Stronger growth in the US is not going to lift Asia growth as much this time around as the region is now more dependent on China, whose demand for imports is to remain subdued, according to research from Natixis.
Natixis sees growth improving in Indonesia but quite a few countries will see a modest slowdown, namely Thailand, Singapore, South Korea and Taiwan.
Even India, an emerging market favorite during the last couple of years is taking a step back as the impact of demonization bites into consumption, although still maintaining a relatively stable growth.
This is also the case of China. Although sanguine, the region’s growth rates are still amongst the highest in the world and will contribute more to global growth than elsewhere in 2017.
Inflation is expected to pick up in Asia, with India having the highest rate and the Philippines having the strongest hike.
As opposed to 2016, a tightening FED will leave hardly any space for Asian central banks to ease monetary conditions to support growth, let alone higher inflationary pressures.
Asian currencies will absorb most of the shock although tighter monetary policies will cushion the depreciation trend. Fiscal policy, too, will generally be prudent, China and Japan being the most notable exceptions.
“We believe that an expected pick-up of inflation, higher US interest rates, and a worsened current account will leave very little space for central banks in the region to lower interest rates in 2017,” says Natixis.
All in all, Natixis expects Asia’s GDP growth to be flat in 2017 as there is no wiggle room to support growth given higher inflation, a more hawkish Fed, and limited fiscal space.
However, even with no acceleration in economic growth, the Asian region will still contribute by far the most to global economy, according to Natixis.