Asian Economies Facing Troubles In Second Half Of 2013

Generally speaking, business cycles across Asia are shifting down a few gears. Money and credit aggregates are cooling in most cases, while average foreign reserve growth has seen a renewed downturn. Manufacturing purchasing managers’ index (PMI) surveys arguably provide the most regular and widely-used gauge of where Asia’s economy is heading. Of the 11 major economies for which we have data, seven countries saw a weaker manufacturing performance in May 2013 than the previous month, with five registering outright contractions. New orders, meanwhile, are faltering in a majority of countries. There are some notable exceptions, such as Japan. On balance, however, it is clear to us that the Asia-Pacific region’s economic trajectory is rapidly losing steam.

We fully expect the trend of Asian economic weakness to intensify in H2 2013. For starters, our expectations of a relapse in Chinese economic activity will inevitably hit the region’s exporters hard. More than this, however, a number of domestic demand-driven growth stories, which have hitherto proved resilient, will lose their lustre as credit markets start to re-price risk premiums. Unsurprisingly then, BMI‘s full-year real GDP forecasts for 2013, for the most part, sit comfortably at the lower reaches of consensus expectations. In a special feature published in Business Monitor Online today, we look at some of the key themes for the second half of 2013 and the risks that are dominating our thoughts.

  • China’s credit efficiency ratio is worsening, and the country is facing inflationary pressures.
  • India’s fiscal worries are far from over.
  • South East Asia may have reached the peak of its performance.
  • North East Asia’s exposure to China leaves it vulnerable, with South Korea especially at risk, due to its weak corporate balance sheets and overleveraged consumers.
  • Australia faces difficult times, due to plummeting iron ore and coal prices, and weak manufacturing.
  • Japan will be bracing for the inevitable failure of ‘Abenomics’.

Our feature article will also be appearing in the forthcoming edition of our weekly Emerging Markets Monitor (EMM) magazine.