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Nomura | Asia Economic Monthly 7 March 2013
Nomura International (HK) Limited
See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures
Asia Economic Monthly
Economics Research | Asia Ex-Japan
Forecasting is getting trickier 7 MARCH 2013
Export leading indicators are sending mixed signals, the longer-run structural challenges are deepening and Asia's economies are becoming more differentiated.
Asia letter 2
Forecasting is getting trickier 2
Asia views 4
Gauging Japan's competition with the rest of Asia 4
Southeast Asia: Different strokes 9
China: Thoughts on the first day of the NPC 16
China: Both official PMI and HSBC PMI drop in February 18
India budget: Quality and credibility of fiscal consolidation disappoint 19
China: Sector-level data cast doubt on strength of recovery 24
South Korea: Thoughts on future economic policy 26
Chart alerts 29
South Korea: Fiscal front-loading should boost Q1 GDP 29
China: The largest hike in the rail freight tariff since 2003 29
Malaysia: The government still meets its 2012 fiscal target 30
South Korea: A healthy household restructuring 30
China: Property prices rose faster in January 31
India: Nominal salary growth to moderate in 2013 31
Korean data hint at a downside surprise in China's exports 32
South Korea: The inverted yield curve looks unsustainable 32
Calendar 33
The month ahead 33
Outlook 2013-2014 34
China: Mixed signals cast doubt on the strength of the recovery 34
Hong Kong: Fiscal stimulus 35
India: Politics trumps economics 36
Indonesia: Still a case to tighten 37
Malaysia: All eyes on the elections 38
Philippines: In a virtuous cycle 39
Singapore: A weak start to 2013 40
South Korea: Growth momentum set to carry into Q1 41
Taiwan: External demand is key 42
Thailand: A positive start to 2013 43
Asia in charts 44
Forecast table 51
Recent articles 52
Global Economics
Economists
Rob Subbaraman +852 2536 7435
Zhiwei Zhang +852 2536 7433
Young Sun Kwon +852 2536 7430
Sonal Varma +91 22 4037 4087
Euben Paracuelles +65 6433 6956
This report can be accessed electronically via: www.nomura.com/research or on Bloomberg (NOMR)
Nomura | Asia Economic Monthly 7 March 2013
2
Rob Subbaraman +852 2536 7435 [email protected]
Asia letter
Forecasting is getting trickier
Export leading indicators are sending mixed signals, the longer-run structural
challenges are deepening and Asia's economies are becoming more differentiated.
We titled our first monthly of the year, Here comes the sun, as the data flow had turned positive,
but two months on and Asia‟s export outlook is looking murkier again. Two important leading
indicators are moving in opposite directions. In February, new export orders in China‟s official
PMI slumped to 47.3, while imports in the US manufacturing ISM surged to 54.0 (Figure 1).
Asia‟s manufacturing PMIs in February hugged close to the 50 dividing line between expansion
and contraction. From January to February, manufacturing PMIs fell in China (50.4 to 50.1),
Hong Kong (52.5 to 51.5), Singapore (50.2 to 49.4) and Taiwan (51.5 to 50.2), and rose in India
(53.2 to 54.2) and Korea (49.9 to 50.9). One support for Asian exports which looks to be in a
strong upcycle is global demand for electronics: the US semiconductor equipment book-to-bill
ratio jumped to 1.14 in January, a 29-month high (Figure 2).
Our house view on the global economy also points to cross-currents for Asian exports. In the
US, we expect fiscal deals to be struck, paving the way for GDP growth to recover to about 3%
saar in H2. In Japan, we expect “Abenomics” reflationary policies to lift growth to over 3% as
early as Q2. By contrast, we expect the euro area to remain mired in recession this year, while
in China – an increasingly important export market for the region – we expect the debt build-up
and rising inflation to force tightening policies, causing GDP growth to slow from over 8% y-o-y
to 7.2% in Q4. It is true that China‟s economy only recently started to recover, but it is not based
on solid foundations, in our view – potential growth is slowing and cracks are starting to appear
(see “China: Sector-level data cast doubt on strength of recovery” in this issue).
Meanwhile, domestic demand remains strong across most of Asia (Korea being an exception).
There are tentative signs that monetary policy generally is moving toward a tightening bias, but
more through macroprudential measures than higher interest rates. China recently introduced a
capital gains tax, while Hong Kong and Singapore have imposed higher stamp duties to curb
property market speculation. No Asian central bank has yet to raise interest rates, which can be
justified by low or falling inflation (Indonesia is perhaps an exception). But given monetary policy
is meant to be pre-emptive, we believe other considerations are being taken into account, such
as erring on the side of laxity as insurance against the downside risks to exports and concerns
that rate hikes could provoke even stronger capital inflows.
Cyclical/structural interplay
With real interest rates staying low, and potentially falling further if inflation rises, domestic
demand should remain strong. On top of this, some countries like India, Indonesia, Thailand
and the Philippines are at the stage of economic development in which they are starting to face
what China has already: a burgeoning middle class, leading to a take-off in demand for durable
Fig. 1: Two important leading indicators of Asian exports
25
30
35
40
45
50
55
60
65
Feb-05 Feb-07 Feb-09 Feb-11 Feb-13
Index US import orders PMI
China new export orders PMI
Source: CEIC and Nomura Global Economics.
Fig. 2: US semiconductor equipment book-to-bill ratio
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13
Ratio
Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
3
goods and services. However, persistently low real interest rates and strong domestic demand
are creating new structural challenges, which if unresolved could at some point lead to growth
setbacks. A symptom of these challenges is the sharp narrowing in Asia‟s current account
surpluses since the financial crisis (Figures 3 and 4). India‟s current account swung to a deficit
of 5.3% of GDP in Q3 2012, and we expect it to increase to over 6% in Q4, while Indonesia‟s
deficit increased to 3.6% in Q4. This year, we expect the current accounts of Hong Kong and
Thailand to also turn into deficits, and China to run a thin surplus equal to 1% of GDP. We
believe that weak foreign demand is only part of the reason for the narrowing surpluses:
Perhaps in part because of reform fatigue, new investments have not been strong
enough in some countries to match burgeoning demand, creating supply-side
bottlenecks and leading to a surge in imports (India and Indonesia).
Slow progress in removing government subsidies on oil and food amid burgeoning
demand have led to overconsumption (and smuggling) and excessive imports (China,
India, Indonesia and Malaysia).
Because of low interest rates, debt has built up in several countries, including China,
Hong Kong, Korea (household), Malaysia, Singapore, Taiwan and Thailand. From the
saving-investment identity this has contributed to narrowing current account surpluses.
Of course, current account deficits are not necessarily “bad” if driven by domestic investment
and not by debt, but as we note above, this is questionable in Asia. In any case, they leave
Asian currencies vulnerable to depreciation if, for whatever reason, there is a sudden stop in
capital inflows. Rising debt levels could also jeopardize GDP growth once interest rates rise.
Growing differentiation
Another forecasting challenge is the growing differentiation in the region. Consider our focus:
China: We expect the government to crackdown on flourishing shadow-banking activities and
hike the 1yr bank lending rate by 50bp in H2 in response to rising inflation.
Hong Kong: Because of the HKD/USD peg, it is importing QE from the US and it is unclear
whether tighter macroprudential measures can avoid a boom-bust property market cycle.
Korea: An exception, where domestic demand should remain moribund due to a household
debt overhang, chaebol outsourcing production and global overcapacity in key industrial sectors.
India: Following an unrealistic budget, reform fatigue is likely in H2 before the 2014 elections,
keeping the current account deficit dangerously large and causing inflation to rise again.
Indonesia: Also has elections in 2014 and seems to be moving in the direction of India. It is not
clear to us that policymakers will be able to contain inflation and the current account deficit.
Philippines: A virtuous spiral is in motion; improving governance and reforms are lifting
business sentiment, reinforcing the government‟s popularity and helping it push more reforms.
Thailand: The economy is rapidly gaining momentum on loose monetary and fiscal policies, but
we worry about the central bank losing some of its monetary policy independence.
Malaysia: The general election, which is likely to be held in April, could make or break our
relatively positive economic outlook.
Fig. 3: Current account positions
-6
-3
0
3
6
9
12
15
18
1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
% of GDP China
India
Indonesia
Thailand
Philippines
Source: CEIC and Nomura Global Economics.
Fig. 4: Current account positions
-5
0
5
10
15
20
25
30
35
1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
% of GDP Hong Kong Korea
Malaysia Taiwan
Singapore
Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
4
Rob Subbaraman +852 2536 7435 [email protected]
Candy Cheung +852 2536 7436 [email protected]
Craig Chan +65 6433 6106 [email protected]
Wee Choon Teo +65 6433 6107 [email protected]
Asia views
Gauging Japan's competition with the rest of Asia
In earlier analysis, we concluded that the contemporaneous negative impact of JPY
depreciation on the rest of Asia is much more limited than it was a decade ago (see Asia
Insights: The yen’s impact on Asia, 10 January 2013). Our FX strategy team's USD/JPY
forecast of 93 by end-2013 is, in our judgment, still not enough to warrant any downgrades to
our 2013 Asia ex-Japan GDP forecasts. However, were JPY to depreciate sharply from here,
some Asian economies would be hurt more than others. Korea seems most exposed due to
indirect competition with Japan in third-country export markets, whereas China, India and
emerging Southeast Asia seem the least exposed. To recap, we examine JPY‟s impact on Asia
through three main channels:
Direct export competition with Japan. This measures the direct competition between, for
example, Korean exporters to Japan and domestic manufacturers in Japan. As JPY
depreciates against KRW, local Japanese manufacturers can gain a competitive price
advantage over Korean exporters to Japan. This channel has diminished in importance as the
size of the Japan market has stagnated. The simple average of each Asian country's exports to
Japan as a share of their total exports has declined from 11.7% in 2000-01 to 8.8% in 2011-12.
Direct import competition with Japan. Again using Korea as an example, JPY depreciation
cheapens Korea's imports from Japan, hurting Korea's import-competing firms. At first glance,
this may seem a powerful channel as the simple average of each Asian country's imports from
Japan as a share of their total imports has surged from 11.1% in 2000-01 to 16.5% in 2011-12,
but this is misleading. With the exception of Korea, most Asian countries do not have many of
their own large, high value-added companies that compete head-on for local market share with
Japanese companies. Rather, the increased import shares from Japan reflect Asia's flourishing
cross-country vertical supply chain. A hefty 80% of the gross value of intra-Asian exports is
accounted for by intermediate goods (for a good analysis of intra-Asian trade, please see the
IMF‟s Implications of Asia's Regional Supply Chain for Rebalancing Growth, Regional Economic
Outlook: Asia and Pacific, April 2011). Japanese companies or MNCs with factories in lower-
cost Asian countries import high value-added components from Japan; these are assembled
into finished goods to be exported typically to the US and Europe. Some of Asia's cross-country
vertical supply chain can benefit from JPY depreciation against other Asian currencies.
Indirect third-market competition with Japan. This measures the degree to which, for example,
Korean firms compete against Japanese firms in markets other than Japan or Korea. JPY
depreciation against KRW would give Japanese exporters a competitive advantage over their
Korean counterparts in third markets. Third-market competition is potentially the most powerful
channel, but it is also the most difficult to measure. In our January report, we estimated third-
market competition by using the Bank for International Settlements' (BIS) nominal effective
exchange rate (NEER) trade weights for Asian countries. The BIS's NEER trade weights are
made up of three components – direct export competition, direct import competition and indirect
third-market competition – but the BIS only publicly discloses the total weight. We therefore
estimate the weights of the two direct channels of competition and from that calculate the
indirect third-market competition weight as the residual. This shows Korea to be most exposed
to indirect third-market competition with Japan.
Calculating export similarity indexes (ESIs)
An alternative approach to measuring the extent of indirect third-market competition is to
calculate export similarity indexes (ESIs). To do this we use detailed export product data for
different countries from the United Nations' Comtrade database. At the SITC 3-digit level we
were able to compare the shares in total exports of 260 different product groups for each of the
10 Asian countries under our coverage, as well as for the US, Germany and Switzerland. Full
details of the methodology used in constructing our ESIs are in Appendix 1, but basically the
ESI takes higher values for country pairs with similar shares of each product category in total
Nomura | Asia Economic Monthly 7 March 2013
5
exports. An ESI value of 1 corresponds to identical export product structures, suggesting very
high indirect third-market competition, whereas an ESI value of zero indicates completely
dissimilar export product structures.
Results
Figure 1 shows the results of our calculated ESI between Japan and other Asian countries, the
US, Germany and Switzerland in 2000, 2007 and 2011 (for a full matrix of the ESI, please see
Appendix II). The most striking feature is how much Korea stands out, with a high – and rising –
ESI vis-à-vis Japan of 62.8% in 2011, indicating intense competition with Japan in third markets.
For all other Asian countries the ESIs are below 50%. The relatively less developed Asian
economies – India, Indonesia and the Philippines – have the lowest ESIs, which is as we had
expected, given these countries export more labour-intensive, lower value-added products than
Japan. In addition to Korea, the ESIs of China, India and the Philippines have increased over
time, supporting the notion that exports of these countries are moving up the value-added
ladder. Outside of Asia, it is revealing that Germany‟s ESI vis-à-vis Japan has also been rising,
and at 70.2% in 2011 was significantly higher than that of Korea. In contrast, the US ESI with
Japan had fallen to 59.5% for 2011, while Switzerland‟s, against our expectations, was a low
ESI of 35.2% (being a renowned producer of precision instruments, we expected the Swiss to
be in fierce competition with Japan).
Limitations of our ESIs
One limitation is that the SITC 3-digit level data of 260 products we use to calculate our ESIs
may not be detailed enough to capture the different degrees of sophistication of export products.
SITC 5-digit level data of 2,819 different products are available, but even at that level it can be
difficult to capture differences in quality of very similar products (e,g., according to analysis of
US customs micro-level data, a shirt imported from Japan costs on average 30 times as much
as a shirt from the Philippines). This limitation is particularly relevant for Asia given its elaborate
vertical cross-country production network. The similarity in export product structures may reflect
a higher level of complementarity with Japan due to the outsourcing of production by Japanese
companies – notably in the electronics and auto industries – to lower-wage countries in the
region, rather than increased competition. The exaggeration of export similarity is probably most
extreme in China, given it takes about half of all intra-Asian intermediate imports, but is also
relevant in the emerging economies in Southeast Asia. In other words, for China, Indonesia,
Malaysia, Thailand and the Philippines our conjecture is that the degree of indirect third-market
competition vis-à-vis Japan is lower than that suggested by our calculated ESIs.
Conclusion
Our export similarity indexes show that Korea is by far Asia‟s most exposed country to third-
market competition with Japan, which leads us to conclude that, if JPY were to depreciate
sharply from here, Korea's economy is the most vulnerable in Asia. In contrast, China, India,
Indonesia, Malaysia, Thailand and the Philippines would all be relatively immune to further JPY
depreciation, particularly once their roles as outsourcing hubs for production by Japanese
companies is taken into account. Moreover, the growing anticipation of reflationary monetary
and fiscal policies in Japan should, over time, lower Japan's real interest rate and lift its
economic growth, which should lead to increased Japanese direct and portfolio investments in
the rest of Asia. With their relatively low labour costs and high long-run potential growth rates, it
should be China, India and emerging Southeast Asia that benefit the most from Japanese
investment, and indeed surveys of Japanese companies suggest as much (Figure 2).
Nomura | Asia Economic Monthly 7 March 2013
6
Fig. 1: Export similarity indexes between Japan and countries listed
2000 2007 2011
China 40.7% 44.5% 46.0%
Hong Kong 45.3% 39.8% 35.9%
India 24.8% 30.6% 36.2%
Indonesia 29.2% 27.6% 25.1%
Korea 58.2% 61.1% 62.8%
Malaysia 43.1% 39.7% 37.2%
Philippines 33.0% 30.3% 35.8%
Singapore 51.0% 48.2% 46.3%
Thailand 50.2% 49.5% 46.9%
Average 41.7% 41.2% 41.4%
Germany 67.2% 69.4% 70.2%
Sw itzerland 40.9% 35.4% 35.2%
USA 67.3% 61.3% 59.5%
Based on SITC Level 3 data
Note: See Appendix I for details. Source: UN Comtrade, Nomura. Unfortunately, UN Comtrade data are unavailable for Taiwan.
Fig. 2: Japanese companies’ most promising countries for overseas business over the medium term
2012 2011 2012 2011 2012 2011
1 - 1 China 319 369 62.1 72.8
2 - 2 India 290 297 56.4 58.6
3 5 Indonesia 215 145 41.8 28.6
4 3 Thailand 165 165 32.1 32.5
5 4 Vietnam 163 159 31.7 31.4
6 5 Brazil 132 145 25.7 28.6
7 12 Mexico 72 29 14.0 5.7
8 7 Russia 64 63 12.5 12.4
9 8 USA 53 50 10.3 9.9
10 19 Myanmar 51 7 9.9 1.4
11 9 Malaysia 36 39 7.0 7.7
12 11 Korea 23 31 4.5 6.1
12 15 Turkey 23 12 4.5 2.4
14 10 Taiwan 22 35 4.3 6.9
15 14 Philippines 21 15 4.1 3.0
16 13 Singapore 16 25 3.1 4.9
17 16 Cambodia 13 8 2.5 1.6
18 16 Australia 11 8 2.1 1.6
19 16 Bangladesh 10 8 1.9 1.6
20 21 Germany 6 5 1.2 1.0
Ranking No. of companiesPercentage share
(%)Country /
Region
Note: Respondents were asked to name their top five countries. The percentage share is calculated by the number of respondents citing a country divided by the total number of respondents. Source: Japan Bank for International Cooperation.
Asia FX – ESIs support our short KRW vs. THB and PHP recommendations
These findings are broadly in line with our current Asia FX portfolio recommendations to be
short KRW and MYR (vs. USD) and long THB and PHP (vs. USD). We had continued to
reposition our Asia FX portfolio since 21 January to capture the more idiosyncratic strengths
and weaknesses within the region (see Asia Insights: Asia FX portfolio update: delinking from
JPY, 8 February 2013) while avoiding those currencies more exposed to JPY depreciation.
With our export similarity analysis between Japan and Asia reconfirming stronger trade
competitiveness between Japan and Korea, this supports our short KRW bias, especially if JPY
depreciation continues (Figure 3). We maintain our short MYR recommendation given upcoming
general election risk. For PHP and THB, the relatively lower export similarities and both
economies outperforming in the region, support our long THB and PHP recommendations
(Figure 4). The Philippines remains one of our top picks as, beyond the strong growth backdrop,
it should also benefit from ongoing reforms (see Asia Special Report: Southeast Asia: Different
strokes, 6 March 2013).
Fig. 3: USD/KRW and USD/JPY with 120d rolling correlation
-30%
-20%
-10%
0%
Aug-12 Oct-12 Dec-12 Feb-13
USD/KRW and USD/JPY 120d rolling correlation
75
80
85
90
95
1040
1080
1120
1160
1200
Aug-12 Oct-12 Dec-12 Feb-13
USD/KRW
USD/JPY (rhs)
Source: Bloomberg, Nomura.
Fig. 4: USD/THB and USD/JPY with 120d rolling correlation
-10%
0%
10%
20%
30%
Aug-12 Oct-12 Dec-12 Feb-13
USD/THB and USD/JPY 120d rolling correlation
75
80
85
90
95
29.50
30.00
30.50
31.00
31.50
32.00
Aug-12 Oct-12 Dec-12 Feb-13
USD/THB
USD/JPY (rhs)
Source: Bloomberg, Nomura.
Nomura | Asia Economic Monthly 7 March 2013
7
Appendix I: Constructing our ESIs
An export similarity index, developed by Finger and Kreinin (1979), is a measure of exports
similarity between two countries (A and B) to a third market (the global market, in our analysis).
As illustrated in the equation below, it is based on exports of product i as a proportion of total
exports for country A and B, and is calculated as the sum of the minimum value for each
product. An ESI value of zero suggests there is no competition between country A and B, while
a value of 1 suggests perfect competition.
An intuitive way to understand the ESI equation is to look at the illustrative example in Figure 5.
In the case of ESI between country A and B, country A only exports product 1 to the world while
country B only exports an equal proportion of product 2 and 3. Obviously, there is no overlap
between their exports and the ESI value should be zero, as shown in the computation.
Countries C and D, however, both export only product 1 and hence are perfect competitors; the
ESI between them works out to be unity.
