Developed Asia Pacific economies were back on their feet during the second quarter of 2013 as economic growth gained momentum, inflation fell mildly and exports climbed strongly. Most developed countries in the region such as Japan, Australia, and New Zealand reported a sharp positive swing in consumer and business confidence. Predominantly expansionary monetary and fiscal policies also helped keep the pace of economic recovery.
In particular, the construction industry in many of the developed Asia Pacific countries benefitted from government largesse and lower borrowing costs. A slew of infrastructure projects in many of these countries helped buoy the labor markets as well. Unemployment, in general, registered a mild fall in most of the economies in developed Asian Pacific. Furthermore, on the back of a scare about premature tightening of U.S. monetary policy, currencies across the region fell substantially during the second quarter, raising hopes for a sustained export recovery in Asia’s industrialized countries. But that hope watered down as the currencies of Singapore, Australia and New Zealand strengthened a bit towards the third quarter. Nonetheless, exporters expressed confidence about their prospects on expectations of a recovery in Europe and the U.S.
But economists surveyed by Bloomberg reported being cautious about developed Asian economies due to a possible jump in inflation in the coming months and slowing momentum in China.
At a Glance
Japan: The country’s economy expanded for the third straight quarter for the period ending June 2013, boosting confidence among businesses and consumers alike. In an attempt to rein in the fiscal deficit, the country instituted its first sales tax rise in nearly 15 years.
Australia: The country’s fiscal deficit is forecasted to widen for the fiscal year ending 2014, and as well, is not expected to return to balance in 2015. The country’s Treasury warned that that the unemployment rate could touch 6.25 percent by the end of 2013.
Hong Kong: Buoyed by the strength of the second quarter performance in 2013, Hong Kong raised its full year GDP growth outlook to range between 2.5 percent and 3.5 percent from its earlier forecast of 1.5 percent to 3.5 percent.
New Zealand: With business confidence climbing to a 14-year high and construction sector spending growth zooming to the highest level since 1992, the IMF raised New Zealand’s growth forecast for 2013 to 2.5 percent.
Singapore: Strong economic performance during the first half of the year prompted the country to raise its economic forecast for 2013 to 2.5 percent to 3.5 percent despite concerns about rising inflation and slowing exports in August.
JAPAN: ‘ABENOMICS’ STIRS FURTHER MOMENTUM
Japan’s economy, for long regarded terminally sick, showed more signs of sustained vigor, thanks to ‘Abenomics’. During the second quarter of 2013, the country’s economy expanded robustly, making it the third consecutive quarter of advance for a country that frequently used to stumble into recession.
‘Abenomics’, a policy mix of strong monetary and fiscal stimulus from the country’s Prime Minister, Shinzo Abe, has done much to boost the country’s business and consumer confidence in recent times. Many surveys in the industrialized island have pointed to resurgent demand. Machinery orders, for one, soared to the highest level in September in nearly five years. Research from financial institutions also has indicated that the strength in the financial industry has been revving up the manufacturing industry as well. Meanwhile, the precipitous slide in the value of the Japanese yen has helped maintain the competitiveness of Japan’s exports.
After setting into motion the country’s economy, Mr. Abe is now attempting to exercise some amount of discipline with Japan’s finances as well. With the country’s debt soaring, Mr. Abe authorized Japan’s first sales-tax increase in more than 15 years to raise extra revenues for the government.
But raising taxes during a time of a nascent recovery has been deemed tricky by many Japan watchers. A tax increase by Mr. Abe is widely expected to run counter to his efforts to stimulate inflation through strong public spending and loose monetary policies. Many economists warned that a sales tax rise could crimp consumer spending amidst rising energy costs and falling wages in the world’s third largest economy. However, Mr. Abe is betting on more business investment and subsequent wage rises to minimize the impact of sales tax on consumption.
AUSTRALIA: A MUTED ECONOMY GAINS STRENGTH FROM LOW BORROWING COSTS
Australia’s economy, which remained subdued over the past few quarters after a slowdown in its vast mining sector, sent out some encouraging signals during the second quarter of 2013. When the country posted a growth of 2.6 percent for the second quarter many economists were pleasantly surprised.
Although beset by a back-to-back dip in job figures midway through 2013, recent improvement in housing prices, consumer and business confidence, and retail sales have acted as tailwinds for the land down under. In fact, housing prices in many corners of Australia, especially in eastern coastal cities, soared to a record high during the quarter. Australia’s currency, which had depreciated more than 15 percent since April this year, also provided a temporary reprieve to the country’s beleaguered manufacturing industry. The country’s manufacturing industry had shed jobs and had lost factories over the past two years as the relentless appreciation of the Australian dollar hobbled the country’s myriad industries ranging from autos to wine-making.
Most of the positive developments in the Australian economy have been attributed to the country’s monetary policy establishment. Since 2011, the country’s central bank, the Reserve Bank of Australia, has cut interest rates by 225 basis points and slashed the benchmark borrowing cost to a record low of 2.5 percent. The original intent of the country’s central bank in cutting interest rates was to give a boost to labor-intensive industries such as residential construction and manufacturing to counter the slowdown in the mining boom. However, lowering rates also had the desirable effect of making the Australian dollar cheaper.
Nonetheless, despite the recent positive news, economists are keeping their fingers crossed over what course the Australian economy will take from here. In the wake of a widening fiscal deficit, Australians have voted for a new government that has pledged to put a greater emphasis on a balanced budget over increased spending. Many economists opined that in the absence of fiscal firepower, monetary policy will have to bear the burden of ensuring the country’s return to a strong growth path. However, Australia’s low inflation and moderating wages still could help the country’s central bank administer effective monetary policy help, say economists surveyed by Bloomberg.
HONG KONG: CONSUMERS AND RISING TOURISM PUSH THE ECONOMY UP
Hong Kong’s economy continued in its stride, expanding steadily during the second quarter of 2013. