Asia set for a rebound in 2020
- Easing export headwinds, policy support, Southeast Asia outperformance and consumption the main positives
- Excessive stimulus, volatile US policy and financial risks, particularly from quantitative easing, the most prominent threats
- Autos, aviation and electronics look well placed for a recovery
- Taiwan and Vietnam expected to outperform other regional economies
Published: 15 January 2020
The Asian economy is set for a rebound in 2020 as some of 2019's export headwinds ease, policymakers pro-growth policies reinvigorate domestic economies, Southeast Asia continues to emerge as a global powerhouse, and consumption remains a bright spot, according to Deloitte's latest Voice of Asia report.
However, the report argues, three main downside risks must be contained for this predicted rebound to emerge. That is, economies should avoid excessive stimulus that could cause a boom-bust cycle, US policy needs to remain stable, and financial risks, particularly from quantitative easing, need to continue to be reined in.
In Southeast Asia, pro-growth policies have been encouraged by rate cuts in the US and Europe, and economies including Indonesia, the Philippines, Malaysia and Singapore are expected to increase spending on public projects as a proportion of GDP.
"There are also positive signs on the trade integration front," says Deloitte Asia Pacific Clients & Industries Leader Vivian Jiang. "The Comprehensive and Progressive Trans-Pacific Partnership gives its 11 members, including four ASEAN economies, enhanced market access, and the Regional Comprehensive Economic Partnership will reduce export-import paperwork and has introduced a limited degree of service sector liberalization."
Addressing specific sectors, the report suggests the automotive and aviation sectors will be bright spots after a period in the doldrums, with electronics another highlight.
"The decline in the automotive sector since 2018 was caused by factors including new emission standards in several markets, and other restrictions on production. This decline is likely to reverse this year, with a further boost from continued luxury sales volume growth" says Vivian. "Problems in the aviation sector are likely to ease as well, and there are signs of a resurgence in semiconductor billings, which should boost the electronics sector to help drive regional exports."
On consumption, the report suggests, Asia can look forward to increased demand driven by labor market stability, increasing remittances, and easing monetary conditions.
"China's consumer story remains intact even as household leverage continues to increase," says Deloitte China Chief Economist Sitao Xu. "High debt is bound to limit people's ability to consume, and banks' non-performing loans could rise if home prices decline, but there tends to be more willingness among Chinese parents to help out their families if debt does become an issue."
The Voice of Asia report is also positive on prospects for the infrastructure sector, which is increasingly emphasised by governments across the region. In Indonesia, the Philippines, Malaysia and Singapore, public works spending is rising as a proportion of GDP.
Australia's economic slowdown has been caused by home-grown factors including worsening drought conditions and house price declines. Although tax and interest rates have been cut, there may not be a meaningful pickup in the Australian economy until 2021.
The Chinese Mainland is regaining its balance despite a long-term, secular growth downtrend, and Hong Kong, despite well-publicized difficulties over the past several months, remains a world leading financial center, with its currency peg to the US dollar holding firm, and could benefit from government stimulus.
India's economy has been suffering from the effects of the Non-Bank Financial Companies (NBFC) crisis after problems in its formal banking sector. Corporations are still highly leveraged. It should bottom out in 2019 but remain subdued despite government stimulus and amid considerable downside risks.
Indonesia looks set to maintain steady growth of about 5 percent in 2020, with a young workforce, increasing urbanisation and monetary policy support for demand. The economy is becoming more stable but has yet to fully take advantage of the diversion of production out of China.
Exports have contracted and business confidence is subdued, and natural disasters have further depressed economic activity, but GDP growth has been quite resilient. Economic growth is expected to sustain at about 0.5 percent over the next two years.
Strong domestic demand led by household spending underpin Malaysia's economic resilience, and its exports have outperformed. Its competitive currency, growth in manufacturing activity and a resumption in infrastructure projects are expected to support continued economic growth.
The economy slowed in early 2019, largely due to global headwinds. It is expected to return to trend levels of about 2.5 percent growth in the next couple of years, supported by factors including a tight job market, still-strong population growth and decent export prices and volumes.
The Philippine economy bottomed out in mid-2019, and is set to be boosted by a revival in the electronics sector, strengthening exports thanks to an expected pick up in the Chinese economy, continued strength in remittances and policy support that should drive consumption.
Singapore is also expected to enter a recovery in 2020, supported by improving global growth and stronger electronics and precision engineering demand. There are also green shoots in finance, insurance, essential services and the "new economy". The outlook for investment growth is also positive.
We are upbeat about prospects for the South Korean economy in 2020, with an expect increase in demand for its manufactured goods. Government measures including a record budget of KRW513.5 trillion (USD4.36 billion) for the year should protect against downside risks.
Taiwan's economy was resilient in 2019 despite being caught in the crossfire of the US-China trade war and the step-down in the global electronics cycle. We expect the economy to be outperform in 2020 on rising private investment, government policy to attract high-end manufacturing and other factors.
After a slow start, Thailand's economy is expected to pick up in 2H20, with export growth likely to have bottomed out, increasing tourist arrivals, rising farm incomes, positive fiscal policy and a recovery in private investment.
Vietnam is expected to remain one of Southeast Asia's outperformers in 2020. It is one of the main beneficiaries of the relocation of production from China, which is prompting a surge in foreign investment. Its main challenges are manpower constraints, supply chain frictions and an infrastructure gap.
For more analysis and details on the Voice of Asia, please visit Deloitte Insights.