Product data
We have used product-level total exports data classified according to the UN Comtrade‟s
Standard International Trade Classification Revision 3 (SITC Rev 3) at the 3-digit level. Based
on these data, there are a total of 260 product groups ranging from live animals to tobacco, from
fuels to manufactured goods. We have listed the short product description of the “machinery
and transport equipment” category to provide a sense of the product resolutions at the 3-digit
level. In our analysis we used data for 2000, 2007 and 2011 (latest available full set) to get a
sense of how the ESIs have evolved over the years.
Understandably, the computed ESI will be dependent on the chosen level of product data. At a
higher product resolution (e.g. 5-digit level with 2,819 detailed products), we would generally
expect a lower ESI value than that offered by a lower product resolution (e.g. 3-digit level).
Hence, it is important to make cross-sectional assessment based on the same product
resolution.
Fig. 5: An illustrative example of ESI
Example 1: No competition
Country A Country B
Product % of total X % of total X Min
1 100% 0% 0%
2 0% 50% 0%
3 0% 50% 0%
ESI 0%
Example 2: Complete competition
Country C Country D
% of total X % of total X
Product % of total X % of total X Min
1 100% 100% 100%
2 0% 0% 0%
3 0% 0% 0%
ESI 100%
Sum
Sum
Source: Nomura
Fig. 6: Sub components of “machinery and transport equipment” category
SITC Level 3 code description for "machinery and transport equipment" category
Short description Short description Short description
711 STEAM GENER.BOILERS,ETC. 737 METALWORKING MACHNRY NES 771 ELECT POWER MACHNY.PARTS
712 STEAM TURBINES 741 HEATNG,COOLNG EQUIP,PART 772 ELEC.SWITCH.RELAY.CIRCUT
713 INTRNL COMBUS PSTN ENGIN 742 PUMPS FOR LIQUIDS,PARTS 773 ELECTR DISTRIBT.EQPT NES
714 ENGINES,MOTORS NON-ELECT 743 PUMPS NES,CENTRIFUGS ETC 774 ELECTRO-MEDCL,XRAY EQUIP
716 ROTATING ELECTRIC PLANT 744 MECHANICAL HANDLNG EQUIP 775 DOM.ELEC,NON-ELEC.EQUIPT
718 OTH.POWR.GENRTNG.MACHNRY 745 OTH.NONELEC MCH,TOOL,NES 776 TRANSISTORS,VALVES,ETC.
721 AGRIC.MACHINES,EX.TRACTR 746 BALL OR ROLLER BEARINGS 778 ELECTRIC.MACH.APPART.NES
722 TRACTORS 747 TAPS,COCKS,VALVES,ETC. 781 PASS.MOTOR VEHCLS.EX.BUS
723 CIVIL ENGINEERING EQUIPT 748 TRANSMISSIONS SHAFTS ETC 782 GOODS,SPCL TRANSPORT VEH
724 TEXTILE,LEATHER MACHINES 749 NON-ELECT MACH.PARTS,ETC 783 ROAD MOTOR VEHICLES NES
725 PAPER,PULP MILL MACHINES 751 OFFICE MACHINES 784 PARTS,TRACTORS,MOTOR VEH
726 PRINTNG,BOOKBINDNG MACHS 752 AUTOMATC.DATA PROC.EQUIP 785 CYCLES,MOTORCYCLES ETC.
727 FOOD-PROCESS.MCH.NON DOM 759 PARTS,FOR OFFICE MACHINS 786 TRAILERS,SEMI-TRAILR,ETC
728 OTH.MACH,PTS,SPCL INDUST 761 TELEVISION RECEIVERS ETC 791 RAILWAY VEHICLES.EQUIPNT
731 METAL REMOVAL WORK TOOLS 762 RADIO-BROADCAST RECEIVER 792 AIRCRAFT,ASSOCTD.EQUIPNT
733 MACH-TOOLS,METAL-WORKING 763 SOUND RECORDER,PHONOGRPH 793 SHIP,BOAT,FLOAT.STRUCTRS
735 PARTS,NES,FOR MACH-TOOLS 764 TELECOMM.EQUIP.PARTS NES
Source: UN Comtrade, Nomura
Nomura | Asia Economic Monthly 7 March 2013
8
Appendix II
Export similarity between selected countries in 2000, 2007 and 2011
Fig. 7: Inter-country export similarity index in 2000
ESI based on 2000 SITC Level 3 data
China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Thailand Germany Sw iss USA
China - 68.2% 44.2% 49.5% 40.7% 46.6% 42.9% 36.0% 40.1% 54.3% 41.7% 34.3% 46.5%
Hong Kong 68.2% - 34.7% 41.9% 45.3% 53.5% 47.4% 39.5% 45.2% 56.8% 39.6% 37.9% 48.3%
India 44.2% 34.7% - 36.8% 24.8% 31.6% 21.1% 21.6% 24.2% 40.6% 31.6% 28.9% 31.6%
Indonesia 49.5% 41.9% 36.8% - 29.2% 39.2% 45.9% 32.7% 30.8% 46.6% 33.2% 25.0% 34.8%
Japan 40.7% 45.3% 24.8% 29.2% - 58.2% 43.1% 33.0% 51.0% 50.2% 67.2% 40.9% 67.3%
Korea 46.6% 53.5% 31.6% 39.2% 58.2% - 55.7% 45.4% 58.6% 54.9% 48.2% 30.0% 54.1%
Malaysia 42.9% 47.4% 21.1% 45.9% 43.1% 55.7% - 53.8% 64.2% 55.7% 34.1% 26.7% 46.6%
Philippines 36.0% 39.5% 21.6% 32.7% 33.0% 45.4% 53.8% - 62.0% 45.5% 25.7% 18.6% 38.3%
Singapore 40.1% 45.2% 24.2% 30.8% 51.0% 58.6% 64.2% 62.0% - 51.9% 41.3% 31.2% 55.4%
Thailand 54.3% 56.8% 40.6% 46.6% 50.2% 54.9% 55.7% 45.5% 51.9% - 44.9% 33.8% 55.5%
Germany 41.7% 39.6% 31.6% 33.2% 67.2% 48.2% 34.1% 25.7% 41.3% 44.9% - 53.7% 69.1%
Sw iss 34.3% 37.9% 28.9% 25.0% 40.9% 30.0% 26.7% 18.6% 31.2% 33.8% 53.7% - 48.9%
USA 46.5% 48.3% 31.6% 34.8% 67.3% 54.1% 46.6% 38.3% 55.4% 55.5% 69.1% 48.9% -
Source: UN Comtrade, Nomura
Fig. 8: Inter-country export similarity index in 2007
ESI based on 2007 SITC Level 3 data
China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Thailand Germany Sw iss USA
China - 58.8% 40.8% 38.2% 44.5% 50.5% 49.2% 40.4% 40.9% 56.5% 46.1% 32.2% 46.9%
Hong Kong 58.8% - 30.6% 28.1% 39.8% 48.5% 52.1% 42.3% 52.4% 45.7% 33.9% 30.1% 42.2%
India 40.8% 30.6% - 35.8% 30.6% 35.8% 27.4% 23.2% 38.5% 40.4% 36.7% 31.5% 38.0%
Indonesia 38.2% 28.1% 35.8% - 27.6% 29.3% 47.4% 30.0% 25.3% 41.0% 33.5% 23.0% 32.7%
Japan 44.5% 39.8% 30.6% 27.6% - 61.1% 39.7% 30.3% 48.2% 49.5% 69.4% 35.4% 61.3%
Korea 50.5% 48.5% 35.8% 29.3% 61.1% - 45.9% 35.6% 51.7% 51.4% 52.9% 27.9% 52.7%
Malaysia 49.2% 52.1% 27.4% 47.4% 39.7% 45.9% - 51.2% 59.0% 55.4% 39.1% 27.1% 45.4%
Philippines 40.4% 42.3% 23.2% 30.0% 30.3% 35.6% 51.2% - 50.2% 43.7% 29.0% 17.4% 34.8%
Singapore 40.9% 52.4% 38.5% 25.3% 48.2% 51.7% 59.0% 50.2% - 44.4% 46.7% 32.0% 52.4%
Thailand 56.5% 45.7% 40.4% 41.0% 49.5% 51.4% 55.4% 43.7% 44.4% - 50.7% 33.6% 57.0%
Germany 46.1% 33.9% 36.7% 33.5% 69.4% 52.9% 39.1% 29.0% 46.7% 50.7% - 50.6% 69.0%
Sw iss 32.2% 30.1% 31.5% 23.0% 35.4% 27.9% 27.1% 17.4% 32.0% 33.6% 50.6% - 46.6%
USA 46.9% 42.2% 38.0% 32.7% 61.3% 52.7% 45.4% 34.8% 52.4% 57.0% 69.0% 46.6% -
Source: UN Comtrade, Nomura
Fig. 9: Inter-country export similarity index in 2011
ESI based on 2011 SITC Level 3 data
China Hong Kong India Indonesia Japan Korea Malaysia Philippines Singapore Thailand Germany Sw iss USA
China - 54.5% 39.9% 32.6% 46.0% 49.1% 43.3% 36.4% 37.1% 52.2% 46.6% 31.2% 48.9%
Hong Kong 54.5% - 27.7% 22.7% 35.9% 39.9% 47.9% 41.1% 46.1% 41.5% 31.9% 28.0% 40.4%
India 39.9% 27.7% - 30.0% 36.2% 38.8% 29.2% 27.8% 47.5% 40.9% 39.9% 29.0% 45.9%
Indonesia 32.6% 22.7% 30.0% - 25.1% 25.0% 50.6% 30.2% 21.8% 38.8% 30.1% 19.6% 30.3%
Japan 46.0% 35.9% 36.2% 25.1% - 62.8% 37.2% 35.8% 46.3% 46.9% 70.2% 35.2% 59.5%
Korea 49.1% 39.9% 38.8% 25.0% 62.8% - 41.9% 32.5% 49.3% 48.7% 51.0% 26.2% 52.5%
Malaysia 43.3% 47.9% 29.2% 50.6% 37.2% 41.9% - 46.2% 52.6% 49.9% 38.2% 25.7% 46.1%
Philippines 36.4% 41.1% 27.8% 30.2% 35.8% 32.5% 46.2% - 47.1% 38.2% 33.9% 17.0% 41.2%
Singapore 37.1% 46.1% 47.5% 21.8% 46.3% 49.3% 52.6% 47.1% - 41.8% 43.3% 31.1% 56.5%
Thailand 52.2% 41.5% 40.9% 38.8% 46.9% 48.7% 49.9% 38.2% 41.8% - 47.8% 30.6% 57.6%
Germany 46.6% 31.9% 39.9% 30.1% 70.2% 51.0% 38.2% 33.9% 43.3% 47.8% - 47.4% 66.8%
Sw iss 31.2% 28.0% 29.0% 19.6% 35.2% 26.2% 25.7% 17.0% 31.1% 30.6% 47.4% - 41.8%
USA 48.9% 40.4% 45.9% 30.3% 59.5% 52.5% 46.1% 41.2% 56.5% 57.6% 66.8% 41.8% -
Source: UN Comtrade, Nomura
This article was published on 7 March 2013.
Nomura | Asia Economic Monthly 7 March 2013
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Euben Paracuelles +65 6433 6956 [email protected]
Rob Subbaraman +852 2536 7435 [email protected]
Craig Chan +65 6433 6106 [email protected]
Southeast Asia: Different strokes
Last week, we took a trip around Southeast Asia – stopping in Indonesia, Malaysia, the
Philippines and Thailand – meeting senior policymakers and local political and economic
experts.
Our meetings generally reinforced our main theme of “greater differentiation” in Southeast Asia,
which we highlighted in our 2013 outlook: Asia’s overheating risks (28 November 2012).
Investors should beware of treating Southeast Asia as one homogeneous region: the growth
prospects, reform momentum, political outlook and central bank responses are becoming
increasingly varied from country to country. For Indonesia, despite still-strong growth, we are
cautious because of reform fatigue ahead of the 2014 elections, rising political uncertainty
surrounding the election result and growing question marks over whether policymakers will be
able to keep inflation and the widening current account deficit in check. By contrast, we left the
Philippines with our bullish view intact; virtuous spirals between reforms, business confidence
and growth seem to be in motion. The Philippine economy is set to be the second-fastest
growing in Asia this year after China. In Malaysia, the focus is on politics. The general election,
which will likely be held in April, could make or break our relatively positive economic outlook.
Thailand‟s economy is rapidly gaining momentum on loose monetary and fiscal policies, but the
risk we sense is that it may be growing too fast for its own good.
We maintain our GDP growth forecasts, but have a bias to revise up Thailand and to a smaller
extent Malaysia, which we will review after the elections. In addition, in terms of policy rates, we
remain comfortable with our forecast of rate hikes in Indonesia and Malaysia in H2, but the risk
is they may be pushed back in the Philippines. We are comfortable with our forecast that the
Bank of Thailand will keep its policy rate unchanged through 2013 (Figure 1).
Fig. 1: Nomura’s Asean forecast summary
2012 2013 2014 2012 2013 2014
Indonesia 6.2 6.1 6.2 4.3 5.2 5.1
Malaysia 5.6 4.3 4.6 1.7 2.4 2.5
Philippines 6.6 6.4 5.8 3.1 4.6 4.5
Singapore 1.3 2.4 4.2 4.6 3.9 3.6
Thailand 6.4 4.5 5.0 3.0 3.2 3.1
Indonesia -2.7 -1.9 -1.7 -1.8 -2.0 -2.2
Malaysia 6.4 4.7 4.2 -4.5 -4.5 -4.2
Philippines 3.3 1.9 1.7 -2.3 -2.6 -2.2
Singapore 18.9 16.1 17.0 1.1 1.0 0.4
Thailand 0.7 -0.4 -0.4 -2.6 -3.2 -3.7
Indonesia 5.75 6.25 6.75 9790 9900 9700
Malaysia 3.00 3.50 4.00 3.06 2.95 2.87
Philippines 3.50 4.00 4.50 41.0 39.2 38.2
Singapore 0.38 0.48 0.50 1.22 1.19 1.17
Thailand 2.75 2.75 3.25 30.60 29.10 28.60
Currency per US Dollar
Fiscal Balance (% of GDP)
Official Policy Rate
Current Account (% of GDP)
Consumer PricesReal GDP
Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. Source: CEIC; Nomura Global Economics estimates.
Inflation and monetary policy
The most hawkish central bank we met was the Bank of Thailand (BOT), which views the
current stance of the policy rate as still loose. Bank Indonesia (BI) and Bangko Sentral ng
Pilipinas (BSP) both view their policy stances as neutral. Bank Negara Malaysia (BNM) is
probably between the two camps, i.e. neutral now but may soon turn hawkish.
Nomura | Asia Economic Monthly 7 March 2013
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The differences are not explained by their views on the inflation outlook. If there was something
that surprised us during the trip it was the extent to which all central banks see limited inflation
risks at this point. This is partly because of their assumption that global growth remains
uncertain, putting a lid on commodity prices. Domestically, overall capacity utilization rates
remain relatively stable and some capacity expansion is underway (Figure 2). As a result, their
inflation forecasts remain benign even beyond this year. BI forecasts end-2013 CPI inflation at
4.9% y-o-y even though the latest reading in February was already at 5.3%. BSP expects
inflation to average at the low end of its 3-5% target range, and see the risks evenly balanced.
BNM forecasts inflation to rise closer to 3%, but remains comfortable with this level (BNM is the
only one of the four central banks without an official inflation target). The BOT expects inflation
to remain stable and notes that even if the direct impact of fiscal subsidies and controls that
helped keep price pressures in check are stripped out, inflation expectations are still well
anchored.
Fig. 2: Capacity utilization
45
50
55
60
65
70
75
80
85
90
Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Malaysia Philippines Thailand%
Source: CEIC; Nomura Global Economics.
Fig. 3: Investment spending
15
20
25
30
35
40
45
1995 1997 1999 2001 2003 2005 2007 2009 2011
Indonesia Malaysia
Philippines Thailand
% GDP
Source: CEIC; Nomura Global Economics.
However, it was clear that all four central banks face other policy considerations, not just
targeting inflation, and there was a lot of discussion on the use of macroprudential measures.
BNM, the central bank that most strongly emphasizes that it has a multi-targeting framework, is
conscious of monetary policy responding to supply-side pressures that tend to be temporary. At
the same time, it is concerned of rising financial stability risks if rates are kept too low for too
long. These risks include the household debt build-up (close to 80% of GDP), asset price
bubbles and too-strong domestic demand that could narrow the current account surplus further.
The BOT‟s hawkishness is based on similar arguments. While inflation is still low, domestic
demand is very strong: the current account swung to a deficit in January and the household
loan-to-GDP ratio jumped from 71% in 2011 to 77% in Q3 2012. In our view, if the BOT had it its
way, it would hike policy rates in H2, but it faces strong political pressure to cut the policy rate
further in a bid to stem THB appreciation. These political pressures are likely to persist, in part
due to the strong relationship between BOT Chairman Virabongsa Ramangkura (a non-MPC
member) and Finance Minister Kittiratt Na-Ranong.
It seems that BI is still in no rush to hike rates as the inflation outlook is seen as benign (Figure
4). This may change following the latest February CPI print, which jumped to 5.3% y-o-y,
already exceeding BI‟s year-end forecast of 4.9% (see Asia Insights: Indonesia: Inflation jumps
in February, 1 March 2013). A possible response could be to raise the FASBI rate (the lower
end of the policy corridor) to signal a change in bias, before raising the policy rate later in the
year, but there is no guarantee as core inflation in February was a more benign at 4.3%. We left
with the sense that BI prefers to use the policy rate to focus squarely on inflation, not domestic
demand or the current account deficit, which increased to 3.6% of GDP in Q4 2012. In addition,
in the near term there is the added complication of leadership change: Finance Minister Agus
Martowardojo has been nominated to take over as BI governor from Darmin Nasution in May.
BSP believes that despite the strong growth outlook it can afford to stay on hold. Due to strong
reform momentum and robust investment, potential growth is officially estimated to have risen to
5.5-6.5%, which should keep inflation at bay. Given the favourable economic conditions, BSP is
Nomura | Asia Economic Monthly 7 March 2013
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instead taking the opportunity to focus on rationalizing its monetary policy framework, as
reflected in the recent decision to make the interest rate paid on Special Deposit Accounts
(SDA) uniform across all tenors at 3%. It is also considering formalising the use of an official
interest rate corridor, which should allow more policy flexibility.
Fig. 4: Indonesia: Headline inflation versus target
2
4
6
8
10
12
14
Feb-07 Feb-09 Feb-11 Feb-13
inflation target range
CPI inflation, %y-o-y
%
Source: CEIC; Nomura Global Economics.
Fig. 5: Philippines: Headline inflation versus target
0
2
4
6
8
10
12
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
inflation target range
Headline inflation
%y-o-y
Source: CEIC; Nomura Global Economics.
All this considered, we remain comfortable with our forecast that BI and BNM will hike by a total
of 50bp hikes in H2, and that the BOT will remain on hold through 2013. However, we see a risk
that our rate hike forecast by BSP in H2 may be pushed back to a later date.
Capital flow management
Foreign capital inflows are recognised to remain strong in the region and hence pose a
challenge to central banks. The consistent view among them is that interest rates are not the
tool to slow the pace of the inflows. The focus is more about whether the composition of capital
inflows becomes more speculative and short-term in nature. For now, the mix is viewed as
relatively healthy. BNM, for instance, did not sound too worried about the relatively high level of
foreign ownership of local government bonds – at nearly 30% it is one of the highest in the
region1 (Figure 6) – highlighting large domestic financial institutions that could absorb any
unwinding, but also citing past reforms that are now encouraging two-way flows. Meanwhile,
BSP sees the recent surge in portfolio inflows as a natural consequence of the economy‟s
strengthening fundamentals (and in line with regional developments), and so seems relatively
tolerant of the inflows, especially given that they are associated with a large surplus in the
current account which should provide a strong buffer against the risk of capital flow reversals
(Figure 7). However, BSP is carefully monitoring the capital inflow composition.
The preferred policy response seems to be to employ macroprudential measures. We sense
that across the board the central banks are actively studying their options. For example, BSP is
looking at measures on the real estate sector and says it will be ready to implement them as
necessary. Given the structural flows, BSP can tolerate the strength of PHP as it sees it as a
reflection of the economy‟s positive outlook, and thus seems less likely to implement further FX-
related measures. Similarly, the BOT is also starting to signal the use of macroprudential
measures having lagged the rest of the region, but we see room for greater FX flexibility in
Thailand given that THB is not seen as overvalued.
1 Data from BNM shows that foreign ownership of MGBs was as high as 45% (as of end-Q4 2012). For ease of comparison
with the rest of the region we cite data from Asia Bonds Online (ADB). This differs as the denominators are calculated differently, with ADB including investment issues in total bonds outstanding.
