Asia Macro Insight：Policy diversion

DeutscheBankResearch Asia Economics AsiaMacroInsight Date 27March2024 Policydiversion ThePBoChelditspolicyrateunchangedagaininMarchamidanupwardsurpriseinCPIinflationandsustainedpressureontheCNY.WhilewehavemaintainedourforecastoffurtherMLFratecuts,theirtimingwouldbedata-dependent.China’seconomicactivityindicatorsinthefirsttwomonthsoftheyearfaredbetterthanexpected,despiteastill-weakpropertymarketandsofteningcreditgrowth. India’sGDPgrowthsurprisedtotheupside,promptingasignificantupwardrevisiontoourforecasts,whileinflationcameinslightlyhigherthanconsensus.Ifitintendstostartcuttingratesatmid-year,achangefromthecurrentmonetarypolicystanceof"withdrawalofaccommodation"toneutralislikelytocomeaheadofsuchamove. WhiletheKoreangovernmentofferedinvestorsasilverlining,promotingtheCorporateValue-upProgramme,weexpectinflationarypressuretoease,ledbyfreshfoodprices,givingtheBoKroomtocontemplatethetimingofitsratecutsamidsustainedweakdomesticdemand. Despiteitsdovishcomments,suggestingsteadypolicyratesahead,wethinkthatthereisanon-negligibleriskoffurtherratehikesbytheCBC.Ithasyettoconcludeitsassessmentofa"structuralchangeininflation". ASEANeconomiesarefacingeitheracyclicalturnorastructuralchallenge,promptingthemtoreassesstheirpolicystancesand/ortheleveloftheirneutralrates.Thatsaid,formany,theirconcernsoverFXstabilitystandintheway–althougharecoveryinexportscouldprovidebettersupport–while"bumps"ininflationmayaddtotheirconcernsahead,albeitbriefly.AlthoughFDIinflowstoASEANeconomiesfacedheadwindslastyear,theregionhasremainedafavouredinvestmentdestinationformanufacturingMNCs. Inthisreport,wealsoprovideafreshlookatconsumersentimentinChinaandhowitmaybeaffectingconsumption,savingsandinvestmentdecisions. JulianaLee ChiefEconomist +65-6423-5203 YiXiong,Ph.D.ChiefEconomist +852-22036139 KaushikDasChiefEconomist +91-22-71804909 DeyunOuResearchAssociate Tableofcontents DBSurvey2 China4 India7 SouthKoreaandTaiwan11 ASEAN14 Inflation&Growthindicators20 Economic&FinancialForecasts21 MacroCharts22 MonetaryPolicyCharts24 Distributedon:27/03/202412:59:06GMT DeutscheBankAG/HongKong IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.MCI(P)041/10/2023.UNTIL19thMARCH2021INCOMPLETEDISCLOSUREINFORMATIONMAYHAVEBEENDISPLAYED,PLEASESEEAPPENDIX1FORFURTHERDETAILS. 7T2se3r0Ot6kwoPa DBSurvey:Chineseconsumersarebecominglessworried China'sconsumerspendinghasunexpectedlystrengthenedlately;DB'slatestsurveycanhelpunderstandwhathaschanged.Chinawitnessedanuptickintravelandtourismspendingduringthisyear'sLunarNewYearholidays.Bothretailsalesandconsumerpricesimprovedinthefirsttwomonthsof2024.OurdbDIGteamsurveysasampleofChineseconsumersinlargeandmedium-sizedcitiesonabi-annualbasis.Consumerswereaskedarangeofquestionsfocusingontheirincome,spendingpreferences,prices,andforwardexpectations.Theresultscanhelpusbetterunderstandthedirectionofchangeinconsumersentimentandmaindrivers. Chineseconsumers'incomeexpectationshavedeterioratedunderastill-challengingeconomicenvironment,accordingtooursurveyresults...Accordingtooursurvey,theproportionofconsumersconsideringthemselvesfinanciallybetteroffinitiallyincreasedin2023afterreopening,buthassincedropped,from58%inQ22023to36%inQ12024.Similarly,thepercentageofconsumersanticipatinganincreaseinincomehasalsodropped,from66%inQ22023to39%inQ12024.Thisdeclinecanbeattributedtothedecreaseinpropertyandstockprices.Notably,thedeteriorationinbothcurrentsituationsandexpectationswasmoresignificantamongtheyoungerpopulationandindividualsresidingintier-1cities,astheyaremoreexposedtothepropertyandstockmarkets. ...buttheyhavebecomelessanxiousabouteconomicuncertainty,andinturnhavereducedtheirtendencytosave.Averagescoringoffutureuncertaintyhasfallento4.1inQ2-24from5.2inQ3-22(onascaleof1to10,with10indicatingthehighestuncertainty).Concernsregardinginflationvolatility,propertymarketvolatility,anddebtrepaymenthavealldecreased.Consequently,thepercentageofconsumersintendingtoincreasesavingsinthefuturehasalsodecreased.from47%inQ22023to42%inQ12024.However,whenexaminingasub-sampleofconsumersbelowtheageof35,thereisanincreasingworryaboutuncertainty,possiblyduetothesofteninglabormarketconditionsforyouthemployment. Thepropertysector'snegativeimpactonconsumerspendingappearstohavefadedsomewhat.Whenaskedaboutchangesintheirspendingpatternsinresponsetopropertymarketvolatility,theproportionofconsumersansweringthattheywillreduceexpendituredroppedvisiblyinQ12024comparedtoQ32023.Wethinkthisislikelyinpartowingtolowermortgagerates,inparticulartheone-offadjustmentonexistingloansinSeptember2023,whichreducedinterestpaymentsby~15%formostborrowers.Inaddition,theyoungergeneration(age34andbelow)hasansweredthisquestionmuchmorefavorablycomparedtotheoldergeneration.Theyoungergenerationlikelybenefitedfromthemortgageratecut,or,iftheyhavenotboughtahomeyet,fromthedropinhomepriceswhichreducedtheneedforthemtosaveforfuturehomepurchases. Regardinginflation,Chineseconsumersgenerallyobservedalowerincreaseinpricescomparedtoayearago.Only28%ofconsumersreportedanincreaseinpricescomparedt