At the start of Asia-Pacific Economic Cooperation (APEC) summit, attention was focused toward the region and its ability to pull the world out of recession. It was a view that was supported by the International Monetary Fund (IMF), which projected Asia will grow at a rate of 2.75% this year and as much as 5.75% in 2010, even as the U.S. and Western Europe struggle with anemic or flat growth. At the conclusion of the gathering, the APEC leaders also promised to make it easier and faster to do business in the region by 2015.
Although Australia became the only nation in the region to raise interest rates for the second consecutive month, almost all other central banks kept their benchmark interest rates unchanged, even as the IMF warned that Asian economies may need to continue such monetary policy support until the recovery is strong and sustainable.
For the month ending November 15, MSCI Asia-Pacific Index marginally rose 1.66%.
Japan: Second straight quarter of expansion
The world’s second-largest economy appeared to be battling its way out of a prolonged recession when third quarter gross domestic product (GDP) results showed that the economy expanded 1.2% from the second quarter or at an annual rate of 4.8%. Domestic demand contributed almost half to the spurt in GDP, a clear result of the stimulus program that former Prime Minister Taro Aso pushed into place.
The various stimulus packages that are already underway in different countries have boosted demand for Japan’s exports, which also rose 6.4% for the same period from the previous three months. Imports climbed as well, increasing 3.4%, primarily led by oil and natural gas, reflecting the slow improvement in the country’s economy.Adding to the green shoots of recovery in the land of the rising sun, machinery orders, a key indicator of the health of the economy, rose 10.5% in September over a month earlier. Year-on-year, orders were still weak, dropping 22%. While industrial production also rose 1.4% in September compared to the previous month, there are still signs of weakness when compared to year ago figures, which showed an 18.9% drop. Despite the jump in GDP and other positive indicators, Japanese Prime Minister Yukio Hatoyama commented that the economic situation remains ‘worrisome’ and has indicated that an amended budget may be needed to sustain the recovery. The economy also continues to be in the grip of deflation and the Bank of Japan has promised to maintain its accommodative monetary stance for as long as necessary.
For the month ending November 15, the MSCI Japan Index tumbled 1.95%, continuing its downward trend from the previous month’s 1.15% slide.
China: Industrial production and retail sales record growth
While developed economies struggle to emerge from a debilitating recession, China’s economy continues to leap and surge ahead. Data released from the National Bureau of Statistics shows that industrial production expanded by 16.1% in October over a year earlier, prompting the Bureau to express confidence that the Chinese economy would meet its 8% growth target this year. The 8% growth rate is considered the rate at which China needs to grow in order to keep unemployment levels down as its population grows.
Although much of China’s growth has been dependent on its export sector, there have been encouraging signs that domestic consumers may soon begin to contribute their share to the economy. Retail sales climbed 16.2% year-on-year in October to $171 billion. The country’s rural sector continued to boost retail sales, along with expected growth in China’s burgeoning property and automotive sectors. Meanwhile, the Consumer Price Index or CPI was down 0.5% for October over a year earlier. Foreign direct investment or FDI was up 5.7% year-on-year to $7.1 billion, slightly slower than the 18.9% rise recorded in September. Investors are clearly hoping that China’s economy, which expanded 8.9% in the third quarter of this year, will continue on its upward trajectory.
The FDI inflows were also boosted by speculation about China’s currency appreciation and a projected boom in the real estate market as the economy recovers and strengthens. The yuan has been pegged at 6.83 against the dollar, despite the U.S. urging to allow the yuan to appreciate. The dispute cast a pall on U.S. President Barack Obama’s first Asian visit since he took over as president earlier this year. China has thus far desisted calls for the currency to appreciate even as the dollar weakens, stating that such policies were not conducive or fair in the ongoing global economic recovery. The Chinese government also feels that a weaker dollar would make the U.S. more competitive. Chinese exports have still struggled to regain their pre-recession luster, with October shipments dropping 13.8% in October over a year earlier, the 12th consecutive month of decline.
The MSCI China Index surged 4.92% for the month ending November 15, an improvement over the 7.52% rise the previous month.
India: Inflation rises while export decline slows
Accelerating inflation continues to remain a cause of concern for the Indian economy as inflation as measured by the Wholesale Price Index (WPI) shot up 1.35% in October over a year earlier, almost doubling from September’s 0.5% gain. Despite facing a looming budget deficit that is estimated to reach as high as 6.8% of the GDP, the Indian government has indicated that it would not remove stimulus measures in place until the economic recovery stands firm. Still, India’s benchmark index, the Sensex, has reacted with jitters, fearing the government might consider revising some of its measures. In response, Indian Finance Minister Pranab Mukherjee was prompted to assure Corporate India that these economy-rejuvenating measures, which included cuts in factory duties, would remain in place for the time being. The Minister is expecting the Indian economy to grow 6% to 7% in the fiscal year ending March 2010. No doubt, he has been encouraged by recent October export figures, which showed that the steep drop in overseas shipments precipitated by the global recession may be slowing. Exports for the month of October were down 11.4% year-on-year to $12.5 billion, the smallest decline in the past 10 months. In comparison, September exports had slid 13.8%.
Advocates of the green shoots of recovery would also be heartened by the Index of Industrial Production (IIP), which rose 9.1% from a year earlier in October, slower though than an 11% expansion in September.
The MSCI India Index climbed 8.17% for the month ending November 15, continuing on its good run when it recorded a rise of 5.66% for the month ending September 15.
South Korea: GDP rises by 2.9% in third quarter
Cushioned by a 2.9% rise in GDP in the third quarter compared to the previous one, South Korea’s consumer confidence as measured by the Sentiment Index rose to its highest level in almost seven years in October. The government expressed surprise over the third quarter results, commenting that it is now hoping for full-year growth this year.
As expected, the Bank of Korea kept its benchmark interest rate again unchanged at a historic low of 2% in November. The central bank is expected to keep interest rates steady at least until next year in a bid to support the nascent revival in the Korean economy. The Bank observed that although exports, domestic demand and production have all increased recently, there still remained a degree of uncertainty about the sustainability of economic growth, and stressed that the bank’s accommodative policy stance would continue for some more time.
Consumer prices have remained stable over the past few months, allowing the bank more flexibility. Prices rose 2% in October over a year earlier, led by an increase in prices in the service and agricultural sectors. This was a slight drop from a 2.2% spike in September, which was due mainly to declining oil prices.
The MSCI South Korea Index marginally rose 1.83% for the month ending November 15, after a similar marginal rise of 0.7% for the previous month.
Australia and New Zealand: RBA raises GDP forecast; New Zealand housing prices rise
The Reserve Bank of Australia tripled the country’s growth forecast for 2009, stating that the economy is growing much faster than expected. The central bank raised its target for this year from 0.5% to 1.75%, and from 2.25% to 3.25% for next year. "Although consumption growth has moderated relative to the first half of 2009, following the end of the fiscal payments to households, spending appears to have been relatively resilient,” the bank wrote. The RBA commented that it expects Australia’s growth to be determined particularly by demand for its main resources of coal and iron ore from India and China, Asia’s powerhouse economies. Expressing confidence in a reviving Australian economy, the RBA remains one of the most aggressive central banks in raising interest rates. At its monthly policy meeting in November, the RBA decided to hike the cash rate by 25 basis points to 3.5%, stating that the global economy had resumed its growth.
Retail sales, meanwhile, unexpectedly fell by a seasonally adjusted 0.2% in September against a revised 0.7% rise the previous month. Australian inflation as measured by the CPI climbed 1.3% in September over a year earlier.
In its November Financial Stability Report, the New Zealand central bank followed its Australian counterpart by expressing confidence that the New Zealand economy and indeed the global economic outlook had improved over the past six months. “Financial market strains have eased, equity markets have mounted a recovery and confidence has improved. Economic forecasts are now tending to be revised upwards rather than downwards. However, global recovery has been fuelled by stimulatory fiscal and monetary policy settings which cannot be kept in place forever. Also, the global banking system remains vulnerable to further shocks,” the Bank observed.
The central bank also cautioned that an appreciating New Zealand dollar might hinder the country’s external balance. Underlying a gradual recovery in consumer confidence, retail sales rose for the second quarter in a row with a marginal increase of 0.1% in the third quarter. Housing prices also increased in October amidst expectations that mounting consumer confidence, which hit a 22-month high in October, would lead to an upsurge in the real estate market.