Nomura | Asia Economic Monthly 7 March 2013
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Fig. 6: Foreign ownership of government bonds
0
5
10
15
20
25
30
35
40
Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
Malaysia Thailand Indonesia
% total holdings
Source: Asia Bonds Online; Nomura Global Economics.
Fig. 7: Gross portfolio inflows
-6
-4
-2
0
2
4
6
8
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
USDbn Indonesia Philippines
Singapore Thailand
Source: CEIC; Nomura Global Economics.
By contrast, given Indonesia‟s large current account deficit, capital flow reversals pose a more
significant risk. Net foreign direct investment (FDI) inflows have remained large and stable, but
portfolio inflows are also substantial (Figure 8). The combination of external uncertainty (e.g. a
global risk-off triggered by Europe or US fiscal worries) and local factors (e.g. election risks,
reform fatigue, BI‟s preference of a weak IDR to help correct the current account deficit, more
resource nationalism) argues for IDR remaining under depreciation pressure.
Fig. 8: Indonesia: Gross FDI versus portfolio inflows
-6
-4
-2
0
2
4
6
8
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
USDbn FDI inflows Portfolio inflows
Source: CEIC; Nomura Global Economics.
Fiscal policy
Fiscal policy should continue to play a major role in all four economies, but the nature of fiscal
support to growth now varies more. The Philippines and Thailand are both focusing on higher
infrastructure spending. Thailand has unveiled more details of its infrastructure “mega-projects”
and is likely to make more implementation progress this year. In the Philippines, the government
is eyeing more fiscal reforms to generate fiscal space for even higher capital expenditures, after
passing landmark fiscal legislation last year (sin taxes; Figure 9). More internal initiatives are
being implemented to improve tax administration and to channel the gains to higher-quality
spending, such as on social and economic services. In Malaysia and Indonesia, the elections
will likely drive spending increases, such that growth should remain supported ahead of the
elections. In Malaysia, implementation of measures outlined in the 2013 budget is in full swing,
particularly the cash transfers. Indonesia continues to struggle with disbursements, but this is
being corrected and elections in 2014 are expected to provide more impetus for making up for
past under-spending, starting in Q3 this year.
Nomura | Asia Economic Monthly 7 March 2013
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Fig. 9: Capital expenditure
-60
-40
-20
0
20
40
60
80
2007 2008 2009 2010 2011 2012*
Indonesia Malaysia
Philippines Thailand% y-o-y
Note: *For 2012: Unaudited estimates have been used. Source: Ministry of Finance for the respective countries; CEIC; Nomura Global Economics.
Despite the broad fiscal expansion, the authorities were quick to point out that they remain
conscious of not compromising fiscal sustainability. In Thailand, the medium-term fiscal plan,
which incorporates large-scale infrastructure spending, is to keep public debt-to-GDP below
50% of GDP, allowing a 10 percentage point (pp) buffer against external shocks given the legal
limit of 60% of GDP. To achieve this, authorities envisage a balanced budget by 2017, which
implies that short-term measures that were criticized as populist are likely to be allowed to
expire. In Malaysia, fiscal consolidation remains a top policy priority, narrowing the fiscal deficit
to 4% of GDP this year despite the elections. This supports our forecast that GDP growth could
slow this year due to fiscal tightening after the elections, but the risk is it is going to be more
gradual. Longer-term, the government remains determined to keep the public debt ratio below
its self-imposed (i.e. not legally binding) ceiling of 55% of GDP and is looking to resume the
fiscal reform agenda if Prime Minister Najib secures a mandate after the election.
Fig. 10: Thailand: Public debt-to-GDP ratio projections
42.0
43.0
44.0
45.0
46.0
47.0
48.0
49.0
FY12 FY13 FY14 FY15 FY16 FY17
Public debt projections% GDP
Note: Projections as of 10 October 2012. Source: Debt management office; Nomura Global Economics.
Fig. 11: Malaysia: Fiscal deficit versus budget targets
-7.0 -5.0 -3.0 -1.0
2005
2006
2007
2008
2009
2010
2011
2012
Targeted fiscal deficit Actual fiscal deficit
% GDP
Source: CEIC; Nomura Global Economics.
In Indonesia, the fiscal news is less encouraging. The likelihood of a much-needed fuel subsidy
cut this pre-election year is low, and the most likely scenario under which it might happen is only
if oil prices surge from here. Politically, it is more difficult to implement this given that more
households may now be affected by the subsidy cuts following the boom in local ownership of
motorcycles (Figure 12). And given the political cycle, the risk is that there will be no changes
made even after 2014. This would keep not only the fiscal position weak (high fuel subsidies)
but also the current account deficit under pressure (little price incentive to ration demand for
imported oil and energy-intensive consumer goods).
Nomura | Asia Economic Monthly 7 March 2013
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Fig. 12: Indonesia: Motorcycle sales
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Motorcycle sales (Units mn)
Units (mn)
Source: CEIC; Nomura Global Economics.
Watch politics
In all four countries we visited, political discussions feature prominently, raising concerns in
three, but not the Philippines.
In Malaysia, our baseline scenario is for the ruling Barisan Nasional (BN) to win, but by a
smaller majority of 120-124 seats, which is lower than we had previously penciled in, partly
because recent surveys show an emboldened and well-organized opposition (Figure 13). This
raises uncertainty over whether there would be an orderly transition of power, whether Prime
Minister Najib remains in power (Figure 14) and whether the much-needed economic reforms
can continue.
Fig. 13: Malaysia: Our election scenarios
Baseline: Barisan
Nasional wins 120-124 seats
60%
<120 seats & risk of a
hung parliament
20%
>125 seats20%
Source: Nomura Global Economics.
Fig. 14: Malaysia: Performance of Prime Minister Najib
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Overall Malay Chinese Indian
Jan-13 Dec-12Satisfaction levels of pollsters
Source: Merdeka Institute; Nomura Global Economics.
In Indonesia, concerns about policy continuity are rising ahead of the presidential election
scheduled for 1 July 2014. President Yudhoyono is no longer eligible to run and his Democrat
Party, still without a strong candidate, is plummeting in the polls. That said, there is still no clear
frontrunner among the other major parties, which means that forming coalitions looks
necessary. Meanwhile, the two names emerging as the most popular presidential candidates –
Jakarta Governor Joko Widodo (Jokowi) and Prabowo Subianto – are still not assured they will
receive a nomination. The political situation will likely remain in flux – see the large proportion of
undecided voters (Figures 15 and 16) – and it will be some time yet before we can talk about
possible outcomes. Meanwhile, there is widespread belief, even in the business community,
that the political uncertainty could usher in more “bureaucratic nationalism” and populist
policies, heightening the risk of poor-quality growth.
Nomura | Asia Economic Monthly 7 March 2013
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Fig. 15: Indonesia: Presidential preference poll
17.9
18.5
7.2
8.7
8.9
9.8
10.9
18.1
Undecided/No response
Others
Megawati Soekarnoputri
Aburizal Bakrie
Jusuf Kalla
Wiranto
Prabowo Subianto
Joko Widodo
% of respondents
Note: The survey was conducted by the Jakarta Survey Institute, 9-15 February, across all 33 provinces. Margin of error is 2.8%. Source: Reformasi (22 Feb); Nomura Global Economics.
Fig. 16: Indonesia: Party preference poll
28.2
13.8
5.8
6.9
10.3
16.5
18.5
Undecided voters
Others
Hanura
Demokrat
Gerindra
PDI Perjuangan
Golkar
% of respondents
Note: The survey was conducted by the Jakarta Survey Institute 9-15 February, across all 33 provinces. Margin of error is 2.8%. Source: Reformasi (22 Feb); Nomura Global Economics.
In Thailand, the Bangkok gubernatorial election was highlighted by those we met as important.
The concern we heard was that if the ruling Pheu Thai‟s candidate won, it could lead to more
interference by the government on the BOT‟s monetary policy decisions. However, it turned out
that the incumbent Democrat candidate emerged the surprise the winner (see First Insights:
Thailand: Democrat Party triumphs in Bangkok, 4 March 2013). Longer-term, discussion of the
amnesty bill is on-going, while the referendum on the constitutional amendment may be
delayed, suggesting Prime Minister Yingluck Shinawatra is taking a more a practical approach
and not pushing the agenda too hard2. Overall, the political environment remains calm at the
moment, but there are potential flashpoints.
The Philippines will have its mid-term elections in May, which looks supportive for the overall
economic outlook, in our opinion, as President Aquino rides high in the opinion polls. Based on
the latest polls, the ruling administration would likely win a majority in the Senate (it currently
does not have one), which should bode well for the enactment of more difficult legislation that is
in the pipeline. In the near term, we think the elections will also provide a strong catalyst to
increase infrastructure spending and hence be a boost to growth.
Fig. 17: Philippines: Net satisfaction ratings of presidents, past and present
-60
-40
-20
0
20
40
60
80
1994 1997 2000 2003 2006 2009 2012
%
Ramos Estrada
Arroyo
B. Aquino
Note: Net satisfaction refers to the % satisfied minus the % dissatisfied (correctly rounded). Source: Social Weather Survey (8-11 December 2012); Nomura Global Economics.
This is an excerpt from Southeast Asia: Different strokes, published on 6 March 2013.
2 The public perception is that the ultimate goal of the constitutional amendment is to make it easier for former Prime
Minister Thaksin Shinawatra to return from exile.
Nomura | Asia Economic Monthly 7 March 2013
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Zhiwei Zhang +852 2536 7433 [email protected]
Wendy Chen +86 21 6193 7237 [email protected]
China: Thoughts on the first day of the NPC
China‟s 2013 growth target was set at 7.5%, unchanged from 2012 and in line with
expectations.
The inflation target was lowered to 3.5% from 4% in 2012, and the M2 target was cut to
13% from 14%, which implies monetary policy may tighten after the NPC.
The government reiterated its one-child policy, raised retirement benefits, and
budgeted for a fiscal deficit of 2% of GDP.
The National People's Congress (NPC) convened this morning, and Premier Wen Jiabao
delivered the 2013 government work report, which discloses the government‟s targets on some
key macro indicators.
1) The 2013 GDP growth target was set at 7.5%, in line with expectations. It remains
unchanged from the 7.5% target (actual: 7.8%) in 2012, which suggests that the government
intends to maintain stability in the first year following the leadership transition.
2) The inflation target was lowered to 3.5% for 2013 from 4.0% in 2012. Premier Wen cited
rising prices in food, labour and natural resources, imported inflation from QEs in major
economies, and the need to reform energy prices as the primary factors driving inflation. This
suggests to us that further price hikes on energy and public utilities may be implemented in H1.
3) The target for M2 growth in 2013 was lowered to 13% from 14% in 2012, the lowest target for
money supply growth since 2002. M2 growth in January was 15.9%, much higher than the 13%
target. We believe the government is starting to become concerned with financial risks from the
surges in shadow banking activities during 2012. This reinforces our view that the authorities will
tighten monetary policy in 2013.
4) The fiscal deficit target was raised to RMB1,200bn from RMB800bn in 2012, due to a
slowdown in revenue growth (the lagged impact from a structural tax reduction) and an increase
in expenditures (particularly on social welfare). The budgeted fiscal deficit will be 2% in 2013,
slightly up from 1.5% in 2012, but we do not view this as an accurate measure for China‟s fiscal
policy stance (for reasons we discussed in China: A preview of the National People’s Congress,
27 February 2013).
5) The targets for fixed asset investment and retail sales were increased to 18% and 14.5%,
respectively, partly due to higher inflation. Meanwhile, the 2013 target for foreign trade growth
(from a report of the NDRC) was lowered to 8% from 10% in 2012, which implies that the
government may be cautious on its external demand outlook and on the competitiveness of the
Chinese exports.
There has been some market chatter on whether the government will abolish the one-child
policy, as the working age population declined in 2012. The government reiterated its one-child
policy in the working report, which suggests other policies to counter the trend in demographics
are being considered, such as lifting the retirement age. Premier Wen also announced policies
to enhance welfare, such as increasing the retirement pension payout by 10% in 2013.
Overall, the targets set for 2013 are broadly in line with our expectations. We continue to expect
CPI inflation to climb above 3.5% by mid-2013, and expect the government to tighten monetary
policy after the NPC. We forecast GDP growth of 7.7% in full-year 2013, but growth should
moderate to 7.3% in H2 on policy tightening. Regarding structural reforms such as on
urbanisation and financial liberalisation, we think more detail will be provided during the
Communist Party meeting in October/November.
Nomura | Asia Economic Monthly 7 March 2013
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Fig. 1: Targets for macroeconomic indicators
% % RMB bn RMB bn % % % % % % % % % %
Target Actual Target Actual Target Actual Target Actual Target Actual Target Actual Target Actual
2000 7.0 8.4 249 14.0 14.0 7.1 9.7 10.0 10.3 0.4 3.0 31.5
2001 7.0 8.3 252 13.0 14.4 10.1 10.0 13.0 1.0 0.7 8.0 7.5
2002 7.0 9.1 315 13.0 16.8 8.8 10.0 16.9 1.0 -0.8 21.8
2003 7.0 10.0 293 16.0 19.6 9.0 9.1 12.0 27.7 1.0 1.2 7.0 37.1
2004 7.0 10.1 209 17.0 14.6 13.3 26.8 3.0 3.9 8.0 35.7
2005 8.0 11.3 228 15.0 17.6 12.5 12.9 16.0 26.0 4.0 1.8 16.0 23.2
2006 8.0 12.7 216 16.0 16.9 12.0 13.7 18.0 23.9 3.0 1.5 17.0 23.8
2007 8.0 14.2 -51 16.0 16.7 12.0 16.8 24.8 3.0 4.8 23.6
2008 8.0 9.6 236 16.0 17.8 21.6 25.9 4.8 5.9 17.8
2009 8.0 9.2 950 950 17.0 27.7 14.0 15.5 20.0 30.0 4.0 -0.7 8.0 -13.9
2010 8.0 10.4 1050 1000 17.0 19.7 15.0 18.4 20.0 23.8 3.0 3.3 8.0 34.7
2011 8.0 9.3 900 850 16.0 13.6 16.0 17.1 18.0 23.8 4.0 5.4 10.0 22.5
2012 7.5 7.8 800 850 14.0 13.8 14.0 14.3 16.0 20.3 4.0 2.6 10.0 6.2
2013 7.5 1200 13.0 14.5 18.0 3.5 8.0
Growth of export &
importReal GDP growth
Fiscal deficit
combinedM2 growth Retai sales FAI CPI inflation
Source: Government work report and CEIC.
Fig. 2: Fiscal deficits
RMB bn % of GDP RMB bn % of GDP RMB bn % of GDP
2009 950 2.79 950 2.79 10.1 0.03
2010 1050 2.62 1000 2.49 225.8 0.56
2011 900 1.90 850 1.80 289.2 0.61
2012 800 1.54 850 1.64 270.0 0.52
2013 1200 2.07 100.0 0.17
Fiscal deficit Central Fiscal Stabilization Fund
Budget Actual Actual
Source: Government work report and CEIC.
This article was originally published on 5 March 2013.
Nomura | Asia Economic Monthly 7 March 2013
18
Zhiwei Zhang +852 2536 7433 [email protected]
Wendy Chen +86 21 6193 7237 [email protected]
China: Both official PMI and HSBC PMI drop in February
China‟s official PMI surprisingly dropped to 50.1 in February from 50.4 in January, and
the HSBC PMI fell to 50.4 from 52.3, both weaker than expected.
The drop in both PMIs has cast more doubt over the strength of the recovery.
The policy stance critically depends on the macro data release on 9 March.
China's official PMI surprisingly dropped to 50.1 in February from 50.4 in January, which was
weaker than expected (Consensus: 50.5; Nomura: 50.7; Figure 1). The HSBC PMI fell to 50.4 in
February after a jump to 52.3 in January (Consensus: 50.6). The drop in PMIs has cast some
more doubts on the strength of the recovery. This is consistent with signals from sector level
data (see China: Sector-level data cast doubt on strength of recovery, 28 February 2013).
By component, new export orders of the official PMI declined further to 47.3 in February from
48.5 in January (Figure 2), suggesting that external demand remains weak. New orders
(including both domestic and export orders) fell to 50.1 from 51.6. Production dipped to 51.2 in
February from 51.3 in January. Raw material inventory dipped to 49.5 from 50.1 and finished
goods inventory was down to 46.6 from 47.4. Input prices dropped from 57.2 to 55.5, but are
still at a high level, in line with our view that inflation will trend higher throughout 2013. Notably,
the official PMI has included a new “expectation of business activities” –measuring whether
purchasing managers are optimistic or pessimistic on business activity in the next three months
– in 2013. The expectation of business activities rose sharply to 64.6 in February from 55.9 in
January, but its usefulness as a leading indicator is yet to be seen.
Signals from survey indicators in January and February may have been distorted by the lunar
new year effect. We will watch the macro data released on 9 March closely for a clearer picture
of the economic pulse and expect policies to be altered accordingly. As a baseline case, we
continue to expect GDP growth to peak at 8.2% y-o-y in Q1, and slow to 7.3% y-o-y in H2 on
policy tightening.
Fig. 1: China’s official PMI and HSBC PMI
35
40
45
50
55
60
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Official PMI HSBC PMI
Index
Source: Bloomberg, CEIC and Nomura Global Economics.
Fig. 2: Breakdown of the official PMI
Dec-12 Jan-13 Feb-13
PMI 50.6 50.4 50.1
Output 52.0 51.3 51.2
New orders 51.2 51.6 50.1
New export order 50.0 48.5 47.3
Input price 53.3 57.2 55.5
Raw material inventory 47.3 50.1 49.5
Finished goods inventory 49.4 47.4 46.6
Purchase 52.1 53.2 50.2
Employment 49.0 47.8 47.6
Supplier delivery times 48.8 50.0 48.3
Imports 49.0 49.1 48.1
Overstock orders 45.9 44.4 44.4
Business expectation n.a. 55.9 64.6
Source: Bloomberg, CEIC and Nomura Global Economics.
This article was originally published on 1 March 2013.
Nomura | Asia Economic Monthly 7 March 2013
19
Sonal Varma +91 22 4037 4087 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
Vivek Rajpal +91 22 4037 4438 [email protected]
Craig Chan +65 6433 6106 [email protected]
Prateek Gupta +65 6433 6197 [email protected]
India budget: Quality and credibility of fiscal consolidation disappoint
The government has presented a prudent budget targeting a fiscal deficit of 4.8% of
GDP in FY14, in line with expectations, versus a revised estimate of 5.2% of GDP in
FY13.
However, we think the quality of the consolidation is disappointing. Consolidation has
to be achieved by cutting expenditure and raising tax revenue. But the government has
focused mainly on revenue, while spending remains high.
The revenue assumptions (tax and asset sales) in the budget also appear optimistic.
With elections due in 2014, we doubt spending can be cut (as in FY13) to create
savings. We expect a fiscal deficit of 5.2% of GDP in FY14.
Rates strategy view: We think gross supply of INR6.3trn is a negative surprise for bond
markets. We maintain our stance of recommending investors wait until supply
concession develops on the bond yield curve before buying bonds in the 7-15yr part of
the yield curve.
FX strategy view: We expect INR performance to remain subdued as the focus shifts to
medium-term concerns with limited scope for additional disinvestments in FY13.
Key highlights
In line with market expectations, the government penciled in a fiscal deficit target of 4.8% of
GDP in FY14 (Consensus: 4.8%, Nomura: 4.6%), versus a revised estimate of 5.2% of GDP in
FY13 (Budget: 5.1%). The government plans to finance 89% of the fiscal deficit through dated
market borrowings versus 90% last year, pegging net market borrowings at INR4840bn
compared with INR4674bn in FY13. With redemptions of INR950bn and the government also
deciding to buyback INR500bn of bonds, gross borrowings will rise to INR6290bn from
INR5580bn in FY13.
Key measures announced in the budget
Direct tax: Imposition of a surcharge of 10% on individuals, whose taxable income
exceeds INR10mn per annum and an increase in the surcharge from 5% to 10% on
domestic companies, whose taxable income exceeds INR100mn per annum.
Indirect tax: Increase customs duty on luxury goods, excise duty on SUVs, cigarettes,
mobile phones among others. By contrast, a reduction on export duties in the
traditional sectors such as gems and jewelry and leather to boost exports.
Capital Markets: FIIs will be allowed to participate in exchange-traded current
derivatives, using their investments in corporate bonds and government securities as
collateral to meet their margin requirements. The list of eligible securities for pension
and provident funds is expanded to include ETFs, debt mutual funds and asset-backed
securities.
