Out of the woods, into the jungle

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  A bounce in 4Q activity and trade data allays concerns over a sharp deceleration into 2017; PMIs point to modest expansion  The recent export bounce is a reflection of base effects, the commodity price rebound, and the consumer electronics cycle  Domestic demand indicators suggest a more cautious outlook, particularly in ASEAN and Korea; China data set to slow in 1Q Just a few short months ago, the data increasingly pointed to stagnating growth across Asia. Then came the OPEC decision to limit oil production, the sustained flow of strong data from the US, the “Trump-flation” equity market rally following the US presidential election, and a charged consumer electronics cycle. Even in Japan and the Eurozone recent data have firmed and domestic activity appears to be on an upswing. In emerging Asia, the data have also turned. Exports swung into positive territory in most countries, with strong growth in certain ASEAN economies (partly a commodity-related terms of trade effect). Meanwhile, the electronics cycle continues to show signs of life, in preparation for key upcoming product launches by Samsung (2Q17) and possibly Apple (3Q17). As a result, semiconductor production in Taiwan, Korea, and Singapore has been growing by double digits over the past few months. The confluence of a sustained electronics cycle and a boost in commodity prices has indeed provided some respite for the trade-dependent region. Manufacturing PMIs suggest that the momentum should last through 1Q17. However, the risk is that a large share of the current boost in production will end up in inventory – after all, Asian factories mostly purged inventory in the second half of 2017. Moreover, the data suggest that exports to final consumers in developed markets remain in the doldrums. The data also imply that domestic demand remains under pressure, particularly in ASEAN where unemployment continues to edge higher in most countries, and Korea where consumer sentiment is subdued and the housing market is losing steam. In China, the property market also looks set to slow markedly in 1Q, dragging down momentum and leaving growth solitarily dependent on the perennial support pillar of infrastructure investment – at least until (and if) private investment rebounds. Asia may have escaped the uninspiring outlook we observed in 3Q, but with the recent inauguration of US President Trump and the dawn of increasingly protectionist trade policies in the US, uncertainty and downside risks prevail. Moreover, HSBC’s view of two rate hikes by the Fed curtails monetary policy options where easing is needed, such as in Malaysia. Elsewhere, we forecast only limited easing: we expect rate cuts in India, Indonesia, and Taiwan in 1Q, and Korea in 2Q. In short, while Asia may be out of the woods of the ‘same-old’, it has entered the jungle of uncertainty. 26 January 2017 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 Abanti Bhaumik Associate Bangalore On top of the data ECONOMICS ASIA Out of the woods, into the jungle  ECONOMICS ● ASIA 26 January 2017 2 Best of Asian economics research 3 Who’s afraid of inflation? 4 PMI Heatmaps 8 Indicators 10 GDP & Industrial Production 12 Exports 13 Consumer Spending 14 Headline & Core CPI 15 Major Asia Events 17 Australia 18 China 19 Hong Kong 20 India 21 Indonesia 22 Japan 23 Korea 24 Malaysia 25 New Zealand 26 Philippines 27 Singapore 28 Sri Lanka 29 Taiwan 30 Thailand 31 Vietnam 32 Disclosure appendix 33 Disclaimer 34 Contents  3 ECONOMICS ● ASIA 26 January 2017 Best of Asian economics research Country Title Author Date ASEAN ASEAN Perspectives: US and ASEAN trade: What now? Su Sian Lim, Nalin Chutchotitham, Joseph Incalcaterra and Maitreyi Das 30-Nov ASEAN ASEAN Perspectives: AEC, one year on Joseph Incalcaterra, Nalin Chutchotitham, Su Sian Lim and Maitreyi Das 13-Dec Asia Asia Economics Comment: Trump... Frederic Neumann 29-Nov Asia Asia Chart of the Week: Squeezed by the renminbi Frederic Neumann and Abanti Bhaumik 1-Dec Asia Nottin’ but prices: What the latest PMIs mean for Asia Frederic Neumann and Abanti Bhaumik 2-Dec Asia Asia Chart of the Week: Why Japan’s gotta go fiscal Frederic Neumann and Abanti Bhaumik 9-Dec Asia Not just a China story...: SOE reform in Asia Joseph Incalcaterra 9-Dec Asia Asia Economics Comment: Reflation – for real? Frederic Neumann 12-Dec Asia To realise RCEP China needs to open its market: Latest op-ed published by Nikkei Frederic Neumann