The MSCI Australia Index registered a rise of 4.92% for the month ending November 15, improving on last month’s 6.69% rise. The MSCI New Zealand Index, on the other hand, declined 0.39% for the same period after having climbed 1.94% for the month ending October 15.
Indonesia and Philippines: Bank Indonesia keeps interest rate steady; Philippines export slump eases
Bank Indonesia, the country’s central bank, kept its benchmark interest rate steady at a low of 6.5% for the third consecutive month in November. The bank has indicated that it may maintain interest rates unchanged for the rest of the year, but it may consider a rise in 2010 keeping in mind increasing inflationary pressures. Annual inflation slid to a low of 2.5% in October, allowing the central bank more room to accommodate its flexible monetary policy. Bank Indonesia forecasts the domestic economy will expand 4.3% this year and 5.5% next year.
Indeed, third quarter GDP figures were encouraging, with Southeast Asia’s largest economy accelerating at a pace of 4.2% annually. Quarter-on-quarter, the GDP increased 3.9% in the third quarter, with almost all economic sectors contributing to the rise. Indonesia has continued to recover well from the global recession. Barring the threat of inflation, the country remains poised for growth considering its healthy external payments situation, and a stable political outlook. Consumer confidence remains high with many Indonesians upbeat that President Yudhoyono, who began a second term in office, will be able to launch reforms, and fast-track infrastructure and development programs.
Meanwhile, in the Philippines, exports tumbled 18.3% year-on-year to $3.63 billion in September, precipitated by a slump in demand for electronics. The National Statistics Office, however, said that the export slump appears to be abating as overseas shipments actually gained 4.6% when compared to the previous month of August. Overseas remittances, one of the major contributors to the Philippines GDP, grew 8.6% in September over a year ago. The central bank commented that it expected overseas remittances to grow around 4% this year, which will help offset the impact of the devastating typhoons that swept through Manila and other parts of the country in the past one month or so. The bank has been doing its best to stimulate growth by keeping the benchmark interest rate unchanged at 4%, noting that current levels are appropriate to maintain growth. The World Bank recently upped its growth forecast for the Philippines economy, stating in a report that it would grow at around 1.4% this year. The World Bank criticized what it termed the ‘weak influences’ that may hinder economic growth in the Philippines in the years to come, citing dismal infrastructure in the energy and transport sector as well as a weak investment climate.
The MSCI Indonesia Index ascended 4.65% for the month ending November 15, dipping slightly from the previous month’s 5.85% rise. For the month ending November 15, the MSCI Philippines Index climbed 6.29%, a slight decline from the previous month’s performance when it had risen 7.11%.
Thailand: Central bank raises growth forecast
Following other banks in the region, the Thai central bank also raised its growth forecast for Thailand. GDP is now expected to shrink 2.5% to 3.5% this year, less than its previously forecasted 4.5% contraction. Although exports fell the least in September, the central bank said that it expects exports to drop around 13% this year before registering growth of around 10% to 15% next year. Inflation is anticipated to be in the range of around 0.5% to 1.5%. However, for the first time this year, inflation inched up 0.4% year-on-year in October, led by a rise in price in the food and beverage sector. In the first ten months of 2009, consumer prices dropped 1.5%, mainly from a fall in oil prices.
Facing constant pressure from opponents to his rule in Thailand, Prime Minister Abhisit Vejjajiva indicated that he may call for an early election once the economy stabilizes. His term ends in late 2011 but calling for early balloting may help end the churn of political instability that Bangkok has been facing of late.
For the month ending November 15, the MSCI Thailand Index rose 1.91% after an encouraging rise of 3.02% for the previous month ending October 15.
Hong Kong: GDP slows as exports remain weak
Economic growth in Hong Kong remained subdued in the third quarter, with GDP rising by just 0.4%, a drop from a 3.5% expansion the previous quarter. Despite robust domestic consumption, ongoing weakness in the export sector pulled growth down.
Although the figures dampened sentiment after the encouraging growth posted in the second quarter, the government believes that despite prevailing uncertainty in the global economic outlook, Hong Kong’s economy will contract by 3.3% this year, better than a previous forecast of 3.5% to 4.5%. Exports in the third quarter fell 13.2% from a year earlier, a larger drop than the second quarter's 12.4% decline.
