GDP Results: East Asia's Mixed Performance

by Alaistair Chan, Matthew Circosta, Katrina Ell and Fred Gibson, Moody’s Analytics, 27 August 2011

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topics:
Risk Management

tags:
China Hong Kong Japan Korea Second quarter GDP growth Taiwan

East Asia has not been significantly affected by the global slowdown so far, but the outlook is for softening.

Japan’s post-quake rebuilding and an expected halt in monetary tightening across the region will help growth.

The global outlook is the chief downside risk to the medium-term outlook.

Second quarter growth across East Asian economies was a mixed bag. Robust domestic activity helped prop up most economies, while supply chain disruptions from the Great East Japan Earthquake had a dampening effect on manufacturing production – with tech-oriented industries bearing the brunt of the fallout.

In addition to the supply chain disruptions, the debt crisis and poor performance of the US and euro zone economies hurt export growth in some economies.

Yet increasing energy needs across Asia – Japan in particular – helped pare back some of the losses sustained by exports. Weakening growth prospects for the US and euro zone in the second half of 2011 will slightly inhibit growth in most East Asian economies.

Chinese growth accelerates

China’s economy remains healthy. It had a good second quarter, with growth accelerating in quarter-on-quarter terms to 2.2%. We expect growth to trend lower from the 9.5% annual pace seen in the second quarter, but the economy is likely to expand at a strong 9% in 2011 overall.

Monthly data show some moderation; industrial production and fixed investment growth decelerated in July.

Producer price inflation is likely to begin cooling soon, and this will give the government scope to hold off on monetary tightening. This, coupled with plans to build 10 million affordable properties by year’s end, will keep economic activity buoyant.

Some moderation in exports could begin to be felt closer to the Christmas season, however, and this is a key downside risk to China’s outlook.

Japan performs better than expected

Often the outlier, Japan’s economy once again surprised, but this time to the upside.

Japan’s economy contracted a less than expected 0.3% in the second quarter. The better performance came mostly because of a sharp rise in public spending in the wake of March’s natural disaster.

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