Savings: Propose the introduction of inflation-indexed bonds and other savings
instruments that will protect savings from inflation.
Infrastructure: Focus on Infrastructure Debt funds, increase the total sum of tax free
bonds to INR500bn in FY14 for infrastructure-oriented institutions. Announces an
investment allowance on high value investments in the manufacturing sector.
Food security bill: Allocates INR100bn in additional food subsidies on account of the
food security bill (pending with parliament).
Nomura | Asia Economic Monthly 7 March 2013
20
Quality and credibility of the fiscal consolidation
Even though the budget looks prudent in terms of the headline fiscal deficit number, we have
concerns about the quality of consolidation. Prudent consolidation would have to come from
both lower expenditure and higher tax revenue, but the government has focused mainly on
revenues. In fact, spending is projected to rise sharply by 16.5% y-o-y in FY14, with the size of
government spending budgeted to increase to 14.7% of GDP from 14.3% in FY13. The budget
assumptions on expenditure are reasonable, but we think that the revenue assumptions are
optimistic. We expect a fiscal deficit of 5.2% of GDP in FY14 versus the budgeted 4.8% of GDP,
largely due to revenue slippage.
First, budgeted tax revenue growth of 19.1% y-o-y in FY14 versus 16.7% in FY13 is optimistic.
The budget assumes nominal GDP growth of 13.4% y-o-y in FY14 compared with a revised
estimate of 11.7% in FY13, with real GDP growth in the 6.1-6.7% range, higher than our
expectations (12.4% in FY14). Tax rates have been largely kept unchanged, yet the budget
assumes tax buoyancy of 1.4 (5-year average: 0.8). We expect 14.5% growth in tax revenue in
FY14, which translates into a tax to GDP ratio of 10.5% in FY14 versus a budgeted 10.9% and
a revised estimate of 10.4% in FY13.
Second, the government is targeting raising INR558bn through asset sales as compared with
INR240bn in FY13 and an average of INR200bn in the two years prior, and we think this is
optimistic. Because of the lackluster response to recent telecoms re-auctions, the budgeted
receipts from telecoms also appears high (the government has budgeted INR408bn from
spectrum charges and spectrum auctions).
On the expenditure side, we do not expect an overshoot as there is a sufficient inbuilt cushion,
but neither do we think that the government can create substantial savings as it did in FY13.
The budget assumes a 29.4% y-o-y rise in plan expenditure in FY14 up from a revised estimate
of 4.1% in FY13. However, unlike last year we think the scope to reduce plan expenditure to
create savings will be limited because of the general elections in 2014. During the last two
elections years (2004 and 2009), the average rise in expenditure was 19.5% y-o-y, with plan
expenditure up 24% and non-plan up 18% y-o-y.
Further, the fiscal consolidation achieved in FY13 has been through a combination of real
austerity measures combined with delays in payments on subsidies to government contractors
and lower income tax refunds. These delayed payments will further add to the carry-over burden
for FY14. The food security act will add to the food subsidy burden and the lower non-food
subsidy bill budgeted is contingent on continued petroleum price hikes and raising urea prices
during the year. With elections around the corner, sustaining price hikes will be politically difficult
especially in H2 FY14. Even after accounting for a gradual hike in diesel and urea prices, we
estimate the overall subsidy bill at 2.3% of GDP versus the budgeted 2% of GDP.
Fig. 1: Key assumptions
FY12 FY13 FY13 FY14 FY14
Actual BE RE BE NOM
Nominal GDP growth % y-o-y 15.1 14.0 11.7 13.4 12.4
Gross tax revenue % y-o-y 12.1 21.2 16.7 19.1 14.5
Expenditure % y-o-y 8.9 14.3 9.7 16.5 15.4
Capital expenditure % y-o-y 1.3 29.2 5.8 36.6 32.2
Revenue expenditure % y-o-y 10.1 12.2 10.2 13.7 13.1
Food subsidy INR bn 728 750 850 900 1035
Fertiliser subsidy INR bn 700 610 660 660 720
Oil subsidy INR bn 685 436 969 650 703
Disinvestment INR bn 181 300 240 558 458
Fiscal deficit % of GDP 5.7 5.1 5.2 4.8 5.2
Net market borrowing INR trn 4.4 4.8 4.7 4.8 4.8
Gross market borrowing INR trn 5.1 5.7 5.6 6.3 6.3
Source: India budget, CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
21
Fig. 2: Budget at a glance
FY10 FY11 FY12 FY13 FY13 FY14 FY14
INR bn Actual Actual Actual BE RE BE Nomura
Total receipts/expenditure 10259 11909 13044 14909 14308 16653 16507
Net tax revenues 4565 5699 6298 7711 7421 8841 8499
Corporation tax (% yy) 14.7 22.1 8.1 15.6 11.2 16.9 11.1
Income tax (% yy) 24.8 10.8 16.2 14.9 21.0 20.2 16.1
Customs (% yy) -16.6 63.0 10.0 25.0 10.4 13.6 12.4
Union Excise Duties (% yy) -2.1 30.1 5.3 33.5 18.1 14.9 13.6
Service Tax (% yy) -4.1 21.6 37.3 27.2 36.1 35.8 24.8
Non-tax revenue 1163 2186 1217 1646 1297 1723 1609
Dsinvestment 246 228 181 300 240 558 458
Plan expenditure 3034 3790 4124 5210 4292 5553 5169
Non-plan expenditure 7211 8183 8920 9699 10016 11100 11338
Food subsidy 584 638 728 750 850 900 1035
Fertiliser subsidy 613 623 700 610 660 660 720
Oil subsidy 150 384 685 436 969 650 703
Interest payments 2131 2340 2732 3198 3167 3707 3707
Fiscal deficit 4185 3736 5160 5136 5209 5425 5835
Revenue Deficit (% of GDP ) 5.2 3.2 4.4 3.5 3.9 3.3 3.7
Fiscal deficit (% of GDP) 6.5 4.8 5.7 5.1 5.2 4.8 5.2
Primary Deficit (% of GDP ) 3.2 1.8 2.7 1.9 2.0 1.5 1.9
Net market borrowing 3984 3254 4362 4790 4674 4840 4840
Gross market borrowing 4510 4370 5103 5696 5580 6290 6290
Redemption 526 1116 741 906 1450 1450 1450
Source: India budget, CEIC and Nomura Global Economics.
Economic impact
A segregation of the fiscal balance into structural and cyclical factors suggests that most of the
fiscal consolidation is cyclical, and the structural fiscal deficit remains high in for FY14 as well.
The fiscal impulse from the FY14 budget is largely neutral (+0.04bp), unlike the contractionary
impulse from the FY13 budget (Figure 3 and 4). The budget has failed to re-orient spending
away from consumption towards investment. With the continued focus on welfare and inclusive
growth schemes, the budget will support rural consumption. As such, we do not expect the
budget to contain demand-side pressures from the fiscal side, nor do we expect it to improve
the current account deficit. In fact, the disappointment on the budget may risk a reversal on
portfolio flows and lead to difficulties in financing the current account deficit.
In our view, a tight fiscal policy that truly reins in spending will have perhaps led to a more
accommodative monetary policy. But with overall government spending much higher and mainly
consumption oriented, we doubt the RBI will be too aggressive in easing interest rates,
particularly with the rising risk on the external front. Even if the RBI eases interest rates, the
current tight liquidity will limit the transmission of monetary policy. With the budget largely a
disappointment, external demand already weak and a shrinking investment pipeline, we expect
growth to remain weak for a longer period of time.
Nomura | Asia Economic Monthly 7 March 2013
22
Fig. 3: Cyclical versus structural fiscal consolidation
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
FY00 FY02 FY04 FY06 FY08 FY10 FY12 FY14
Cyclical fiscal balance (a-b)
Structural fiscal balance (b)
Actual fiscal balance (a)
% of GDP
Note: Based on budgeted fiscal deficit of 4.8% of GDP. Source: CEIC and Nomura Global Economics estimates.
Fig. 4: Fiscal impulse
-2
-1
0
1
2
3
FY98 FY02 FY06 FY10 FY14
Fiscal impulse (- contractionary, + expansionary)
% of GDP
Note: Based on budgeted fiscal deficit of 4.8% of GDP. Source: Nomura Global Economics estimates.
INR rates strategy – uncomfortable supply
The government has announced the FY14 budget, and is targeting a 4.8% of GDP fiscal deficit
with INR6.3trn (vs. INR5.6trn in FY13 ) of gross borrowing in FY14. Net borrowing for FY14 will
be INR4.84trn (vs INR4.67trn in FY13). One of the intended benefits of a smaller fiscal deficit is
lower borrowing in an economy. Unfortunately, that does not seem to be the case for India.12%
higher gross borrowing versus last year is unlikely to be something that an India rates market
participant would have wanted. This is clearly a negative surprise for the bond markets. In our
view, this much issuance of bonds should result in the re-widening of bond-swap spreads (bond
over swap), with bonds underperforming as we head into April. We maintain our stance of
recommending investors wait until supply concession develops on the bond yield curve before
buying bonds in the 7-15yr part of the yield curve (see India budget preview: Balancing
prudence and populism, 22 February 2013). Rather than levels, we would recommend investors
hold until April (to allow supply concession to develop on the yield curve) before reloading on
the 10yr bond. With this supply, we think a breach on the higher side of our current working
range of 7.75-7.95% on the 10yr bond is likely once the issuance of the bonds begins in April.
In our view, the steepening impact on the (ND) OIS curve will be very limited and short lived and
participants can use the current spill-over steepening to initiate flatteners. We remain
comfortable with our 1s3s (ND) OIS flatteners (see India Rates: (ND) OIS – flatteners continue
to make sense, 8 February 2013). In fact, we note that higher gross borrowing suggests that the
government may continue to run a high cash surplus even in April, which will keep MIBOR
fixings elevated and hence, help the positive carry trades in (ND) OIS. On our other
recommendation of long 5yr bond, though there is a near-term impact, the effect over time is
expected to be much less than the 7-15yr part of the curve. In April, amid supply, ahead of the
May 3 policy meeting (when our economics‟ team expect next repo rate cut), we expect 2-5yr
bonds to outperform on the curve and, therefore, remain comfortable holding 5yr bonds in our
strategy portfolio.
Nomura | Asia Economic Monthly 7 March 2013
23
Fig. 5: Gross Supply
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan
-Mar 12
Ap
r-Jun 1
2
Jul-
Sep
12
Oct-
Dec 1
2
Jan
-Mar 13
Ap
r-Jun 1
3
Jul-
Aug
13
Actual Gross Supply EstimatedINR bn
Source: Nomura
Fig. 6: 5yr, 10yr bond yields and the 5s10s spread
7.5
7.6
7.7
7.8
7.9
8.0
8.1
8.2
8.3
8.4
-5
0
5
10
15
20
Jun-12 Aug-12 Oct-12 Dec-12 Feb-13
Spread (2022-2017), lhs
8.07 2017, rhs
8.15 2022, rhs
%bp
Source: Nomura
FX strategy: INR – fiscal concerns re-emerge
In today‟s union budget speech, the Finance Minister set the fiscal deficit target for FY14 at
4.8% of GDP from 5.2% in FY13 (better than the revised target of 5.3%). However, the details
suggest a move towards targeting higher expenditure and revenues rather than looking to cut
spending for fiscal consolidation. As noted in our previous report (see India budget preview:
Balancing prudence and populism, 22 February), a positive medium-term view on INR needs
credible steps from the government to narrow the macroeconomic imbalances which we believe
are absent in the budget as highlighted earlier. In this respect, we exited our short USD/INR
cash position (see Asia FX Portfolio Update: Exit our short USD/INR cash position, 26 February)
as we believe the focus will now turn to medium-term concerns and we see reduced scope for
additional disinvestments by the government (FY13 target reduced to INR240bn from INR300bn
earlier).
Looking at the details, we believe the budget is mildly positive for capital inflows. The
announced measures include the lowering of the securities transaction tax and simplifying the
entry process for foreign portfolio investors. On asset sales, the government has set a
disinvestment target of INR558bn for FY14 which looks ambitious to us given INR240bn
(revised estimate) and INR155bn worth of proceeds in FY13 and FY12 respectively. In addition,
Finance Minister Chidambaram urged parliament to pass the insurance and pension bills in the
current session to increase FDI limits in the sector.
However, the lack of expenditure controls with an expansion of tax revenues remains a key
concern. As discussed, we believe that slippage in the budgeted fiscal deficit target of 4.8%
may be unavoidable, which could raise concerns about sovereign rating downgrade risks. If this
materializes, such a scenario would be INR negative.
This article was originally published on 28 February 2013.
Nomura | Asia Economic Monthly 7 March 2013
24
Zhiwei Zhang +852 2536 7433 [email protected]
Wendy Chen +86 21 6193 7237 [email protected]
China: Sector-level data cast doubt on strength of recovery
Leading indicators sent conflicting signs in January and February.
However, the message from sector-level data does not suggest a strong recovery.
Macro data due for release on 9 March should offer a clearer picture. We expect the
policy stance to change accordingly.
Leading indicators sent conflicting signs in January and February. Total social financing (TSF)
hit a record high of RMB2.5trn and M2 growth jumped to 15.9% y-o-y in January from 13.8% in
December, reaching its highest level since March 2011. For business surveys on the positive
side, the MNI business sentiment indicator, which has a correlation of 0.74 with the official PMI,
rose substantially to 60.98 in February from 55.16 in January, reaching its highest level since
May 2011. On the other hand, the HSBC flash PMI fell surprisingly to 50.4 in February after a
jump to 52.3 in January.
The message from sector-level data is also mixed, but overall does not suggest a strong
recovery. Of the four sectors (cement, steel, construction machinery and auto) from which timely
high-frequency data are available, and which enjoy a high correlation with industrial production,
three sent negative data signals. Cement prices have fallen in recent months after rising in Q3
(Figure 1); steel production growth slid in January despite the fact that the lunar new year fell in
February this year but January last year; steel prices have rebounded since Q4, but only
modestly (Figures 2 and 3); excavator sales volume (construction machinery) is also lower
(Figure 4). The only bright spot is the auto sector, where both production and sales have shown
a pick-up in 3m-o-3m growth since August (Figures 5 and 6).
It is still too early to say decisively how strong the current recovery is, but our conjecture is that
it is relatively weak compared to past ones. A batch of macro data (including industrial
production, fixed asset investment, retail sales and inflation) is due for release on 9 March and
should provide a clearer picture of the state of the economy. We maintain our view of slower
growth of 7.3% y-o-y in H2 2013 from 8.1% in H1, as policy is tightened to contain inflation and
any excessive debt build-up.
Fig. 1: Cement prices and industrial production growth
0
5
10
15
20
25
300
330
360
390
420
450
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
% y-o-yRMB/ton Cement price
Industrial production, rhs
Source: Digital Cement, CEIC and Nomura Global Economics.
Fig. 2: Steel production and industrial production growth
0
5
10
15
20
25
-15
0
15
30
45
60
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-y% y-o-y Crude steel
Industrial production, rhs
Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
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Fig. 3: Steel future price and spot price
3,500
4,000
4,500
5,000
5,500
Feb-10 Feb-11 Feb-12 Feb-13
RMB/ton
Spot price
Future price
Source: CEIC and Nomura Global Economics.
Fig. 4: Excavator sales and industrial production growth
8
9
10
11
12
13
0
5,000
10,000
15,000
20,000
25,000
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
% y-o-yUnit
China excavator sales
Industrial production, rhs
Source: Sector data and Nomura Global Economics.
Fig. 5: Auto production and sales (level)
0
300
600
900
1,200
1,500
1,800
2,100
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13
Auto production
Auto sales
Thousand unit
Source: CEIC and Nomura Global Economics.
Fig. 6: Auto production and sales (growth)
0
5
10
15
20
25
Jan 05 Jan 07 Jan 08 Jan 10 Jan 11 Jan 13
% 3m-o-3m
Auto production
Auto sales
Note: We have chosen to compare only those years in which CNY fell in February. Source: CEIC and Nomura Global Economics.
This article was originally published on 28 February 2013.
Nomura | Asia Economic Monthly 7 March 2013
26
Young Sun Kwon +852 2536 7430 [email protected]
Craig Chan +65 6433 6106 [email protected]
Kewei Yang +65 6433 6246 [email protected]
South Korea: Thoughts on future economic policy
We expect the new government to unveil domestic demand stimulus measures as
early as in March. We expect targeted micro measures on specific areas rather than a
broad-based easing of monetary or fiscal policies.
President-elect Park seems focussed on “potential” rather than “actual” GDP growth.
This suggests that the new government‟s policies will also focus on structural reforms.
We maintain our call that the Bank of Korea will keep rates unchanged at 2.75%
through 2013. We see no risk to our monetary policy outlook from the new
government.
New government poses no risk to our BOK policy outlook
The presidential inauguration on 25 February will see President-elect Park Gun-Hye take office,
with Hyun Oh-Seok as her chosen finance minister and Cho Won-Dong as presidential
economic advisor. We expect the new government to announce fiscal stimulus measures as
early as in March. As domestic demand remains weak, we expect stimulus measures to target
specific areas such as the property market, small and medium-sized enterprises (SMEs), and
low-income families:
Stimulating the property market: To stimulate property transactions, we expect the new
government to cut property holding, transaction and capital gains taxes, lower the loan-
to-deposit (LTV) and debt-to-income (DTI) ratios, and facilitate renovation and
reconstruction activity.
Supporting SMEs: Favourable tax benefits for SMEs are likely to be introduced to
provide them financial support.
Helping low-income families: We expect increased social welfare expenditure for low-
income families and believe old-age benefits are likely to be introduced.
We do not expect the Bank of Korea (BOK) to cut rates this year as GDP growth bottomed out
in Q3 2012, supported by stronger exports on improved global demand. The BOK‟s current
policy rate of 2.75% is a full percentage point lower than our 3.8% estimate of a neutral rate,
meaning that maintaining current policy settings ought to be accommodative enough to support
domestic demand. Weaker sequential GDP growth would be required for the BOK to cut rates,
in our view, but this is not our base case. First of all, the government‟s plan to spend 60% of its
annual expenditure in H1 should contribute markedly to Q1 GDP in seasonally adjusted quarter-
on-quarter growth terms. We expect government consumption to increase by 3.1% q-o-q (sa)
in Q1 2013, contributing 0.4 percentage points (pp) to our 0.7% Q1 GDP growth forecast (see
South Korea: Fiscal front-loading should boost Q1 GDP, 25 February 2013). Secondly, we
expect real exports (goods and services) to gain 0.5% q-o-q (sa) in Q1 after a 1.2% fall in Q4
2012 as global demand should improve, albeit modestly, while an increase in real wage growth
and social welfare spending is likely to support private consumption in the months ahead. We
believe the BOK is wary of accelerating the recovery with more rate cuts as that could trigger a
further build-up of household debt, which is already very high, at 156% of disposable income in
2012.
We expect President Park to focus on “potential” rather than “actual” GDP growth, which means
her economic agenda will also focus on structural reforms rather than aggressive counter-
cyclical macro policy easing. During her election campaign in December, Ms. Park did not
promise any targeted level of GDP growth – in stark contrast to outgoing President Lee Myung-
bak‟s ambitious “747” agenda in 2007 (targeting 7% annual GDP growth, USD40,000 per
capita income, and the establishment of Korea as the world‟s seventh-largest economy within
his five-year term). Rather, Ms. Park has pushed the concept of an “economic democracy” and
better-quality growth, focusing on fiscal policies (taxation and social spending) and fair trade
Nomura | Asia Economic Monthly 7 March 2013
27
(limiting the concentration of economic power held by the chaebol) in an effort to reduce the
high income inequality.
Rather than a policy rate cut, we see a much higher likelihood of a supplementary budget in H1
2013 in association with social-welfare spending and efforts to boost the property market. This
is, however, not our base case, so it does provide upside risk to our below-consensus forecast
of 2.5% GDP growth in 2013. We expect macro policy to continue to promote stability, in terms
of inflation, the financial system and the currency (see South Korea: Explaining our rates-on-
hold call, 8 January 2013).
All in all, we believe growth momentum will neither be weak enough to trigger rate cuts, nor
strong enough to bring rate hikes. As such, we continue to expect rates to remain on hold
throughout 2013. As a small, open economy, Korea is vulnerable to sudden changes in global
economic conditions, commodity prices and financial markets. That said, we would expect the
BOK to cut rates if one of the major downside risks to global growth – the US fiscal cliff, a
renewed eurozone sovereign crisis, or a China hard landing – materializes, but none of these
form part of our base case assumptions.
