Deutsche Bank-Asia Macro Insight Moving target-107857539

DeutscheBankResearch Asia Economics AsiaMacroInsight Date 27April2024 Movingtarget ThereislimitedconvictionovertheratesoutlookforAsiaamidelevateduncertaintyoverUSratesandoilpriceandfxvolatility.Ifthatwasn'tenough,domesticpolitics(andfiscalstimuluspush)addedanotherlayerofcomplexityindecisionmaking. AfterBIsurprisedthemarketwitharatehike,theCBCstoodoutastheleadingcandidatetodothesame. WhilebothBSPandSBVremainreluctant,thelatterhadtotightenliquiditytosupportthedong.Evenifcurrentheadwindsease,wedonotexpecttheSBVtocut,asweseeinflationheadinghigher.Meanwhile,thetimingofmonetaryeasingbyBIandBSPremaintiedtothatoftheFed.Althoughnotassensitive,wealsoseeRBIwaitingatleastuntilOctobertoease. Despiterelativeweaknessindomesticdemand,strongerheadlinegrowthrenderstheopticsofmonetaryeasingdifficulttojustify,withoutharddataconfirmingeitherasignificanteasingofgrowthmomentumordisinflation,especiallywhenarguingagainstasizablefiscalstimulus.Giventhetimingofrelateddatareleases,theBoKmaywaituntilAugusttoease.TheBoTmayalsowaituntilAugust,duetotheSenateelectioninJune,whileSingapore'sgeneralelectionalsoposesriskstoourforecastoftheMAS'seasinginOctober. AlthoughthePBoCwillresumeitsratecutsearlier,thedepthofitsratecutswilllikelyberathershallow,asnottoadverselyaffecttheyuan. PleaseseereportforamoredetailedanalysisonAsianeconomiesthatwecover JulianaLee ChiefEconomist +65-6423-5203 YiXiong,Ph.D.ChiefEconomist +852-22036139 KaushikDasChiefEconomist +91-22-71804909 DeyunOuResearchAssociate Distributedon:26/04/202420:13:14GMT Tableofcontents ChinaandHongKong2 India7 SKoreaandTaiwan:StrongexportsputtheirCBsonedge10 ASEAN:Multiplerisksandlimitedconviction12 AppendixA17 AsiaEconomicandFinancialForecasts18 EMAsiaMacroCharts19 EMAsiaMonetaryPolicyMonitor21 DeutscheBankAG/HongKong IMPORTANTRESEARCHDISCLOSURESANDANALYSTCERTIFICATIONSLOCATEDINAPPENDIX1.MCI(P)041/10/2023.UNTIL19thMARCH2021INCOMPLETEDISCLOSUREINFORMATIONMAYHAVEBEENDISPLAYED,PLEASESEEAPPENDIX1FORFURTHERDETAILS. 7T2se3r0Ot6kwoPa ChinaandHongKong China’srealGDPgrewby5.3%YoYand1.6%QoQinQ12024,beatingmarketexpectations.However,deflationpressuresremainedastheGDPdeflatorstayednegativeforafourthquarter,andMarchactivitydataalsodisappointed.Propertysectoractivitystayedatthebottomwithlittlesignsofarebound. Lookingforward,sequentialgrowthmomentumwilllikelymoderatetoslightlyabove1%inthenextfewquarters.Aslowdowninindustrialoutputgrowthisexpected,whileconsumerspendingwilllikelyimprovesteadilyalongsideareductioninsavings.Weraiseour2024fullyearGDPgrowthforecastbyhalfapercentagepointto5.2%,andseebalancedrisksaroundourupdatedforecast. Facingmultipleconstraints,wethinkthePBOCwillonlybeabletocuttwiceforatotalof20bpsthisyear,withthefirstcutinJuneorafter.EasingofdepreciationpressuresontheRMBisakeypreconditionforPBOCtocut. HongKong'seconomyisstillstrugglingfromacontractioninitsfinancialsector.FacingheadwindsfromtheexpecteddelayintheFedpolicypivot,wehavetrimmedour2024growthforecastby0.5pptto2.5%. YiXiong,ChiefEconomist,China GrowthbeatexpectationinQ1butslowedinMarch China'srealGDPgrewby5.3%YoYinQ12024,beatingourexpectationsof5%andmarketconsensusforecastof4.8%,thankstostrong6%growthintheindustrialsectorandamoderate5%expansionintheservicessector.Sequentialgrowthimprovedto1.6%QoQinQ1,andQ42023growthwasalsorevisedupto1.2%QoQfrom1%previously. However,thebeatinheadlineGDPshouldbeinterpretedwithcaution.Deflationpressuresremained:nominalGDPgrowthwasonly4.2%YoYinQ1,implyingaGDPdeflatorat-1.1%YoY,whichhasstayednegativeforafourthconsecutivequarterandhasdroppedbyanother0.1pptfromthepreviousquarter.Marchactivitydataalsodisappointed:industrialproductionandretailsalesgrowthbothmissedmarketexpectationsbymorethan1percentagepoint.WeestimateoverallactivitygrowthhasdeceleratedinMarch,to4.6%YoYfrom5.4%YoYinthefirst2months. TheindustrialsectorunderperformedinMarch.Industrialoutputgrewby4.5%yoyinMarch,moderatingfrom5.0%yoyytdinJan-Febanddeclinedby-0.1%momonaseasonallyadjustedbasis.Propertysectoractivitystayedatthebottomwithlittlesignsofarebound.Realestateinvestment,propertysalesvalueandhousingconstructionstartsdeclinedto75%,63%and33%respectivelycomparedtotheirlevelsin2019. Encouragingly,consumerspendingrecoveryappearsbackontrack.ThelabormarketimprovedslightlyinQ1,withtheheadlineunemploymentratedroppingby0.1pptto5.2%.Migrantworkerssaw7.7%yoygrowthinwages,markingthehighestimprovementsince2022.Householdspendingroseby8.3%yoyinQ1,continuingtooutperformincomegrowthforthefifthconsecutivequarter.Accordingly,thehouseholdsavingsrateonaseasonallyadjustedbasisdecreasedto31.1%from31.7%in2023,notfarfromthe30%ratein2019. Lookingforward,wethinksequentialgrowthmomentumwilllikelymoderateinthenextfewquarters.QoQgrowthwilllikelyslowfrom1.6%inQ1toslightlyabove1% inthenextfewquarters.Aslowdowninindustrialoutputgrowthisexpected,froma6%to5-5.5%range,owingtolessfavorablebaseeffectsanddownwardpressuresfrompricesanddemand.Meanwhile,servicessectorgrowthwilllikelybesustainedataround5%orslightlyabovethat.Undertheseassumptions,weraiseour2024fullyearGDPg