Hong Kong’s jobless rate dipped to 5.2% in the August-October period, as business conditions rebounded and companies resumed hiring. Also, for the first time in almost seven months, retail sales surged 2.4% in September compared to the same period last year. Domestic tourism, one of the main drivers of retail sales, has shown consistent improvement and with the Christmas/New Year peak season looming ahead, Hong Kong retailers will perhaps have more reason to smile.
The MSCI Hong Kong Index marginally increased by 0.19% for the month ending November 15 after having registered an increase of 2.39% for the previous month.
Malaysia and Singapore: Central bank holds key interest rate in Malaysia; exports decline in Singapore
The Malaysian central bank kept interest rates steady at 2%, hoping to better stimulate growth in an economy that shrank in the first two quarters of this year. It is estimated that the economy will contract by around 3% this year.
In its most recent budget, the government moved to slash spending, aiming instead to reduce a ballooning fiscal deficit. Prime Minister Najib Razak said that although the Malaysian economy is expected to revive, the growth will be modest at around 2%. He indicated that a recent fuel subsidy, although popular with the population, is a massive drain on the state’s coffers, and may be withdrawn next year. Razak has repeatedly stressed that the downturn offers Malaysia an opportunity to adopt a new model that is based more on innovation, creativity and value-added activities. Among other ambitions, his goal is to increase domestic demand, making Malaysia more self-reliant. One way of increasing domestic demand is to provide consumers with increased spending power – and Najib offered exactly that by cutting income taxes for the second straight year.
Signs of a gradual recovery are permeating through the Asia-Pacific but in Singapore, exports unexpectedly declined in October. The country’s non-oil domestic exports plunged 6.1% for the month over a year earlier, after having fallen 7.3% the previous month as well. Singapore’s central bank has supported an economic revival in the tiny state by maintaining a zero appreciation stance in its monetary policy. The $182 billion economy is expected to have registered a modest growth of 0.8% in the third quarter compared to a year earlier, according to advance estimates. Retail sales also slumped 11.8% year-on-year in September, as automotive sales weakened. Still, there were a few positive notes, including tourism arrivals which climbed 7.1% in September and job losses which have eased.
For the month ending November 15, the MSCI Malaysia Index grew, 3.02% building on the 6.74%rise posted for the month ending October 15. The MSCI Singapore Index also climbed 4.47%, an improvement from the previous month’s 2.53% rise.
Pakistan: Terrorism strikes again
Pakistan continued to struggle with insurgency as terrorism wreaked almost daily havoc in the country. Although the Pakistan Army is engaged in a pitched battle with the Taliban, a wave of suicide bomb attacks have cast a pall of gloom on the struggling country. The attacks are having an impact, with jittery investors pulling money out of Pakistan. Foreign direct investment slumped by 60% in the three months to September.
However, South Asia’s second-largest economy breathed a sigh of relief when the latest data indicated that inflation, once the bane of the economy, slowed to a 22-month low in October. Consumer prices rose 8.87% from a year earlier in October, a decline from the 10.2% gain in the previous month. The central bank, which surprised the IMF by reducing the benchmark interest rate twice, has further room to cut rates as inflation for the first time in over a year has been lowered to single digits. The bank has said that it expects Pakistan’s economy to grow at around 3.3% in the fiscal year ending June 30, 2010. This is in sharp contrast to the forecast by the Asian Development Bank (ADB). The ADB slashed growth projections for Pakistan to 3% for the same period, noting that the economy continues to be jeopardized by the country’s uncertain security conditions.
The MSCI Pakistan Index declined 1.46% for the month ending November 15, declining after a 5.18% rise recorded in the previous month.
Taiwan: Inflation falls again
Taiwan’s CPI dropped for the ninth straight month in October despite higher oil prices. The Index fell 1.84% year-on-year in October compared to a 0.88% fall in September. The drop was attributed to a slump in vegetable prices, which collapsed 29.64% in the same period.
The country’s exports, meanwhile, fell the least in 13 months in October as demand increased for Taiwan’s main products like computer accessories and mobile phones. Overseas shipments slumped 4.7% in October over a year earlier, better than the 12.7% year-on-year drop recorded in September. This marked the smallest decline in exports since September last year and augurs well for the economy’s future. Current demand is being sustained from China as well as from the U.S., and Europe, as consumers begin to shop in earnest ahead of the Christmas season.
The MSCI Taiwan Index rose by 5.53% for the month ending November 15, after rising 1.83% for the month ending October 15.
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