We expect the president-elect to continue to respect the BOK‟s independence, with Governor
Kim Choong-soo remaining in place until his term expires in April 2014. If the BOK was to cut
rates soon, without a substantial downward revision to its growth outlook, it would run the
serious risk of creating an unintended market misperception that there was political pressure on
the BOK to act – which we believe is far from what President-elect Park wants. We do not
believe the new government poses a risk to our BOK policy outlook; rather, that still remains
with any significant change in the global growth outlook. If the BOK does decide to cut rates, it
would only do so because of weaker growth, not because of the new government.
Limited impact on KRW; near-term focus remains on JPY and equity flows
Our view that the new government‟s stance on FX will be similar to the current government‟s
implies that there may still be a preference for KRW undervaluation with continued risk of
macroprudential controls. While the structural and cyclical drivers of KRW strength (see Asia
Special Report: 2013 outlook: Asia’s overheating risks, 28 November 2012), including central
bank/sovereign wealth fund bond inflows and the current account surplus remain intact, there
are a few headwinds that have grown and may continue to affect KRW over the medium term.
As we highlighted in Asia Insights: Asia FX: Rising convergence risk (6 February 2013), the
breakout of USD/JPY above 90 looks to have reached a point where it has raised the risk of
potential currency weakness in other parts of Asia. Unless JPY stabilizes, the risk is that the
increased sensitivity of currencies that are more closely related by trade – in particular KRW –
will remain under weakening pressure. We have already seen some evidence in the FX reserve
data that some regional policymakers have been buying USD to realign their currencies with
moves in USD/JPY.
Beyond FX intervention, the other risk to KRW is from potential equity-related outflows. This risk
comes on two fronts: 1) deterioration in corporate earnings due to a weaker JPY (stronger
KRW). This is most evident in the various FX-sensitive sectors of the Korean equity market,
such as the automakers and industrial sectors (the heaviest competitors with Japan), and; 2)
Vanguard‟s benchmark transition. Nomura Korea equity research estimates that there may be
as much as USD8.6bn of net outflows (USD344mn per week) over a 25-week period (which
started 9 January through to 3 July) – see Impact of Vanguard benchmark transition, 8 January
2013. This is significant as even in 2012 – which was considered a stellar year for foreign equity
inflows – the net inflow was USD15.1bn for the full year, or an average of USD290mn a week.
Rates: continue to hold fwd starting 1s3s steepeners
We continue to believe the BOK is unlikely to cut rates further given the turn to positive in
growth momentum. In the last decade the BOK has never cut rates further once economic
growth momentum has turned upwards, which is consistent with recent comments from BOK
Governor Kim. While the market may be divided on whether there is one more cut or not, the
view is largely held that the BOK is close to the end of this cycle. As such, we believe the curve
is very likely to steepen, from its current low and flat trajectory. We therefore continue to hold a
paying bias. The belly usually underperforms the wings in such a scenario, so we favor paying
Nomura | Asia Economic Monthly 7 March 2013
28
the 3-5yr part of the curve. For example, we recently shorted the 3yr KTBF (see again South
Korea: Explaining our rates-on-hold call, 8 January 2013).
However, judging by price movements around the January and February MPC meetings, the
market seemingly continues to expect a rate cut. The concerns seem to be that aggressive
Bank of Japan easing will, via USD/JPY depreciation, have an impact on Korea‟s growth
outlook given the importance of exports to the economy; political pressure from the new
government and new financial minister on the BOK (which we believe is misplaced); and that
US sequester issues also pose a risk to the future growth path of the global economy.
To avoid digital risk while maintaining our core bias, we converted our outright paid position into
a steepener via a 3m1y received position (see Korea rates: Hedging digital risk over MPC
meeting, 5 February 2013). We continue to like the hedge for our short 3y KTB futures position
with a received position in the front end IRS (effectively a front-end fwd starting 1s3s
steepener). Given the consensus view that the BOK is near the end of its rate cut cycle, we
believe steepeners provide better risk-reward relative to outright paid positions at this stage (we
have a 3m1y-3y KTBF steepener in our portfolio; see our latest FX Portfolio Performance, 14
February, for details).
This article was published on 20 February 2013.
Nomura | Asia Economic Monthly 7 March 2013
29
Chart alerts
South Korea: Fiscal front-loading should boost Q1 GDP
The government's plan to spend 60% of its annual expenditure budget in H1 should contribute markedly to Q1 GDP in seasonally
adjusted growth terms.
Fig. 1: Government consumption in Q1 versus Q2-Q4
-1
0
1
2
3
4
Q1 09 Q1 10 Q1 11 Q1 12 Q1 13
Government consumption% (sa) q-o-q
F
Note: The column next to Q1 in each year is the Q2-Q4 average.
Since the 2008 global financial crisis, Korea‟s
government has spent about 60% of its annual
expenditure budget in H1 to support domestic demand
(for example, 60.8% and 60.1% in 2010 and 2012,
respectively). This year, the government‟s fiscal front-
loading target ratio is also set at 60%.
We expect government consumption to increase by
3.1% (sa) q-o-q in Q1 and contribute 0.4 percentage
points to our 0.7% Q1 2013 GDP growth forecast.
Due to this fiscal front-loading, Q2-Q4 2013 GDP will
likely be dependent upon private sector domestic
demand and exports, on which we are sanguine. We
expect global demand, especially from the US, euro
area and Japan, to improve in Q2-Q4 on a sequential
basis, supporting Korea‟s exports and investments.
We maintain our call for the Bank of Korea to keep rates
unchanged at 2.75% throughout 2013. Also, although
this is not our base case, if the new government
formulates a supplementary budget, upside risks to our
2.5% 2013 GDP growth forecast would increase and the
likelihood of a rate cut would lessen.
Source: CEIC and Nomura Global Economics estimates. Author: Young Sun Kwon, originally published on 15 February 2013.
China: The largest hike in the rail freight tariff since 2003
It reinforces our view that CPI inflation will rise above 3.5% in H2 and lead to two interest rate hikes.
Fig. 1: Rail freight tariff and its growth
0
2
4
6
8
10
12
14
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
Dec 03
Mar 05
Mar 06
Nov 07
Jun 08
Dec 09
Apr 11
May 12
Feb 13
%
Rail f reight tarif f , lhs
Growth of rail f reight tarif f , rhs
RMB per ton-km
Earlier today, the National Development and Reform
Commission (NDRC) and the Ministry of Railway (MOR)
raised the rail freight tariff by 13.0% effective 20
February 2013, from RMB0.1151 per ton-km to
RMB0.1301, the largest hike since 2003.
The tariff hike suggests that the government may move
to lift other administratively suppressed prices, such as
electricity and other public utilities. Energy price reform
has been on the top of the government‟s policy agenda
since 2012, but was delayed due to concerns over GDP
growth slowing. Now that growth has recovered while
inflation remains low, the window for energy price reform
has reopened.
This, together with slowing potential growth and a tight
labour market, supports our view that CPI inflation will
rise to 3.5% for full-year 2013 (Consensus: 3.1%), rise
to 4.4% y-o-y in H2 2013 and cause the People‟s Bank
of China to hike interest rates twice in H2. We continue
to expect growth to slow from 8.1% in H1 to 7.3% in H2.
Source: NDRC, MOR, media reports and Nomura Global Economics. Authors: Zhiwei Zhang and Wendy Chen, originally published on 20 February 2013.
Nomura | Asia Economic Monthly 7 March 2013
30
Malaysia: The government still meets its 2012 fiscal target
... but the details and rising public debt continue to highlight the need for fiscal consolidation.
Fig. 1: Targeted fiscal deficit versus actual deficit
The fiscal deficit stood at 4.5% of GDP in 2012 from 4.8%
of GDP in 2011, in line with the government‟s estimates.
The government has been able to consistently meet its
fiscal deficit targets in the past few years, supporting our
view it is cognizant of the need to balance fiscal prudence
with political objectives.
However, the details also underscore the need for more
fiscal reforms. Revenues increased 12.1% y-o-y in 2012
from 16.1% in 2011, but the bulk of these receipts is still
petroleum related (30% by our estimates). Specifically for
Q4, Bank Negara Malaysia stated that revenue growth
was largely “supported by the higher petroleum income
tax”. Meanwhile, current expenditures rose 12.6% y-o-y
from 20.4%. This reflects election-related spending but at
the expense of other key items indicated by the 2.2%
drop in development expenditures.
Public debt was 53.5% of GDP in 2012. This is still below
the ceiling of 55% but nonetheless within striking
distance. Given the elections, we see fiscal slippage in
early 2013, which should then be followed by bigger fiscal
consolidation if the government is to again meet its fiscal
deficit target of 4.0% of GDP and avoid exceeding the
debt ceiling. This poses a strong headwind to growth.
Source: CEIC; Nomura Global Economics Authors: Euben Paracuelles and Lavanya Venkateswaran, originally published on 22 February 2013.
South Korea: A healthy household restructuring
In 2012, households increased net savings and slowed debt growth to match income growth. We expect policies by the new
government to support this restructuring.
Fig. 1: Korea’s household income, expenditure and debt
0
2
4
6
8
10
12
2004 2005 2006 2007 2008 2009 2010 2011 2012
Household income
Household debt
Household expenditure
% y-o-y
Income growth of Korean households rose to 6.1% in
2012, but growth of expenditures slowed to 3.3%.
Also, household debt growth slowed to 5.8%, slightly
less than income growth. We view this as a healthy
restructuring of the household balance sheet.
The net savings ratio of Korean households, which
was Asia‟s lowest at 2.7% in 2011, likely rose slightly
in 2012, while Korea‟s household debt to disposable
income ratio (156% in 2011) may have fallen slightly.
A soft landing of the household debt problem is part
of the 140-point policy agenda of the new
government. That said, we believe the Bank of Korea
is wary of accelerating the recovery via further rate
cuts, as this could trigger another household debt
increase and lower the savings ratio (see South
Korea: Park’s policy agenda unveiled, 21 February).
As growth bottomed from its low base in Q3 2012,
we maintain our out-of-consensus call that the Bank
of Korea will keep rates at 2.75% throughout 2013.
Source: CEIC and Nomura Global Economics. Author: Young Sun Kwon, originally published on 22 February 2013.
-8.0 -6.0 -4.0 -2.0 0.0
2005
2006
2007
2008
2009
2010
2011
2012
Targeted fiscal deficit Actual fiscal deficit
% GDP
Nomura | Asia Economic Monthly 7 March 2013
31
China: Property prices rose faster in January
This should further pressure the government to tighten monetary and property market policies.
Fig. 1: Property price growth and M2 growth
10
14
18
22
26
30
-4
0
4
8
12
16
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-y% y-o-y Property price growth in 70 cities
M2 growth, rhs
Note: The composite growth of property prices after January 2011 is estimated based on property price growth of 70 cities.
In January, the average property price in 70 cities rose
by 0.63%, its first year-on-year increase in eleven
months, according to the National Bureau of Statistics.
On a month-on-month basis, it rose by 0.54%, the
fastest growth since January 2011.
We think loose monetary policies and abundant liquidity
were the primary drivers of the recent property price
increases. M2 growth bottomed in April 2012 and rose to
15.9% y-o-y in January. Total social financing reached a
historical high of RMB2.5trn in January.
We believe the recent rise in property prices will
pressure the government to tighten policies. Indeed, the
State Council announced five measures to cool the
property market on Wednesday. We believe authorities
will soon tighten monetary policies to control risks and
continue to expect growth to slow from 8.1% in H1 to
7.3% in H2, mainly due to policy tightening.
Source: WIND, Bloomberg and Nomura Global Economics. Authors: Zhiwei Zhang and Wendy Chen, originally published on 22 February 2013.
India: Nominal salary growth to moderate in 2013
With real salary growth almost flat and a worsening employment outlook, we expect private consumption growth, particularly in
urban areas, to remain weak.
Fig. 1: Nominal and real salary growth
-10
-5
0
5
10
15
20
2003 2005 2007 2009 2011 2013
Nominal salary Real salary% y-o-y
According to global HR consultancy firm Aon-
Hewitt, nominal salary growth in India is likely to
moderate to 10.3% y-o-y in 2013, down from an
estimated 11.9% in 2012. Adjusted for inflation, we
estimate that real salaries are likely to grow at a
meager 0.7% y-o-y in 2013 from 2.2% in 2012.
In our view, a steady decline in corporate
profitability and no clear sustained demand
recovery on the horizon has forced firms to
rationalise employee costs.
With flat real income growth and a worsening
employment outlook, we expect private
consumption growth, particularly in urban areas, to
remain weak. Ongoing fiscal consolidation, a
sluggish investment cycle and lackluster external
demand all suggest that GDP growth is unlikely to
pick up quickly.
Note: Real salary is Nomura estimate calculated as Nominal salary - CPI inflation. Survey methodology: Aon Hewitt surveyed over 500 organizations representing 20 primary and 30 secondary industry sectors from December 2012 to January 2013. The study measures actual and projected salary increases, as well as compensation practices for five specific job categories, namely top/senior management, middle management, junior manager/professional/supervisor, general staff, and manual workforce. Source: Aon Hewitt, CEIC and Nomura Global Economics estimates. Authors: Sonal Varma and Aman Mohunta, originally published on 26 February 2013.
Nomura | Asia Economic Monthly 7 March 2013
32
Korean data hint at a downside surprise in China's exports
Consensus expects growth of 7.6% y-o-y in February. We expect exports to shrink by 10%.
Fig. 1: Export growth rates in China and Korea
-30
-20
-10
0
10
20
30
40
50
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Gap between China and Korea
Korea export growth
China export growth
% y-o-y (3mma)
Note: China’s export growth in February 2013 is our forecast. Data will be released on 8 March.
The consensus forecast is for China‟s exports to continue to
grow strongly in February, at 7.6% y-o-y despite the
unfavorable lunar new year base effect. But a 1 March data
release shows Korea‟s exports contracted by 8.6% y-o-y in
February. This suggests to us that China‟s exports may have
also declined in February.
On a 3mma y-o-y basis, China‟s and Korea‟s export growth
are positively correlated. The gap between the two has been
stable, at about 10 percentage points (pp) since mid-2012. If
China‟s export growth is 0% y-o-y in February, the gap
between the export growth rates for the two countries would
widen to 16pp, which has only occurred once since 2008
(January 2009). Thus, contrary to the consensus view, we
believe China‟s exports likely contracted in February. This
would gel with the export orders component of China‟s official
PMI, which fell from 48.5 in January to 47.3 in February.
We expect China‟s export and import growth to have both
declined by 10% y-o-y in February, resulting in a trade deficit
of USD28.5bn. On a 3mma basis, this implies China‟s exports
grew by 14.1% y-o-y in February, and the gap with Korea‟s
export growth widened to 13.3pp from 10.9pp in January.
Source: CEIC and Nomura Global Economics. Author: Young Sun Kwon, originally published on 4 March 2013.
South Korea: The inverted yield curve looks unsustainable
We expect GDP to grow modestly on improved global demand and the government's targeted stimulus measures, which should
eventually normalise the yield curve.
Fig. 1: Korea’s yield curve
2.75
4.10
4.51
4.80
2.752.63
2.73
2.93
2.5
3.0
3.5
4.0
4.5
5.0
BOK policy rate 3yr KTB 5yr KTB 10yr KTB
7-Feb-11
5-Mar-13
%
3.75%: Our estimate of a nominal neutralpolicy rate
Note: Given the policy rate is at 2.75%, the yield curve was steepest on 7 February 2011and the most inverted on 5 March 2013.
Upcoming macro data and the Bank of Korea‟s
March policy decision will test the validity of the
inverted yield curve, which given a 2.75% policy rate,
reached an historical extreme on 5 March.
The January-February MPC meeting minutes
showed that a majority of the MPC voted to hold
rates, with one member voting for a 25bp rate cut.
Recent macro data have been mixed. January
industrial output fell, but year-to-date exports gained
slightly. We expect most MPC members to remain in
wait-and-see mode at the 14 March meeting.
We expect exports to gain further, supported by solid
demand from the US, China and Asean. The
government‟s fiscal front-loading, increase in social-
welfare spending and upcoming deregulation in the
property market should support domestic demand.
We maintain our call for no rate cuts through 2013.
Based on this, our rates strategist, Kewei Yang,
recommends staying with steepeners (see AEJ rate
updates: Think Global, Act Local, 26 February 2013).
Source: CEIC and Nomura Global Economics. Author: Young Sun Kwon, originally published on 4 March 2013.
Nomura | Asia Economic Monthly 7 March 2013
33
Calendar
The month ahead
Units Period Prev 2 Prev 1 Last Nomura
10-15 Mar China Money supply, M2 % y-o-y Feb 13.9 13.8 15.9 14.8
10-15 Mar China New Yuan loans RMBbn Feb 523 454 1070 650
10-15 Mar China Total social financing RMBbn Feb 1122 1626 2535 1400
23-27 Mar Thailand Custom trade balance US$bn Feb -1.5 -2.4 -5.5 -0.9
China Exports % y-o-y Feb 2.9 14.1 25.0 -10.0
China Imports % y-o-y Feb 0.0 6.0 28.8 -10.0
China Trade balance US$bn Feb 19.6 31.3 29.2 -28.5
09.30 China Consumer price index % y-o-y Feb 2.0 2.5 2.0 3.1
13.30 China Industrial production % y-o-y Jan/Feb 9.6 10.1 10.3 10.6
13.30 China Retail sales % y-o-y Jan/Feb 14.5 14.9 15.2 15.5
13.30 China Urban fixed asset investment (ytd) % y-o-y Jan/Feb 20.7 20.7 20.6 20.6
India Consumer price index % y-o-y Feb 9.9 10.6 10.8 10.70
13.30 India Industrial production % y-o-y Jan 8.3 -0.8 -0.6 1.3
09.00 South Korea Central bank policy meeting, BOK base rate % Mar 2.75 2.75 2.75 2.75
14.30 India Wholesale price index % y-o-y Feb 7.2 7.2 6.6 6.8
16.00 Philippines Central bank meeting, overnight borrowing rate % Mar 3.50 3.50 3.50 3.50
Philippines Remittance from aboard % y-o-y Jan 8.5 7.6 9.7 6.6
08.30 Singapore Non-oil domestic exports % y-o-y Feb -2.6 -16.3 0.5 -10.8
13.30 India Central bank meeting, repo rate % Mar 8.00 8.00 7.75 7.75
17.00 Malaysia Consumer price index % y-o-y Feb 1.3 1.2 1.3 1.4
16.30 Hong Kong Consumer price index % y-o-y Feb 3.7 3.7 3.0 4.2
13.00 Singapore Consumer price index % y-o-y Feb 3.6 4.3 3.6 4.3
16.00 Taiwan Industrial production % y-o-y Feb 5.7 2.1 19.2 -6.0
13.00 Singapore Industrial production % y-o-y Jan 2.8 1.3 -0.4 -6.6
19.30 India Current account balance US$bn Q4 -21.7 -16.4 -22.3 -29.5
07.00 South Korea Industrial production % y-o-y Feb 2.1 -0.5 7.3 -5.0
Thailand Consumer price index % y-o-y Mar 3.6 3.4 3.2 3.0
07.00 South Korea Consumer price index % y-o-y Mar 1.4 1.5 1.4 1.7
08.00 South Korea Exports % y-o-y Mar -6.0 10.9 -8.6 3.0
09.00 China Official purchasing manager's index Index Mar 50.6 50.4 50.1 51.5
12.00 Indonesia Consumer price index % y-o-y Mar 4.3 4.6 5.3 5.1
12.00 Indonesia Trade balance US$bn Mar -0.6 -0.2 -0.2 -0.3
16.30 Hong Kong Retail sales (volume) % y-o-y Feb 8.1 8.1 10.5 6.2
15.30 Thailand Central bank policy meeting, 1 day repo rate % Mar 2.75 2.75 2.75 2.75
09.00 Philippines Consumer price index % y-o-y Mar 2.9 3.0 3.4 3.6
Friday 15 March
Monday 18 March
Saturday 9 March
Sometime in the month
Thursday 14 March
Tuesday 12 March
Friday 8 March
Tuesday 19 March
Monday 25 March
Tuesday 26 March
Wednesday 20 March
Thursday 21 March
Thursday 28 March
Monday 1 April
Tuesday 2 April
Friday 29 March
Wednesday 3 April
Friday 5 April
Note: All times in HKT. Source: Bloomberg and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
34
Zhiwei Zhang +852 2536 7433 [email protected]
Wendy Chen +86 21 6193 7237 [email protected]
Outlook 2013-2014
China: Mixed signals cast doubt on the strength of the recovery
Policy will likely tighten, but pace of tightening depends on the strength of activity data.
