2024, there will be a shift from the pandemic to a new normal,” said Frederic Neumann, Chief Asia Economist and Co-Head Global Research Asia, HSBC. “Growth will remain slightly below trend before nudging up further in subsequent years.”

The backdrop remains challenging, with a global deceleration in the growth of both industrial output and the service sectors. The inflation outlook in many major economies is not clear, which results in a high level of uncertainty towards the direction of monetary policy.

ASEAN – consumption to offset exports

In ASEAN, export-driven growth will be tempered by soft demand from key markets. For example, orders for electronics from Europe and the US will remain weak1, though growing intra-regional trade could help offset weak demand, reducing the impact of a slowdown elsewhere in the world.

Not only is China an important trade partner for several ASEAN economies, countries within the group of nations are also trading more with each other. At the same time supply chains in Southeast Asia are evolving as some countries benefit from a favourable wage differential with China, which is driving significant foreign direct investment (FDI) to the region, with Indonesia, Vietnam, and Malaysia key beneficiaries.

Source: OECD, HSBC.

With ASEAN’s export-engine running at less than full speed, there will be more pressure on domestic factors to generate growth.

Consumption will both stabilise and expand broader economic activity in 2024, as the purchasing power of consumers increases due to wages growing faster than inflation – a trend that is most evident in Malaysia, Singapore, and Vietnam2.

And even for countries where wage growth has been more moderate, such as the Philippines and Thailand, consumption is held up by the sheer number of people entering the workforce, thus increasing the aggregate number of consumers in the economy.

India – another year of strong growth

HSBC forecasts the Indian economy to expand by 6% in the 2024 fiscal year, maintaining an ongoing growth streak that puts the country at the forefront of Asia’s development. There are also high expectations for foreign direct investment, which could return to the peak levels of USD55 billion per annum in the next couple of years3.

There is a large amount of interest in India’s service sector, where exports have reached a tipping point that could generate more rapid growth in the future. Domestic services are also making progress, with startups plugging into the country’s digital infrastructure and removing traditional barriers to growth.

IT services remain a mainstay for the high-value part of India’s services sector. In addition, growing demand for professional services, such as HR and accounting, can be seen in the Global Capability Centres that multinational companies are setting up in the country. Professional and management consultancy exports grew at a compound annual growth rate of 31% from March 2019 to March 2023, outpacing the 18% for service exports over the same period.4

So-called “New India” companies could help raise potential growth for the overall economy to 6.5% over the next decade, compared with 6% just before the pandemic.5

China focus – buoyant consumption, green shoots in real estate

China recently announced that its economy grew by 5.2% in 2023, a significant recovery on 2022’s 3%.6 There are hopes that this giant economy can maintain the momentum in 2024 by pushing past the headwinds of previous years to reach a new normal.

“A soft landing for the property sector and resilient consumption are just some of the key macro themes that will benefit the Chinese economy over the rest of the year,” said Jing Liu, Chief Economist, Greater China, HSBC. She forecasts a 4.9% increase in China’s GDP for 2024.

Real estate continues to be a key focus for the Chinese economy. Sales of new homes remain depressed, but there are signs of green shoots, as second-hand home sales picked up in large cities following easing in the commercial housing market. Last year, Beijing, Guangzhou, Shanghai and Shenzhen all reduced the down payments required for mortgages.

On the consumption front, strong spending could buoy the broader economy, as expenditure grew significantly faster than disposable income last year. Consumption is currently skewed towards services and catering, due to pent up demand for experiences during the pandemic, while property-related goods lag – a reflection of the subdued property market.

While China will play a key role in Asia’s financial fortunes in 2024, the region will also be powered by other economic engines. The region’s other giant economy, India, looks likely to have another year of strong growth, while ASEAN will continue to develop trade ties internally and with the rest of Asia. In short, the outlook at the start of 2024 is broadly positive, with the Year of Dragon likely to be a significant period of transition for Asia.

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