Push for gradual rate hikes

Deutsche Bank Research Asia Economics Date 10 November 2017 Asia Economics Monthly Push for gradual rate hikes ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. Kaushik Das Chief Economist (+91) 22 7180 4909 kaushik.das@db.com Juliana Lee Chief Economist (+852) 2203 8312 juliana.lee@db.com Michael Spencer, PhD Chief Economist (+852 ) 2203 8303 michael.spencer@db.com Zhiwei Zhang, PhD Chief Economist (+852 ) 2203 8308 zhiwei.zhang@db.com Table of Contents Asia Overview Page 03 China Page 04 Hong Kong Page 06 India Page 08 Indonesia Page 14 Malaysia Page 16 Philippines Page 18 Singapore Page 20 South Korea Page 22 Sri Lanka Page 24 Taiwan Page 26 Thailand Page 28 Vietnam Page 30 Monetary Policy Monitor Page 32 Asia Eco Indicator Table Page 36 With the negative output gap closing, EM Asia central banks are likely to opt for moderate rate hikes ahead – generally less aggressively than the Fed. China: Our 2017 GDP growth forecast is 0.1ppts higher now at 6.8%. President Xi’s long-term view on China focuses more on the quality of growth rather than the speed, which we think is appropriate. We expect the leaders set the growth target for 2018 more flexibly, and growth will slow to 6.3%. Hong Kong: Fiscal and monetary policies are moving in opposite directions. Last month’s Policy Address seemed to promise a more expansionary fiscal policy. The HKMA has, temporarily we think, suspended liquidity draining operations but interest rates are most likely to continue rising through 2019. India: A sequential recovery in growth from July-Sep’17 quarter is likely, with the momentum improving further in 2HFY18, as the base effect turns positive. Indonesia: GDP growth is stable at about its long-run potential rate, despite curiously weak retail sales growth. Inflation is low enough but the IDR depreciation recently and rising crude oil prices pose upside risks that we think will convince BI to refrain from further easing. Malaysia: Recent data suggest upside risks to our 2017 GDP growth forecast but also to our inflation forecast. Core inflation remains low enough that BNM need be in no hurry to raise interest rates, but we expect one hike next year. Philippines: Growth remains above potential, which should push inflation higher next year, causing BSP to start raising rates around mid-year. Inflation risks are to the upside. Singapore: Strong Q3 outcome pushes up our 2017 and 2018 growth forecast to 2.9% and 2.7%, respectively, setting the stage for tightening ahead. South Korea: A very strong finish to Q3 pushes up our 2017 and 2018 GDP growth forecasts by 0.2ppts. With China demand posing further upside risks to Korea’s growth next year, cementing policy rate hikes by the BoK. Sri Lanka: The Sri Lankan economy is slowly stabilizing, but fiscal and external sector improvement needs to be sustained over a long period, to put the economy back in a self-sustaining high growth trajectory. Taiwan: Although we expect some payback in growth is likely in Q4 after the strong surge to 3.1% in Q3, it is likely to remain sufficiently strong to set the stage for rates hikes in 2018 as inflation rises. Thailand: Barring negative inventory shocks, Thailand is likely to report sharply stronger GDP growth of high 4% in Q3 vs. 3.7% in Q2. Vietnam: Vietnam kicked off Q4 on a strong note, suggesting that the government’s 2017 growth target of 6.7% is likely to be met, albeit unfavorable weather conditions pose downside risks in November. Distributed on: 10/11/2017 03:15:42 GMT0bed7b6cf11c 10 November 2017 Asia Economics Monthly: Push for gradual rate hikes Page 2 Deutsche Bank AG/Hong Kong Asian Economics and Financial Forecasts I. Macroeconomic Indicators Real GDP Growth Inflation Current Account Fiscal Balance (YoY%) (YoY%) (% of GDP) (% of GDP) 2015 2016 2017F 2018F 2015 2016 2017F 2018F 2015 2016 2017F 2018F 2015 2016 2017F 2018F China 6.9 6.7 6.8 6.3 1.4 2.0 1.7 2.7 3.0 1.8 1.2 1.1 -3.4 -3.8 -4.0 -4.0 Hong Kong 2.4 2.0 3.8 3.0 3.0 2.4 1.7 4.4 3.3 4.6 4.6 6.0 0.6 4.4 4.6 3.1 India 7.5 7.9 6.5 7.5 4.9 5.0 3.1 4.4 -1.1 -0.5 -1.3 -1.5 -3.9 -3.5 -3.2 -3.0 Indonesia 4.9 5.0 5.0 4.8 6.4 3.5 3.9 3.2 -2.0 -1.8 -1.6 -1.4 -2.6 -2.5 -1.7 -1.4 Malaysia 5.0 4.2 5.5 5.0 2.1 2.1 3.5 2.5 3.1 2.3 2.7 2.5 -3.2 -3.1 -3.2 -3.0 Philippines 6.1 6.9 6.4 5.7 1.4 1.8 3.2 3.4 2.5 -0.3 0.6 1.9 -0.9 -2.4 -2.6 -2.8 Singapore 1.9 2.0 2.9 2.7 -0.5 -0.5 0.6 1.1 18.3 19.4 20.5 20.4 -1.0 1.3 0.8 0.5 South Korea 2.8 2.8 3.1 2.9 0.7 1.0 2.0 1.9 7.7 7.0 5.6 5.3 0.0 1.0 0.7 0.7 Sri Lanka 4.8 4.4 4.0 5.0 2.2 4