Activity: Data in the first two months of 2013 have sent conflicting signals. The official PMI
surprisingly fell to 50.1 in February from 50.4 in January and the HSBC PMI dropped to 50.4
after a jump to 52.3 in January, which is consistent with some sector level data. However, the
MNI business sentiment indicator rose to 61.0 in February from 55.2 in January. The release of
key data on 9 March should provide more clarity on the direction of the economy. We continue
to expect real GDP growth to rise to 8.2% y-o-y in Q1 before it moderates to 7.3% in H2.
Inflation: We expect CPI Inflation to rise to 3.1% y-o-y in February from 2.0% in January, due to
rising food prices and positive base effects. The government lowered its CPI inflation target to
3.5% in 2013 from 4.0% last year. In the National People‟s Congress (NPC), Premier Wen cited
rising prices in food, labour and natural resources, imported inflation from QEs in major
economies, and the need to reform energy prices as the primary factors driving inflation. This
suggests to us that further price hikes on energy and public utilities will be implemented in H1.
Policy: Credit supply continued to grow strongly in January with total social financing hitting an
all-time high at RMB2.5trn and M2 growth jumping to 15.9% y-o-y. However, in light of
increased concerns over rising financial risks and inflation, we believe that monetary policy has
to shift away from its very loose stance. The government announced tightening measures on
the property market and set the M2 growth target for 2013 at 13% at the NPC, down from 14%
in 2012. These announcements suggest monetary policy will tighten after the NPC, but we
believe the pace of tightening will depend on the strength of activity data in January and
February (to be announced on 9 March).
Risks: We see three key risks to our forecast. The largest risk is policy uncertainty, as political
pressure could force the government to maintain its currently loose policy stance longer than we
expect. The second is inflation, which may rise more slowly than we expect and delay policy
tightening. The third is external demand, given the uncertain outlook of EU and US economies.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 8.1 7.6 7.4 7.9 8.2 8.0 7.4 7.2 7.8 7.7 7.5
Consumer prices 3.8 2.9 1.9 2.1 2.5 3.0 3.6 4.8 2.6 3.5 4.0
Core CPI 1.5 1.3 1.5 1.5 2.0 2.1 2.4 2.1 1.5 2.2 2.0
Retail sales (nominal) 14.9 13.9 13.5 14.9 16.2 15.9 15.5 15.6 14.2 15.8 16.0
Fixed-asset investment (nominal, ytd) 20.9 20.4 20.5 20.6 21.0 21.2 21.3 22.0 20.6 22.0 20.0
Industrial production (real) 11.6 9.5 9.1 10.0 10.8 10.5 9.6 9.6 10.1 10.1 9.7
Exports (value) 7.6 10.4 4.4 9.5 3.0 4.0 6.0 6.0 7.9 4.9 6.0
Imports (value) 6.9 6.4 1.4 2.8 7.0 8.0 9.0 9.0 4.4 8.3 10.0
Trade surplus (US$bn) 0.2 68.4 79.2 83.4 -16.9 52.9 70.1 74.3 231.2 180.3 122.0
Current account (% of GDP) 2.6 1.0 -0.4
Fiscal balance (% of GDP) -1.6 -1.5 -1.6
New increased RMB loans (CNY trn) 8.2 9.0 9.0
1-yr bank lending rate (%) 6.56 6.31 6.00 6.00 6.00 6.00 6.25 6.50 6.00 6.50 6.5
1-yr bank deposit rate (%) 3.50 3.25 3.00 3.00 3.00 3.00 3.25 3.50 3.00 3.50 3.5
Reserve requirement ratio (%) 20.5 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 19.0
Exchange rate (CNY/USD) 6.31 6.32 6.34 6.29 6.22 6.18 6.16 6.15 6.29 6.15 6.14
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. The CNY/USD forecast is for the fixing rate, not the spot rate. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
35
Young Sun Kwon +852 2536 7430 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
Hong Kong: Fiscal stimulus
The 2013-14 budget focusses on increasing social welfare spending.
Activity: Real GDP growth increased to 2.6% y-o-y in Q4, led by a pick up in private
consumption and exports. Retail sales growth in volume terms also remained strong, at 10.4%
in January from 8.5% in December, while the PMI remained in the expansion zone at 51.2 in
February, albeit down from January. We expect private consumption to remain robust,
underpinned by a tight labor market, positive wealth effects from buoyant property prices and
increasing visitor numbers from mainland China. Further, domestic fixed asset investment
should remain strong, led by infrastructure works. We expect fiscal stimulus and a moderate
improvement in external demand to lift real GDP growth from 1.4% in 2012 to 2.5% in 2013.
Inflation: CPI inflation eased to 3.0% y-o-y in January from 3.8% in December, largely on base
effects created by the lunar new year holiday, and hence we expect a payback in February.
Thereafter, inflation should rise through 2013, driven by higher food, fuel and rent prices, only
partly offset by inflation-mitigating fiscal measures such as a temporary waiver of public housing
rent and electricity subsidies. We expect CPI inflation to rise from 4.1% in 2012 to 4.3% in 2013.
Policy: Hong Kong's FY13 (April 2013 to March 2014) fiscal policies are more expansionary
than in FY12. The government expects the fiscal balance to shift to a deficit of HKD4.9bn in
FY13 from a surplus of HKD64.9bn in FY12 due to increased expenditures. The budget includes
a reduction in taxes and an increase in the child allowance for low income families; a subsidy for
electricity; and two months‟ waiver of rent payments for public housing tenants. We also expect
the government to continue implementing more macroprudential property tightening measures,
such as hikes in the stamp duty if house prices continue to rise. Because of the USD/HKD peg,
Hong Kong is importing the super-loose monetary policy of the US, and it remains unclear
whether tighter macroprudential measures can provide a sufficient offset in the long run.
Risks: As a small, open economy and financial hub, Hong Kong is one of the most vulnerable
in Asia to weakness in the global economic outlook. An economic hard landing in China would
be especially detrimental through both trade and financial channels.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 1.5 -0.4 3.4 4.9 0.6 1.1 5.2 2.8
Real GDP 0.7 1.2 1.1 2.6 2.1 2.5 2.9 2.4 1.4 2.5 3.5
Private consumption 6.3 2.8 2.8 4.5 3.2 3.4 3.6 4.5 4.0 3.7 4.4
Government consumption 3.3 4.1 4.0 3.2 3.5 3.7 3.8 4.2 3.7 3.8 4.4
Gross fixed capital formation 12.5 5.7 8.3 6.0 5.8 5.8 5.7 5.8 9.1 5.8 6.1
Exports (goods & services) -3.6 0.3 3.0 5.0 4.5 5.0 5.0 5.5 1.3 5.0 7.2
Imports (goods & services) -1.6 0.9 3.8 6.4 5.1 5.5 6.2 6.9 2.5 6.0 7.7
Contributions to GDP (% points)
Domestic final sales 7.4 3.6 4.3 5.6 3.8 4.0 4.2 4.8 5.2 4.2 4.8
Inventories -1.7 -1.3 -1.0 -0.3 -0.5 -0.2 1.2 0.6 -1.1 0.3 -0.2
Net trade (goods & services) -4.4 -1.3 -1.6 -2.6 -1.1 -1.4 -2.3 -2.9 -2.5 -1.9 -1.2
Unemployment rate (sa, %) 3.3 3.3 3.5 3.3 3.4 3.4 3.4 3.4 3.4 3.4 3.2
Consumer prices 5.2 4.2 3.1 3.8 3.7 4.3 4.5 4.6 4.1 4.3 4.3
Exports -1.2 2.0 4.4 7.4 9.2 10.4 10.1 10.4 3.2 10.0 12.3
Imports 0.9 2.3 5.0 8.4 9.5 10.5 10.9 11.7 4.3 10.7 12.5
Trade balance (US$bn) -12.7 -15.9 -15.6 -17.4 -14.2 -17.6 -18.3 -21.0 -61.6 -71.2 -80.9
Current account balance (% of GDP) 1.5 -0.1 -0.7
Fiscal balance (% of GDP) 3.3 -0.2 -0.5
3-month Hibor (%) 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40
Exchange rate (HKD/USD) 7.76 7.76 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75
Source: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
36
Sonal Varma +91 22 4037 4087 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
India: Politics trumps economics
With the government likely to increase spending ahead of the elections in 2014, macro
imbalances should continue and growth will likely disappoint.
Forecast change: We have revised our 2013 GDP growth forecast down to 5.2% (from 6.1%)
and our current account balance forecast down to -5.3% of GDP in 2013 (from -4.7%) and
-4.2% in 2014 (from -3.9%).
Activity: Sharp cutbacks in government spending and a slowdown in the financial sector
dragged down GDP growth to 4.5% y-o-y in Q4 2012. Although growth appears to have
bottomed, in the absence of any positive triggers in the near term we expect GDP growth to
remain below 5% in H1 2013, with a cyclical pick up from Q4 2013 due to increased
government spending ahead of the general election in 2014. However, new capex projects
remain moribund, and we see no pick up in sight. As a result, supply-side constraints remain
binding and suggest limited spare capacity to accommodate a significant pickup in demand
(without generating inflationary pressures and/or a widening trade deficit).
Inflation: Price pressures have eased and we expect WPI inflation to remain below 7% in Q1
2013 due to the lagged impact of a negative output gap, falling input costs and a delay in
updating the coal price index of the WPI basket. However, we expect WPI inflation to start rising
again in Q2 2013 due to higher food prices and the release of some fiscally suppressed inflation,
as subsidies and price controls are relaxed a little. INR depreciation is likely to intensify
inflationary pressures from Q3 2013. Further, double-digit CPI inflation suggests that underlying
pressures remain strong, notwithstanding the fall in WPI inflation.
Policy: The Reserve Bank of India (RBI) cut its repo rate by 25bp in January and we expect
another 25bp cut in May given the fall in WPI inflation. However, with inflation likely to rise again
from Q2 and a worsening current account deficit, we expect policy rates to remain on hold in H2
2013. The government achieved its fiscal deficit target of 5.2% of GDP in FY13, which is lower
than the revised target of 5.3%, and has budgeted for a fiscal deficit of 4.8% in FY14. However,
we expect the fiscal deficit to remain at 5.2% in FY14, as we believe the government is likely to
miss its revenue target, and the elections due in 2014 will limit its ability to cut expenditures.
Risks: A reversal of capital flows, a sharp rise in oil prices, a deeper and prolonged global
slowdown and weather-related shocks are the key downside risks. Lower commodity prices, a
stronger-than-expected global recovery and a quick investment revival are upside risks.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 5.9 5.3 6.0 2.5 1.7 9.0 8.1 5.4
Real GDP 5.3 5.5 5.3 4.5 4.7 4.8 5.2 6.0 5.1 5.2 6.6
Private consumption 9.7 2.0 2.0 4.6 4.0 4.7 4.9 5.2 4.5 4.7 5.3
Government consumption 7.6 8.3 8.0 1.9 2.0 5.5 6.5 8.0 6.2 5.5 6.2
Fixed investment 2.6 -4.6 -1.0 6.0 4.0 7.2 4.3 4.5 0.7 5.0 6.5
Exports (goods & services) 13.4 7.2 5.2 -2.1 1.5 4.5 6.5 8.6 5.8 5.2 10.3
Imports (goods & services) 24.3 3.9 13.8 -0.3 2.0 8.2 6.5 10.2 9.8 6.7 9.2
Contributions to GDP (% points)
Domestic final sales 2.5 4.4 5.5 2.3 12.0 6.6 6.0 7.2 3.6 8.0 7.1
Inventories -1.1 1.2 1.2 1.1 1.0 -0.1 0.0 0.1 0.6 0.3 0.2
Net trade 4.0 -0.2 -1.4 1.1 -8.3 -1.7 -0.8 -1.3 1.0 -3.1 -0.6
Wholesale price index 7.5 7.5 7.9 7.2 6.8 7.1 7.2 7.5 7.5 7.1 6.8
Consumer price index 8.6 10.2 9.9 10.1 10.7 9.8 9.6 9.1 9.7 9.8 8.1
Current account balance (% GDP) -4.9 -5.3 -4.2
Fiscal balance (% GDP) -5.2 -5.2 -5.0
Repo rate (%) 8.50 8.00 8.00 8.00 7.75 7.50 7.50 7.50 8.00 7.50 7.00
Reverse repo rate (%) 7.50 7.00 7.00 7.00 6.75 6.50 6.50 6.50 7.00 6.50 6.00
Cash reserve ratio (%) 4.75 4.75 4.50 4.25 4.25 4.25 4.25 4.25 4.25 4.25 4.75
10-year bond yield (%) 8.54 8.18 8.15 8.05 7.80 7.80 7.70 7.50 8.05 7.50 7.00
Exchange rate (INR/USD) 51.2 54.0 52.7 55.0 53.0 55.5 60.0 59.0 55.0 59.0 56.0
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. CPI is with base year 2010. Fiscal deficit is for the central government and for fiscal year, e.g, 2012 is for the year ending March 2013. Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
37
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Indonesia: Still a case to tighten
A combination of recent increases in inflation and persistently weak external balances
makes a compelling case for BI to hike rates.
Activity: Monthly indicators for January, including the consumer confidence index, motorcycle
and cement sales and strong import growth, suggest that consumption demand remained
strong. This, along with higher government spending ahead of the 2014 elections, supports our
2013 GDP growth forecast of 6.1% GDP. But the sustainability of growth is becoming more
worrisome. Merchandise exports improved in January, but we still see upside risks to our
current account deficit forecast of 1.9% of GDP this year, because of robust imports. Without
reducing fuel subsidies or tightening monetary policy, the risk is that domestic demand
increasingly outstrips supply.
Inflation and monetary policy: CPI inflation jumped to 5.3% y-o-y in February from 4.6% in
January, approaching the upper limit of Bank Indonesia‟s (BI) 3.5-5.5% target range. The
increase was largely due to higher food prices, as core inflation remained stable at 4.3%. We
continue to expect inflationary pressures to persist given the electricity tariff adjustments, the
lagged impact of IDR depreciation and elevated inflation expectations (see Asia Insights:
Indonesia: Inflation jumps in February, 1 March 2013). This, combined with persistently weak
external balances, bolsters the case for BI to act. Our base case calls for 50bp of policy rate
hikes in H2. Raising the FASBI rate (the lower bound of the interest rate corridor) can occur
sooner, which would be a signal that BI is moving toward a tightening bias.
Fiscal policy: Our recent trip to Jakarta confirmed the low likelihood of fuel subsidy cuts this
year (see Asia Insights: Indonesia: Postcard from Jakarta, 25 February 2013). That said, we
continue to expect the government to improve its execution on infrastructure spending and other
capital expenditures. Some positive signs of this include progress made on the development of
the Jakarta Mass Rapid Transit system. All told, we expect higher operating expenditures to
increase the 2013 deficit to 2.0% of GDP (versus the budgeted 1.65%).
Risks: The key risk we see is the implementation of more protectionist and populist policies
ahead of the elections, which could damage already-fragile investor sentiment and slow FDI
inflows. On the external front, weaker growth in the EU, US and China also pose downside risks.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized)
Real GDP 6.3 6.4 6.2 6.1 6.1 6.2 6.0 6.0 6.2 6.1 6.2
Private consumption 4.9 5.2 5.6 5.4 5.5 5.8 5.7 5.5 5.3 5.6 5.6
Government consumption 6.4 8.6 -2.8 -3.3 7.0 8.0 10.0 10.0 1.2 9.0 7.0
Gross fixed capital formation 10.0 12.5 9.8 7.3 9.8 8.9 8.8 7.9 9.8 8.7 9.0
Exports (goods & services) 8.2 2.6 -2.6 0.5 6.0 6.0 7.0 9.0 2.0 7.0 10.0
Imports (goods & services) 8.9 11.3 -0.2 6.8 6.5 7.0 5.5 8.0 6.6 6.8 11.9
Contributions to GDP (% points)
Domestic final sales 5.5 6.5 5.2 4.5 5.7 6.0 6.1 6.1 6.0 5.3 6.0
Inventories 2.0 2.3 -0.1 3.1 -0.2 -0.3 0.0 0.5 1.8 0.0 -0.3
Net trade (goods & services) 0.6 -3.0 -1.2 -2.5 0.4 0.1 1.3 1.2 -1.5 0.7 0.2
Consumer prices 3.7 4.5 4.5 4.4 4.6 5.1 5.4 5.5 4.3 5.2 5.1
Exports (goods) 5.3 -8.2 -13.0 -7.9 7.0 9.0 8.0 9.0 -6.3 8.2 10.4
Imports (goods) 21.6 9.7 -0.3 4.6 6.0 7.0 8.0 10.5 8.3 7.9 12.0
Trade balance (US$bn) 1.7 -2.1 0.6 -2.7 1.6 -1.1 2.7 -3.5 -2.4 -0.3 -0.9
Current account balance (% of GDP) -1.4 -3.5 -2.4 -3.6 -1.2 -2.0 -1.3 -3.2 -2.7 -1.9 -1.7
Fiscal Balance (% of GDP) -1.8 -2.0 -2.2
Bank Indonesia rate (%) 5.75 5.75 5.75 5.75 5.75 5.75 6.25 6.25 5.75 6.25 6.75
Exchange rate (IDR/USD) 9146 9433 9591 9790 9900 10000 9900 9900 9790 9900 9700
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
38
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Malaysia: All eyes on the elections
GDP growth remained robust in 2012 and the momentum is likely to continue this year,
but a lot is dependent upon the outcome of the upcoming elections.
Activity: The economy grew by 6.4% y-o-y in Q4 2012 from 5.3% in Q3, driven by strong
domestic demand, namely from private consumption and investment spending. This took full-
year GDP growth to a robust 5.6% in 2012 (5.1% in 2011). The outlook for this year rests on the
upcoming general elections, which we think will likely be held in April. For now, we maintain our
forecast for 2013 GDP growth to average 4.3%, given the need for the government to move
quickly to fiscal consolidation after the election to avoid exceeding its self-imposed debt limit.
However, admittedly there are upside risks given the strong economic momentum.
Inflation and monetary policy: January CPI inflation rose by 1.3% y-o-y from 1.2% in
December, largely driven by higher food prices. We estimate core inflation also rose by 1.4%
y-o-y from 1.3% in December, consistent with the strength in domestic demand. We maintain
our forecast for CPI inflation to average 2.4% y-o-y in 2013. Furthermore, the uptick in January
inflation justifies Bank Negara Malaysia‟s (BNM) slightly more hawkish stance at its 31 January
meeting. As such, we continue to expect BNM to hike the policy rate by 50bp in H2 to 3.50% as
it looks to normalize rates to avoid not only inflation, but overheating pressures more generally.
Fiscal policy and political outlook: The government met its fiscal deficit target of 4.5% of
GDP in 2012, but the details continue to underscore the need for fiscal reforms. More positively,
our recent trip to Kuala Lumpur bolstered our confidence in the government‟s commitment to
reform. That said, we expect the fiscal impulse to remain positive until the elections, after which
spending cutbacks are likely. We continue to forecast a deficit of 4.5% of GDP versus the target
of 4%, given the political cycle. We expect the elections to be called between 6-20 April and our
baseline (assigned a 60% probability) remains for the incumbents to retain power, but with a
smaller majority (see Asia Insights: Postcard from Malaysia, 26 February 2013).
Risks: With exports at nearly 100% of GDP, a sharp drop in commodity prices and another
global recession are the biggest downside risks. A weaker-than-expected coalition or an
opposition victory would raise questions about the political transition and the reform agenda.
