At the 26th CLSA Investors’ Forum, we argued that US data increasingly suggested an economy in the last year of its economic upswing. Our latest Eye on Asian Economies moves this forecast to our central case and investigates what a shallow US recession will mean for AxJ economies.
Below consensus forecasts
In consequence we have cut our Asian growth forecasts by 0.5ppts in both 2019 and 2020. This means that we are 0.2ppts below consensus for this year and 0.6ppts below consensus for 2020. In most countries this is the automatic consequence of world trade, already weaker than at any point since 2009, slowing further. But we have downgraded our forecasts for India because the credit cycle shows no sign of picking up, and China because monthly data are soft and economic stimulus, though visible, is gradual.
Inflation is falling in most countries (though the pace of decline is easing). Inflationary pressures, such as they are, have been isolated and caused by supply disruptions. Thus, African swine fever in China has elevated food prices and the attack on Saudi Arabia has boosted oil prices. These are growth-negative. Policymakers will ignore them as a source of inflation. And they are temporary. We expect 2020 inflation to be lower than 2019 across the board aside from tax effects (Japan and Malaysia) and erratics (Thailand).
In consequence monetary easing, which started in force in 3Q19, will continue. Monetary policy has been loosened in the USA and Eurozone and in eight of the eleven AxJ countries we forecast. Rate cuts will continue, in the G3 and in Asia, in 4Q19 and 2020. Monetary policy will not boost investment. But aggressive US easing will keep financial conditions loose and help an early recovery in 2021.