Asia Pacific on the Verge of a New Cycle

Asia Pacific is on the verge of a new cycle, which can be summarised as the "3S-Cycle: Solid, Sustainable, but Slower," according to  Ludovic Subran, chief economist, Euler Hermes.


Subran notes that Asia Pacific will continue to contribute strongly to the world’s GDP growth (50-60%) with 5 clusters of growth: “The OECDs” (Japan, South Korea); Greater China (China and hubs); the “ASEAN-5”; South Asia (India and its neighbors); and Oceania (Australia and New Zealand). 


While Asia will remain the world economic driver and China its main growth engine, Asia will be in low growth mode (+4.5% per year) compared to the past decade (5%), yet this growth will be more sustainable, with resilient intra-regional trade acting as a cushion for the region, according to Euler Hermes.


A smooth landing is expected for China, with GDP growth decelerating in 2014 to +7.5% year-on-year, on the back of a general slowdown in investment, according to Subran. There are concerns over the banking sector, with shadow banking flows expected to reach 34% of GDP in 2014, but the authorities have enough weapons to address the issue, and the main challenge will be reducing overinvestment.


Chinese imports are forecast to rise by more than US$210 billion in 2014, with demand in electronic components to be sustained, and energy to remain the second largest import sector. The impact of this growth in Chinese demand will be widespread, with Asia (in particular Japan, South Korea and Taiwan), the US, the Gulf Countries and Europe all set to benefit. Yet the high dependency on China might impose a drag on GDP growth in the event of a pronounced slow-down, particularly for the TOP5 ASEAN and Oceania.


In ASEAN, the outlooks for Singapore and Malaysia are positive. In Malaysia GDP growth is expected to accelerate to +4.6% in 2014 driven by rebound in export, with fiscal consolidation to continue to restore confidence and business investment to rise, but at a slow pace.


Exports from Malaysia are expected to grow by more than US$24 billion, with a quarter of this additional demand coming from China, and electronics and energy companies set to be the main beneficiaries.


Singapore’s GDP is expected to grow modestly in 2014 (+3.8% year-on-year), supported by modest recovery in global exports, which are expected to rise by more than US$65 billion in 2014, with Indonesia, Malaysia and China being the three key export markets and electronics, energy and chemicals being the key sectors.


Households in Singapore reflect strong fundamentals (low unemployment rates and rising earnings), which will ensure sustainable consumption.

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