Details of the forecast
% y-o-y growth unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP 5.1 5.6 5.2 6.4 5.1 4.7 4.2 3.2 5.6 4.3 4.6
Private consumption 7.4 8.8 8.5 6.1 6.3 6.3 6.2 5.4 7.7 6.1 5.5
Government consumption 9.1 10.9 2.3 1.1 0.1 -3.0 -2.5 -1.1 5.0 -1.6 3.5
Gross fixed capital formation 16.2 26.1 22.7 14.9 12.3 12.0 12.1 12.9 19.9 12.4 6.8
Exports (goods & services) 2.8 2.1 -3.0 -1.5 0.3 1.1 2.2 3.5 0.1 1.8 7.2
Imports (goods & services) 6.8 8.1 4.4 -0.9 1.8 3.3 4.5 4.6 4.5 3.6 8.5
Contributions to GDP (% points)
Domestic final sales 8.3 11.8 9.8 6.9 6.3 6.2 6.2 5.9 9.2 6.2 5.2
Inventories -0.2 -1.2 2.2 0.2 0.2 0.3 -0.2 -2.1 0.3 -0.5 0.0
Net trade (goods & services) -3.1 -4.9 -6.8 -0.6 -1.3 -1.9 -1.8 -0.7 -3.8 -1.4 -0.6
Unemployment rate (%) 3.0 3.0 3.0 3.2 3.2 3.4 3.5 3.5 3.0 3.4 3.4
Consumer prices 2.3 1.7 1.4 1.3 2.1 2.6 2.5 2.7 1.7 2.4 2.5
Exports 3.3 -0.3 -4.7 0.6 4.6 7.3 6.9 5.6 -0.3 6.1 8.4
Imports 6.2 5.5 3.9 3.9 8.8 10.0 11.7 7.7 4.8 9.6 13.1
Merchandise trade balance (USD bn) 9.7 6.8 5.5 8.7 8.2 6.0 3.5 8.1 30.8 25.7 17.8
Current account balance (% of GDP) 8.0 4.1 4.0 9.4 4.8 4.4 3.3 4.9 6.4 4.7 4.2
Fiscal Balance (% of GDP) -4.5 -4.5 -4.2
Overnight policy rate (%) 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.50 3.00 3.50 4.00
Exchange rate (MYR/USD) 3.06 3.18 3.06 3.06 3.10 3.06 3.01 2.95 3.06 2.95 2.87
Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
39
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Philippines: In a virtuous cycle
Growth remains supported by improving governance. Monetary policy is neutral with
macroprudential tools remaining the prefered option for capital flow management.
Activity: Similar to 2012, we expect solid GDP growth of 6.4% y-o-y in 2013. Increased
government spending ahead of the elections in May in addition to the government‟s undeterred
focus to improve capital spending should continue to crowd in private investment and support
GDP growth. We believe the economy is in a virtuous cycle, with improving governance
bolstering consumer and business sentiment, which reinforces the administration‟s popularity,
helping support its push for further reforms.
Inflation and monetary policy: CPI inflation increased to 3.4% y-o-y in February from 3.0% in
January, driven by higher food prices that offset lower utilities prices. Core inflation also
increased to 3.8% y-o-y from 3.6% in January, consistent with the strength of domestic demand.
Headline inflation, however, remains comfortably within the 3-5% target range of Bangko
Sentral ng Pilipinas (BSP). On our recent trip to Manila, BSP indicated that it could afford to stay
on hold for some time, despite robust growth (Asia Insights: Postcard from the Philippines, 28
February 2013). In the interim, macroprudential tools remain the preferred option for managing
strong capital inflows. We maintain our view that headline inflation will average 4.6% y-o-y this
year. Our policy rate forecast is 50bp of hikes in H2, but with a rising potential growth rate and
BSP‟s current neutral stance, there are risks that these hikes are delayed.
Fiscal policy: The fiscal deficit was 2.3% of GDP in 2012, undershooting the original projection
of 2.6%. But the details remain encouraging, as revenue collections are close to target and
capital spending has improved. For 2013, the government has proposed a fiscal deficit of 2.0%
of GDP that continues to focus on increasing capital outlays, especially infrastructure spending,
while higher revenue targets have also been set, which implies improved tax administration.
Risks: The main risk to our forecast is an external shock from the still-fragile European and US
economies. A slowdown in reforms and infrastructure spending could also hurt growth. We see
the election as a political non-event given the current popularity of the government.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 11.2 4.4 5.2 6.6 10.8 3.3 3.5 7.8
Real GDP 6.3 6.0 7.2 6.8 6.7 6.4 6.0 6.3 6.6 6.4 5.8
Private consumption 5.1 5.9 6.3 6.9 6.7 6.8 5.9 5.5 6.1 6.2 5.8
Government consumption 20.9 6.8 12.0 9.1 10.0 11.6 7.0 16.3 11.8 11.1 8.0
Gross fixed capital formation 3.9 11.8 9.0 10.6 10.9 10.8 15.5 15.4 8.7 13.2 14.5
Exports (goods & services) 10.9 8.3 6.7 9.1 6.8 7.0 7.4 5.4 8.7 6.7 9.0
Imports (goods & services) -3.2 10.3 4.9 4.6 16.4 11.2 16.2 12.0 4.2 13.9 13.0
Contribution to GDP growth (% points)
Domestic final sales 6.4 7.0 7.4 7.9 8.2 8.1 7.9 8.5 7.2 8.2 8.1
Inventories -7.2 -0.2 -1.2 -2.3 2.8 1.2 2.4 1.0 -2.6 1.6 0.0
Net trade (goods & services) 7.1 -0.8 1.0 1.2 -4.3 -2.1 -4.3 -3.1 2.0 -3.4 -2.3
Exports 4.8 10.5 6.2 9.1 6.8 7.0 7.4 5.4 7.6 6.7 9.0
Imports -1.5 2.2 0.8 6.4 17.4 12.2 17.2 13.0 1.9 15.0 13.0
Merchandise trade balance (USDbn) -2.6 -1.4 -2.0 -3.7 -4.5 -2.3 -3.6 -5.1 -9.7 -15.4 -19.6
Current account balance (USDbn) 1.1 3.0 3.1 1.1 -0.2 2.3 1.7 1.9 8.2 5.6 5.7
Current account balance (% of GDP) 2.0 4.8 5.1 1.5 -0.2 3.4 2.4 2.2 3.3 1.9 1.8
Fiscal balance (% of GDP)
-2.3 -2.6 -2.2
Consumer prices (2006=100) 3.1 2.9 3.5 3.0 3.5 4.4 4.9 5.4 3.1 4.6 4.5
Unemployment rate (sa, %) 6.9 7.0 6.8 7.0 6.8 6.8 6.5 6.5 6.9 6.7 6.5
Reverse repo rate (%) 4.00 4.00 3.75 3.50 3.50 3.50 3.75 4.00 3.50 4.00 4.50
Exchange rate (PHP/USD) 42.9 42.1 41.7 41.0 40.2 39.8 39.6 39.2 41.0 39.2 38.2
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
40
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Euben Paracuelles +65 6433 6956 [email protected]
Lavanya Venkateswaran +91 22 3053 3053 [email protected]
Singapore: A weak start to 2013
Production and export data surprised on the downside in January. The policy focus
remains on the restructuring agenda to raise productivity.
Forecast changes: Based on the larger budget surplus in FY12, we revise up our FY13 budget
estimate to a surplus of 1.0% of GDP from a deficit of 0.2% of GDP.
Activity: Q4 2012 GDP growth was revised up to 1.5% y-o-y from the flash estimate of 1.1%,
which takes full-year 2012 growth to 1.3%. Data for January indicate that the economy got off to
a weak start in 2013, with industrial production contracting by 0.4% y-o-y in January from growth
of 1.3% in December, despite favourable base effects led by electronics and biomedical output.
Non-oil domestic exports were also weak in January. Forward looking data remained mixed, as
the total manufacturing PMI fell below 50 in February, but the electronics PMI rose above 50.
For 2013, we have a subdued GDP growth forecast of 2.4%, as the government focuses more
on long-term restructuring to boost competitiveness than short-term counter-cyclical policies.
Inflation and monetary policy: CPI inflation eased to 3.6% y-o-y in January from 4.3% in
December, due to favourable base effects. Underlying inflation, which excludes accommodation
and private road transportation costs, also eased sharply to 1.2% y-o-y in January from 1.9%.
However, the easing in January will likely prove temporary given still-elevated transportation
and housing costs, rising wages and tight labour markets. We continue to forecast headline
inflation to average 3.9% y-o-y in 2013. Underlying inflation, according to the Monetary Authority
of Singapore (MAS) should also remain sticky at 1-3%. As such, we remain comfortable with our
view that the MAS will not alter its policy of a modest and gradual appreciation of the S$NEER
policy band at the next announcement in April.
Fiscal policy: The FY13 budget announced on 25 February continued to highlight the
government‟s commitment to raising productivity and restructuring the economy. The measures
announced include further restrictions on foreign workers, cash programs for industries to share
the burden of rising wages and additional help for the elderly. This fiscal balance is expected to
be in a smaller surplus of 0.7% of GDP in FY13 from an upwardly revised surplus of 1.1% in
FY12. Based on this, we now expect a higher surplus of 1.0% of GDP given historical revenue
outperformance. However, we still expect limited counter-cyclical support to growth.
Risks: With exports at 200% GDP, Singapore is the most vulnerable economy in Southeast
Asia to a major contraction in global GDP. Another risk is domestic overheating, fuelled by low
interest rates and capital inflows.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 1.3 2.4 4.2 1.3 12.0 -1.2 -4.2 4.7
Real GDP 2.2 3.7 3.5 2.2 2.5 2.2 2.3 2.7 1.3 2.4 4.2
Private consumption -3.6 0.6 4.0 -3.6 3.7 3.9 4.0 3.1 2.2 3.7 3.5
Government consumption 6.6 3.3 5.7 6.6 -0.9 -0.3 1.1 2.7 -3.6 0.6 4.0
Gross fixed capital formation 0.3 2.9 10.1 0.3 4.1 2.9 3.2 2.8 6.6 3.3 5.7
Exports (goods & services) 3.2 3.0 11.1 3.2 -1.4 0.9 5.4 6.7 0.3 2.9 10.1
Imports (goods & services)
-0.2 1.5 4.8 5.8 3.2 3.0 11.1
Contributions to GDP (% points) 2.0 2.2 3.1 2.0
Domestic final sales 4.9 -0.4 0.8 4.9 2.2 2.1 2.3 2.1 2.0 2.2 3.1
Inventories -5.6 0.6 0.8 -5.6 3.1 1.1 -2.9 -2.9 4.9 -0.4 0.8
Net trade (goods & services) 2.0 2.2 2.4 2.0 -2.9 -1.0 2.9 3.4 -5.6 0.6 0.8
Unemployment rate (sa, %) 4.6 3.9 3.6 4.6 2.2 2.2 2.1 2.1 2.0 2.2 2.4
Consumer prices 0.1 7.6 12.1 0.1 4.2 4.1 3.8 3.4 4.6 3.9 3.6
Exports 3.5 6.3 13.1 3.5 2.6 7.9 9.6 10.3 0.1 7.6 12.1
Imports 31.5 38.7 40.2 31.5 3.2 5.9 7.9 8.2 3.5 6.3 13.1
Merchandise trade balance (US$bn) 18.9 16.1 17.0 18.9 6.8 9.2 11.1 11.7 31.5 38.7 40.2
Current account balance (% of GDP) 1.1 1.0 0.4 1.1 15.3 12.0 18.5 18.5 18.9 16.1 17.0
Fiscal Balance (% of GDP) 0.38 0.48 0.50 0.38 1.1 1.0 0.4
3 month SIBOR (%) 1.22 1.19 1.17 1.22 0.38 0.48 0.48 0.48 0.38 0.48 0.50
Exchange rate (SGD/USD) 1.3 2.4 4.2 1.3 1.21 1.20 1.20 1.19 1.22 1.19 1.17
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
41
Young Sun Kwon +852 2252 1370 [email protected]
South Korea: Growth momentum set to carry into Q1
We expect the Bank of Korea to keep rates unchanged at 2.75% through 2013 as
GDP growth and CPI inflation should rise modestly from a low base.
Activity: January-February export data suggest that GDP growth is improving slightly. We
expect GDP growth to rise to 0.7% q-o-q in Q1 (from 0.4% in Q4), supported by inventory
restocking, fiscal front-loading and a modest foreign demand recovery. We view the
strengthening of KRW against JPY as a process of normalization, reflecting improvements in
global demand. The new government will likely increase social welfare spending, implement
some measures to boost the housing market and frontload 60% of its annual expenditure
budget to H1, which should support consumption and construction investment. However, we
expect business investment to remain weak as uncertainty surrounding the global outlook
remains elevated. Domestic demand should recover only slightly due to structural problems,
including a household debt overhang. We maintain our below-consensus forecast for GDP
growth of 2.5% in 2013.
Inflation: A negative output gap and stable KRW should exert downward pressure on inflation,
but higher food prices, rising housing rent and public service fare hikes should push CPI
inflation up to 2.7% in 2013 from 2.2% in 2012, although it should remain below the midpoint of
the Bank of Korea‟s (BOK) new inflation target range of 2.5-3.5% for 2013-15.
Policy: We expect targeted micro stimulus measures on specific areas (e.g., property market)
rather than a broad-based easing of macro policy. We expect the BOK to keep rates at 2.75%
through 2013, as growth and inflation should increase modestly from a low base.
Risks: As a small, open economy, Korea is vulnerable to sudden changes in global economic
conditions, commodity prices and financial markets. That said, we would expect the BOK to cut
rates if one of the major downside risks to global growth (the US fiscal cliff; a renewed eurozone
sovereign crisis; a China hard landing) materialises, but none of these are part of our base case.
Domestically, the new government could formulate a supplementary budget in H1 2013 of as
much as KRW20trn (USD20bn or 1.5% of GDP), which provides an upside risk to our domestic
demand forecast.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 3.5 1.1 0.2 1.5 2.8 3.6 3.2 3.6
Real GDP (sa, % q-o-q) 0.9 0.3 0.1 0.4 0.7 0.9 0.8 0.9
Real GDP 2.8 2.3 1.5 1.5 1.4 2.0 2.8 3.3 2.0 2.5 3.5
Private consumption 1.6 1.1 1.6 2.8 2.4 2.6 2.3 2.1 1.8 2.3 2.3
Government consumption 4.4 3.6 3.1 3.1 0.7 2.0 2.3 4.1 3.6 2.3 4.1
Business investment 9.1 -3.5 -6.5 -5.1 -13.1 -5.6 1.2 5.1 -1.8 -3.4 7.7
Construction investment 2.1 -2.1 -0.2 -4.1 -0.7 0.7 1.6 4.1 -1.5 1.8 4.1
Exports (goods & services) 5.0 3.2 2.9 4.0 0.5 1.6 -0.2 2.5 3.7 1.1 4.8
Imports (goods & services) 4.6 0.5 1.1 3.1 -1.6 0.8 -0.1 2.5 2.3 0.4 5.2
Contributions to GDP growth (% points)
Domestic final sales 2.8 0.8 0.6 0.9 0.8 1.9 2.2 3.4 1.2 2.0 3.0
Inventories -0.1 0.1 -0.2 -0.1 -0.4 -0.3 0.6 -0.3 -0.1 0.1 0.2
Net trade (goods & services) 0.1 1.4 1.0 0.8 1.0 0.5 -0.1 0.3 0.9 0.4 0.3
Unemployment rate (sa, %) 3.4 3.3 3.1 3.0 3.2 3.2 3.2 3.2 3.2 3.2 3.2
Consumer prices 3.0 2.4 1.6 1.7 1.9 2.6 3.1 3.0 2.2 2.7 3.0
Current account balance (% of GDP) 3.8 2.8 2.2
Fiscal balance (% of GDP) 1.3 1.0 1.0
Fiscal balance ex-social security (% of GDP) -1.2 -1.3 -1.0
BOK official base rate (%) 3.25 3.25 3.00 2.75 2.75 2.75 2.75 2.75 2.75 2.75 3.25
3-year T-bond yield (%) 3.55 3.30 2.83 2.82 2.75 2.80 2.85 2.90 2.82 2.90 3.30
5-year T-bond yield (%) 3.69 3.42 2.93 2.97 2.80 2.85 2.90 3.00 2.97 3.00 3.40
Exchange rate (KRW/USD) 1133 1154 1118 1071 1065 1040 1035 1030 1071 1030 1020
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data as of 7 March 2013. Source: Bank of Korea, CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
42
Young Sun Kwon +852 2536 7430 [email protected]
Aman Mohunta +91 22 6617 5595 [email protected]
Taiwan: External demand is key
The economy should benefit from the upcycle in global electronics demand and China
GDP, as well as improved cross-strait relations.
Activity and inflation: Real GDP gained strongly in Q4 2012, supported by a rebound in fixed
capital formation and exports. Private consumption also showed modest gains, while
government expenditure fell. Taiwan‟s growth is largely dependent on global demand,
especially from China, its largest export destination accounting for 27% of total exports in 2012.
We expect stronger demand from China and a gradual recovery in global electronics demand to
help lift GDP growth from 1.3% in 2012 to 3.0% in 2013. The government recently upgraded its
2013 GDP growth forecast from 3.15% to 3.53%, citing the benefits of demand for mobile
devices and electronics products. We expect CPI inflation to rise to 2.3% in 2013 from 1.9% in
2012 due to higher food prices and diminished spare capacity. However, given that electricity
tariff hikes will be implemented in multiple stages, inflation is unlikely to become a serious factor
for growth through our forecast horizon.
Cross-strait relations: A faster-than-expected liberalisation of trade and investment with China
would add upside risks to our growth forecasts. The latest developments in this area include
Taiwanese government plans to double the current limit on mainland Chinese institutions‟
securities investments in its market, while Taiwanese banks have (as of this month) started to
accept renminbi deposits.
Monetary policy: We expect the Central Bank of China (CBC) to hike the discount rate from
1.875% to 2.125% in H2 2013 as GDP growth and CPI inflation rise. We view this as a
normalisation of very loose monetary policy rather than a move to outright tightening.
Risks: Another deep recession in advanced economies would have a large impact on Taiwan‟s
open economy. Positive risks include a stronger-than-expected recovery in the global
electronics cycle and a faster-than-expected liberalisation of trade and investment with China.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 5.0 -0.1 3.9 7.3 1.3 0.5 4.6 3.6
Real GDP 0.6 -0.1 0.7 3.7 3.1 3.2 3.4 2.5 1.3 3.0 3.5
Private consumption 1.9 1.6 0.9 1.6 1.9 2.6 2.8 2.4 1.5 2.4 3.2
Government consumption 2.1 2.5 -0.7 -1.7 3.0 3.5 3.0 2.6 0.4 3.0 3.2
Gross fixed capital formation -10.2 -7.7 -0.9 1.3 7.0 5.0 4.0 3.5 -4.4 4.8 4.2
Exports (goods & services) -3.4 -2.5 2.3 4.0 2.8 3.4 3.6 2.2 0.1 3.0 3.3
Imports (goods & services) -7.2 -4.1 1.9 2.2 2.2 2.2 2.3 2.4 -1.9 2.3 3.5
Contributions to GDP growth (% points)
Domestic final sales -2.6 -1.1 -0.4 2.2 2.1 1.9 2.4 1.9 1.2 3.7 3.0
Inventories 1.5 0.5 0.5 -0.3 0.2 0.0 -0.4 0.3 0.0 -0.3 0.2
Net trade (goods & services) 1.7 0.5 0.6 1.8 0.8 1.3 1.4 0.4 1.1 1.0 0.5
Exports -4.0 -0.5 4.3 6.0 5.3 5.9 6.1 4.7 -2.3 5.5 6.3
Imports -5.9 0.3 6.3 6.6 3.7 3.7 3.8 3.9 -3.8 3.8 5.0
Merchandise trade balance (US$bn) 5.7 5.6 8.4 10.8 7.0 7.4 10.5 11.8 30.4 36.7 42.6
Current account balance (% of GDP) 9.6 9.6 9.9 12.7 6.9 7.4 9.2 10.0 10.5 8.4 7.9
Fiscal balance (% of GDP) -1.8 -1.9 -2.0
Consumer prices 1.3 1.6 2.9 1.8 2.1 2.2 2.5 2.5 1.9 2.3 2.3
Unemployment rate (%) 4.1 4.2 4.3 4.3 4.3 4.2 4.2 4.2 4.3 4.2 4.2
Discount rate (%) 1.88 1.88 1.88 1.88 1.88 1.88 2.00 2.13 1.88 2.13 2.13
Overnight call rate (%) 0.42 0.51 0.38 0.41 0.39 0.41 0.45 0.50 0.41 0.50 0.50
10-year T-bond (%) 1.28 1.23 1.19 1.17 1.15 1.20 1.28 1.30 1.17 1.30 1.35
Exchange rate (NTD/USD) 29.5 29.9 29.3 29.1 28.9 28.7 28.7 28.7 29.1 28.7 28.2
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
43
Euben Paracuelles +65 6433 6956 [email protected]
Nuchjarin Panarode, CNS Thailand +662 638 5791 [email protected]
Thailand: A positive start to 2013
Growth momentum remained strong in January and credit growth is on the rise, which
supports our forecast for the BOT to stay on hold despite political pressure to cut.
Activity: Although most economic indicators slowed on a year-on-year basis in January given
less favourable base effects, they remained strong seasonally adjusted month-on-month.
Business and consumer sentiment indices continued to suggest strong economic momentum,
while industrial production also picked up in January. In addition, exports rose in January, but
the trade deficit increased substantially on strong import growth. We do not see this is as a
cause for concern, however, since imports were partly driven by the volatile gold imports. We
therefore see upside risks to our 2013 GDP growth forecast of 4.5%.
