On top of the data: Asia back in the spotlight

Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Issuer of report: The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at: https://www.research.hsbc.com ✔VoteinAsiamoneyBrokersPoll20164July-12AugustIf youvalueourserviceandinsight,voteforHSBCClickheretovote  In the aftermath of the UK referendum, recent data across Asia, in particular China, seem to have received less attention globally  China’s 2Q GDP and recent export data in Asia surprised on the upside, while the June PMIs pointed to a stabilization in output  But caution is advised: slowing private investment in China and a more subdued outlook for the EU could weigh on Asian growth With the high degree of market volatility following last month’s UK referendum, Asian data have not necessarily been the focus of global markets. But when we consider the possible implications of weaker growth in Europe, Asia will likely be the first to feel the heat. Indeed, in our recent Asia Economics Quarterly we downgraded growth forecasts across the region, in particular for 2017, and beefed up our calls for monetary easing. On the surface, things don’t seem too bad. The June PMIs suggested that manufacturing picked up some steam prior to the Brexit vote, and GDP in China printed a higher-than-expected 6.7% y-o-y in the second quarter. Meanwhile, the advance 2Q GDP estimate for trade-dependent Singapore showed a sequential rebound from the weakness in the first quarter thanks to a recovery in services output. Alas, this does not mean we are out of the woods yet. In China, a worrying trend is the large and increasing divergence between public and private investment – as the latter lurches south. When coupled with a slowing property market, it appears that China’s growth engine is increasingly dependent on infrastructure. Fortunately, Mainland authorities have ample fiscal space, but a more aggressive monetary easing push is also still required to boost private investment and arrest deflation pressures while long-overdue SOE reforms can help to tackle structural issues. What about the trade cycle? In June, exports surprised on the upside just about everywhere, a reflection of base effects and higher commodity prices. Taiwan’s June export orders – a key regional leading indicator – showed a much smaller contraction than expected. But we are yet to see any convincing signs of a trade recovery. With EU and UK growth expected to decelerate in 2017, it is best to keep expectations tempered. Although labour market and retail sales data from the US have improved, this has not translated to an increase in import demand due to the depressed business capex cycle (indeed, this appears to be a global, or at least G3, phenomenon). This all means that authorities will continue to ease monetary and fiscal policy. In particular, we expect a big announcement from the BoJ later this month and rate cuts by most regional central banks by 4Q. The market’s view that the Fed will stand pat this year provides Asian central banks with some space, and further BoJ and ECB easing will ensure that liquidity remains robust. On the fiscal side, we await imminent details concerning supplementary budgets in Korea and Japan, which are likely to provide only limited support for growth this year.21 July 2016 Frederic Neumann Economist The Hongkong and Shanghai Banking Corporation Limited fredericneumann@hsbc.com.hk +852 2822 4556 Joseph Incalcaterra Economist The Hongkong and Shanghai Banking Corporation Limited joseph.f.incalcaterra@hsbc.com.hk +852 2822 4687 Aakanksha Bhat Associate Bangalore On top of the data ECONOMICS ASIA Asia back in the spotlight  ECONOMICS  ASIA 21 July 2016 2 Best of Asian economics research 3 Asia Brief 4 Brexit: Not so bad 4 PMI Heatmaps 6 Indicators 8 GDP & Industrial Production 10 Exports 11 Consumer spending 12 Headline & Core CPI 13 Major Asia Events 14 Australia 15 China 16 Hong Kong 17 India 18 Indonesia 19 Japan 20 Korea 21 Malaysia 22 New Zealand 23 Philippines 24 Singapore 25 Sri Lanka 26 Taiwan 27 Thailand 28 Vietnam 29 Disclosure appendix 30 Disclaimer 31 Contents  3 ECONOMICS  ASIA 21 July 2016 Best of Asian economics research Country Title Author Date ASEAN ASEAN Perspectives: Politics to set the tone Su Sian Lim, Joseph Incalcaterra, Nalin Chutchotitham, Izumi Devalier and Maitreyi Das 30-Jun-16 Asia Asia Economics Comment: Another push on the string Frederic Neumann 18-Jul-16 Asia RBA/RBNZ Observer: The August double-header Paul Bloxham 15-Jul-16 Asia Asia Economics Comment: What to expect from Japan's upper house election Frederic Neumann 8-Jul-16 Asia Asian Economics Quarterly: You know what to do, right? Frederic Neumann and Qu Hongbin 7-Jul-16 Asia Not enough: What the latest PMIs mean for Asia Frederic Neumann and Abanti Bhaumik 2-Jul-16 Asia Brexit ripples: What p