Monetary policy and inflation: CPI inflation eased further to 3.2% y-o-y in February from 3.4%
in January, while core inflation was stable at 1.6% y-o-y, remaining within the Bank of Thailand‟s
(BOT) 0.5-3.0% target range. Inflation expectations were also stable at 3.6% in January.
However, credit growth (15.0% y-o-y in January from 14.2% in December) and outstanding
loans to households (17.4% y-o-y in Q3 2012 or 77.5% of GDP) continued to increase and may
be an increasing concern for the BOT. Thus, even though inflation remains low, we continue to
expect the BOT to keep the policy rate on hold at 2.75% at the 3 April meeting and for the rest
of the year.
Fiscal policy: Following the cabinet‟s approval, more details on the government‟s THB2trn
infrastructure investment plan and major transportation projects were released. These projects,
combined with the on-going water management projects for which the government is scheduled
to borrow THB340bn (3% of GDP) by June 2013, will likely increase public debt to 47-48% of
GDP by end-FY13, still well-below the debt ceiling of 60%. On our recent trip to Bangkok, we
discovered that the borrowing will be done on an incremental basis, and not all at once, which
suggests that the government is focused on maintaining financial flexibility and sustainability of
its debt (see Asia Insights: Postcard from Thailand, 1 March 2013).
Risks: The downside risks to our forecasts stem from a deepening of the euro area recession
and domestically, from increased political uncertainty over the constitutional amendment and
reconciliation bill. Slow progress on infrastructure plans could weaken investment sentiment.
Details of the forecast
% y-o-y growth unless otherwise stated 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2012 2013 2014
Real GDP (sa, % q-o-q, annualized) 48.0 13.0 6.1 15.0 -14.5 13.9 7.6 15.4
Real GDP 0.4 4.4 3.1 18.9 4.2 4.4 4.8 4.8 6.4 4.5 5.0
Private consumption 2.9 5.3 6.0 12.2 7.4 6.7 3.5 1.7 6.6 4.8 3.8
Public consumption -0.2 7.4 10.0 12.1 4.5 -0.1 -3.1 0.2 7.4 0.1 -0.7
Gross fixed capital formation 5.2 10.2 15.5 23.5 9.5 8.7 3.7 12.0 13.3 8.4 10.8
Exports (goods & services) -3.2 1.1 -2.8 19.0 6.1 3.2 5.7 1.6 2.9 4.1 5.0
Imports (goods & services) 4.3 8.6 -1.8 14.7 4.2 2.1 6.6 0.3 6.1 3.4 5.0
Contribution to GDP growth (% points)
Domestic final sales 2.5 5.9 7.7 12.7 6.1 5.7 2.4 3.5 7.0 4.4 4.5
Inventories 2.9 2.8 -3.7 1.4 -2.7 -2.7 1.2 1.6 0.8 -0.6 -0.1
Net trade (goods & services) -4.7 -4.2 -1.1 4.9 2.0 1.1 0.2 0.8 -1.4 1.0 0.7
Exports -1.4 2.0 -3.8 21.1 3.8 3.0 6.4 2.3 3.1 5.0 6.9
Imports 10.4 9.2 -1.7 18.5 3.5 5.6 14.7 2.7 8.2 6.6 7.2
Merchandise trade balance (US$bn) -5.2 -5.0 -1.6 -6.1 -5.2 -6.7 -6.8 -4.2 -18.1 -23.0 -25.4
Current account balance (US$bn) 1.4 -2.3 2.7 0.9 -0.1 -3.4 -1.9 3.6 2.7 -1.8 -1.9
Current account balance (% of GDP) 1.6 -2.6 3.1 1.0 -0.1 -3.3 -1.8 3.3 0.7 -0.4 -0.4
Fiscal balance (% of GDP, fiscal year basis) -2.6 -3.2 -3.7
Consumer prices 3.4 2.5 2.9 3.2 3.3 3.4 3.1 3.0 3.0 3.2 3.1
Unemployment rate (sa, %) 0.7 0.9 0.6 0.5 0.9 0.8 0.6 0.6 0.7 0.7 0.7
Overnight repo rate (%) 3.00 3.00 3.00 2.75 2.75 2.75 2.75 2.75 2.75 2.75 3.25
Exchange rate (THB/USD) 30.8 31.8 30.8 30.6 29.5 29.3 29.2 29.1 30.6 29.1 28.6
Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
44
Asia in charts
Gross domestic product (quarterly)
-15
-10
-5
0
5
10
15
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
% y-o-y
Asia ex-JapanJapanEUUS
Note: Aggregate Asia ex-Japan is calculated using purchasing power parity (PPP) adjusted share of world GDP. Source: CEIC and Nomura Global Economics.
Consumer price index (monthly)
-4
-2
0
2
4
6
8
10
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
EU US
Japan Asia ex-Japan
% y-o-y
Note: Aggregate Asia ex-Japan is calculated using purchasing power parity (PPP) adjusted share of world GDP. Source: CEIC and Nomura Global Economics.
Current account balance (quarterly)
-200
-150
-100
-50
0
50
100
150
200
250
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
USD bn Asia, ex-Japan Japan
EU US
Note: Aggregate Asia ex-Japan is calculated using purchasing power parity (PPP) adjusted share of world GDP. Source: CEIC and Nomura Global Economics.
Asia export leading index (monthly)
80
85
90
95
100
105
-28
-14
0
14
28
42
Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 Mar-13
% y-o-y
Asia ex-Japan's total exports, lhsNomura's export leading index, rhs
Jan 2000 = 100
Note: Aggregate Asia ex-Japan is calculated using purchasing power parity (PPP) adjusted share of world GDP. Source: Bloomberg; OECD; Semiconductor Industry Association; CEIC and Nomura Global Economics.
Foreign exchange (against USD, monthly)
60
80
100
120
140
160
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Asia ex-JapanJapanEU
Index (Jan2007 = 100)
Note: Aggregate Asia ex-Japan is calculated using purchasing power parity (PPP) adjusted share of world GDP. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Policy rate (monthly)
0
1
2
3
4
5
6
7
8
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Asia ex-Japan Japan
EU US
%
Note: Aggregate Asia ex-Japan is calculated using purchasing power parity (PPP) adjusted share of world GDP. Last data point is 6 March. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
45
Gross domestic product (quarterly)
0
3
6
9
12
15
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
% y-o-yChina India Indonesia
Source: CEIC and Nomura Global Economics.
Industrial production (monthly)
-10
-5
0
5
10
15
20
25
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
% y-o-yChina India Indonesia
Source: CEIC and Nomura Global Economics.
Gross domestic product (quarterly)
-10
-5
0
5
10
15
20
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
% y-o-y
Thailand Philippines Malaysia
Source: CEIC and Nomura Global Economics.
Industrial production (monthly)
-60
-40
-20
0
20
40
60
80
100
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-yThailand Philippines Malaysia
Source: CEIC and Nomura Global Economics.
Gross domestic product (quarterly)
-15
-10
-5
0
5
10
15
20
25
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
% y-o-y Korea Taiwan
Hong Kong Singapore
Source: CEIC and Nomura Global Economics.
Industrial production (monthly)
-60
-40
-20
0
20
40
60
80
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-yKorea Taiwan Singapore
Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
46
Purchasing manager’s index (monthly)
35
40
45
50
55
60
65
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Index
Korea Singapore
China India
Note: Korea‟s PMI is the business confidence index, of which diffusion index converted from original 100 to 50. Source: Markit; CEIC and Nomura Global Economics.
Leading economic index (monthly)
-10
-5
0
5
10
15
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
% y-o-y
China
India
Indonesia
Source: OECD and Nomura Global Economics.
Industrial inventory-shipment ratios
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Taiwan Korea ThailandRatio
Source: CEIC and Nomura Global Economics.
Leading economic index (monthly)
-8
-6
-4
-2
0
2
4
6
8
10
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-y
Thailand Malaysia
Source: OECD; CEIC and Nomura Global Economics.
Domestic motor vehicle sales (monthly)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Volume of MV production
Volume of MV domestic sales
Volume of MV total sales
Millions of units
Note: Rest of Asia is the sum of domestic vehicle sales in India, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand. Source: CEIC and Nomura Global Economics.
Leading economic index (monthly)
-30
-20
-10
0
10
20
30
40
-15
-10
-5
0
5
10
15
20
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-y
Korea, lhs
Singapore, lhs
Taiwan, rhs
% 6m rate of change, annualised
Note: For Taiwan, we use the annualized 6-month rate of change, and use the y-o-y growth rate for other economies. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
47
Current account balance (quarterly)
20
40
60
80
100
120
140
-25
-20
-15
-10
-5
0
5
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
USD bnUSD bn
Indonesia, lhs
India, lhs
China, rhs
Source: CEIC and Nomura Global Economics.
Exports (monthly)
-40
-20
0
20
40
60
80
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-y
China India Indonesia
Source: CEIC and Nomura Global Economics.
Current account balance (quarterly)
-4
-2
0
2
4
6
8
10
12
14
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
USD bnThailand Philippines Malaysia
Source: CEIC and Nomura Global Economics.
Exports (monthly)
-60
-40
-20
0
20
40
60
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% y-o-y
Thailand
Philippines
Malaysia
Source: CEIC and Nomura Global Economics.
Current account balance (quarterly)
-6-4-202468
1012141618
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
USD bn Korea Taiwan
Hong Kong Singapore
Source: CEIC and Nomura Global Economics.
Exports (monthly)
-60
-40
-20
0
20
40
60
80
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
% y-o-y Korea Taiwan
Hong Kong Singapore
Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
48
Foreign exchange (monthly)
60
70
80
90
100
110
120
130
140
150
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
China India Indonesia
Index (Jan 2007 = 100)
Note: Foreign exchange is the country‟s currency against USD and converted into the index (2007 January = 100). Higher index means the country‟s currency appreciate against USD. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Policy rate (monthly)
2
3
4
5
6
7
8
9
10
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
China
India
Indonesia
%
Note: For China, the policy rate refers to 1 year bank lending rate; for India, this refers to repo rate. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Foreign exchange (monthly)
60
70
80
90
100
110
120
130
140
150
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Malaysia Philippines Thailand
Index (Jan 2007 = 100)
Note: Foreign exchange is the country‟s currency against USD and converted into the index (2007 January = 100). Higher index means the country‟s currency appreciate against USD. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Policy rate (monthly)
0
2
4
6
8
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Philippines
Malaysia
Thailand
%
Note: For Philippines the policy rate refers to reverse repo rate; for Thailand this refers to repo rate; for Malaysia this refers to overnight policy rate. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Foreign exchange (monthly)
60
70
80
90
100
110
120
130
140
150
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Korea Singapore
Taiwan Hong Kong
Index (Jan 2007 = 100)
Note: Foreign exchange is the country‟s currency against USD and converted into the index (2007 January = 100). Higher index means the country‟s currency appreciate against USD. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Policy rate (monthly)
0
1
2
3
4
5
6
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Korea
Singapore
Taiwan
Hong Kong
%
Note: For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively; for Korea this refers to BOK official base rate. Last data point is 6 March. Source: Bloomberg and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
49
Consumer price index (monthly)
-2
0
2
4
6
8
10
12
14
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
China India Indonesia
% y-o-y
Note: Consumer Price Index for India refers to Wholesale Price Index. Source: CEIC and Nomura Global Economics.
Unemployment (monthly)
3
4
5
6
7
8
9
10
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Indonesia
China
%
Source: CEIC and Nomura Global Economics.
Consumer price index (monthly)
-6
-4
-2
0
2
4
6
8
10
12
14
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Philippines Thailand Malaysia% y-o-y
Source: CEIC and Nomura Global Economics.
Unemployment (monthly)
0
2
4
6
8
10
12
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Thailand Philippines Malaysia
%
Source: CEIC and Nomura Global Economics.
Consumer price index (monthly)
-4
-2
0
2
4
6
8
10
Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Korea Hong Kong
Singapore Taiwan
% y-o-y
Source: CEIC and Nomura Global Economics.
Unemployment (monthly)
0
1
2
3
4
5
6
7
8
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Korea Taiwan
Hong Kong Singapore
%
Note: Hong Kong's data is a 3 month moving average. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
50
Stock price index (monthly)
50
70
90
110
130
150
170
190
210
230
250
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
China India IndonesiaIndex (Jan 2007 = 100)
Note: Stock Price index for each country is rebased with 100 as the index value in January 2007. Last data point is 6 March. Source: Shanghai Composite (China); SENSEX (India), Jakarta Composite (Indonesia) and Nomura Global Economics.
House price index (monthly)
60
80
100
120
140
160
180
200
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
China Indonesia
Index (Jan 2009 = 100)
Note: House Price index for each country is rebased with 100 as the index value in January 2007. For China, Average Residential Bldg Selling Price is used to calculate the House Price Index. Source: CEIC and Nomura Global Economics.
Stock price index (monthly)
20
40
60
80
100
120
140
160
180
200
220
240
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Philippines
Thailand
Malaysia
Index (Jan 2007 = 100)
Note: Stock Price index for each country is rebased with 100 as the index value in January 2007. Last data point is 6 March. Source: FTSE Bursa Malaysia Composite (Malaysia); PSEi (Philippines); SET (Thailand; CEIC and Nomura Global Economics.
House price index (monthly)
60
80
100
120
140
160
180
200
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Malaysia Thailand
Index (Jan 2009 = 100)
Note: House Price index for each country is rebased with 100 as the index value in January 2007. Source: CEIC and Nomura Global Economics.
Stock price index (monthly)
20
40
60
80
100
120
140
160
180
200
220
240
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
Korea Hong Kong
Taiwan Singapore
Index (Jan 2007 = 100)
Note: Stock Price index for each country is rebased with 100 as the index value in January 2007. Last data point is 6 March. Source: KOSPI (Korea); Hang Seng (Hong Kong); FTSE Strait Times (Singapore); CEIC and Nomura Global Economics.
House price index (monthly)
60
80
100
120
140
160
180
200
220
240
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
Korea Hong Kong
Taiwan Singapore
Index (Jan 2009 = 100)
Note: House Price index for each country is rebased with 100 as the index value in January 2007. Source: CEIC and Nomura Global Economics.
Nomura | Asia Economic Monthly 7 March 2013
51
Forecast table
2012 2013 2014 2012 2013 2014
China 7.8 7.7 7.5 2.6 3.5 4.0
Hong Kong 1.2 ↑ 1.4 2.5 3.5 4.1 4.3 4.3
India* 5.3 ↓ 5.1 6.0 ↓ 5.2 6.6 7.5 7.2 ↓ 7.1 6.9 ↓ 6.8
Indonesia 6.2 6.1 6.2 4.3 5.2 5.1
Malaysia 5.3 ↑ 5.6 4.3 4.6 1.7 2.4 2.5
Philippines 6.6 6.4 5.8 3.1 4.6 4.5
Singapore 1.2 ↑ 1.3 2.4 4.2 4.6 3.9 3.6
South Korea 2.0 2.5 3.5 2.2 2.7 3.0
Taiwan 1.2 ↑ 1.3 3.0 3.5 1.9 2.3 2.3
Thailand 6.0 ↑ 6.4 4.5 5.0 3.0 3.2 3.1
Asia ex-Japan 6.2 6.4 ↓ 6.2 6.6 3.7 4.3 ↓ 4.2 4.5
Note: * CPI refers to wholesale prices. Source: CEIC, Bloomberg, Nomura Global Economics.
2012 2013 2014 2012 2013 2014
China 2.6 1.0 -0.4 -1.5 ↓ -1.6 -1.5 -1.6
Hong Kong 2.6 ↓ 1.5 -0.1 -0.7 -0.2 ↑ 3.3 -0.5 ↑ -0.2 -0.5
India -4.9 -4.7 ↓ -5.3 -3.9 ↓ -4.2 -5.3 ↑ -5.2 -5.2 -5.0
Indonesia -2.4 ↓ -2.7 -1.9 -1.7 -1.8 -2.0 -2.2
Malaysia 5.9 ↑ 6.4 4.7 4.2 -4.9 ↑ -4.5 -4.5 -4.2
Philippines 2.9 ↑ 3.3 1.9 1.7 ↑ 1.8 -2.2 ↓ -2.3 -2.6 -2.2
Singapore 15.7 ↑ 18.9 16.1 17.0 0.2 ↑ 1.1 -0.2 ↑ 1.0 0.4
South Korea 3.8 2.8 2.2 1.3 1.0 1.0
Taiwan 9.7 ↑ 10.5 8.4 7.8 ↑ 7.9 -1.8 -1.9 -2.0
Thailand 0.7 -0.6 ↑ -0.4 -0.6 ↑ -0.4 -2.5 ↓ -2.6 -3.2 -3.7
Asia ex-Japan 1.3 ↑ 1.4 0.3 ↓ 0.2 -0.4 -2.2 ↑ -2.1 -2.2 -2.3
2012 2013 2014 2012 2013 2014
China 6.00 6.50 6.50 6.29 6.15 6.14
Hong Kong 0.40 0.40 0.40 7.75 7.75 7.75
India 8.00 7.50 7.00 55.0 59.0 56.0
Indonesia 5.75 6.25 6.75 9790 9900 9700
Malaysia 3.00 3.50 4.00 3.06 2.95 2.87
Philippines 3.50 4.00 4.50 41.0 39.2 38.2
Singapore 0.38 0.48 0.50 1.22 1.19 1.17
South Korea 2.75 2.75 3.25 1071 1030 1020
Taiwan 1.88 2.13 2.13 29.1 28.7 28.2
Thailand 2.75 2.75 3.25 30.6 29.1 28.6
Note: All figures relate to the modal forecast, ie, the "most likely" outcome. Source: CEIC, Bloomberg, Nomura Global Economics.
The ↑↓ arrows signify changes from last week.
Consumer Prices
Official Policy Rate Currency per US Dollar
Note: Fiscal balances are for fiscal years which differ from calendar years for Hong Kong (Apr-Mar), India (Apr-Mar), Singapore (Apr-Mar) and
Thailand (Oct-Sep). Fiscal data are for the central government and do not include off-budget. Source: CEIC, Bloomberg, Nomura Global
Economics.
Current Account (% of GDP) Fiscal Balance (% of GDP)
Real GDP
Note: Forecast changes are since te last Asia Economic Monthly (7 February 2012).
Nomura | Asia Economic Monthly 7 March 2013
52
Recent articles
Date Article Title
6-Mar-13 Southeast Asia: Different strokes
7-Feb-13 Happy Year of the Snake!
10-Jan-13 Here comes the sun
28-Nov-12 2013 outlook: Asia's overheating risks
14-Nov-12 South Korea: An Economic Democracy
25-Oct-12 India reforms (Part I): A long way to go
11-Oct-12 Introducing NESII - The Nomura Economic Surprise Index for India
11-Oct-12 Glass half full
24-Sep-12 Thailand: New growth engines
14-Sep-12 China primed to surprise on the upside
6-Sep-12 Policy challenges abound
3-Sep-12 India's chronic balance of payments
9-Aug-12 The consumption engine continues to chug along
8-Aug-12 Asia's inflation wildcard
2-Aug-12 Indonesia: Policy swings
31-Jul-12 India: A poor monsoon and its impact (Q&A)
9-Jul-12 South Korea: Prolonged low growth, inflation and rates through 2013
5-Jul-12 Distinguishing China from the rest of Asia
31-May-12 Pan-Asia: Inventory cycle threatens a slow recovery
29-May-12 China's peaking FX reserves
10-May-12 Current account worsens
2-May-12 India: Make or break
23-Apr-12 The China compass
15-Apr-12 Korea: Uncomfortable trade-off
11-Apr-12 India: Four cyclical tailwinds to watch
5-Apr-12 Green-shoot signs of recovery
8-Mar-12 Cautiously relaxing
2-Mar-12 Good, bad, and ugly oil price scenarios
23-Feb-12 Disconnect
17-Feb-12 Asia: Monetary easing likely to continue
10-Feb-12 South Korea: Risk of a fiscal drag on growth
27-Jan-12 India: This time is different
20-Jan-12 India: Decoding stubbornly high inflation
19-Jan-12 Prepare for a slew of rate cuts across Asia this year
16-Jan-12 Decoding India's stubbornly high inflation
13-Jan-12 ASEAN: Policy on the move
6-Jan-12 Asia: Taking stock
16-Dec-11 Brace for bumpy ride in China
25-Nov-11 Taking Asia's pulse
24-Nov-11 Flagging growth momentum
Nomura | Asia Economic Monthly 7 March 2013
53
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Nomura | Asia Economic Monthly 7 March 2013
54
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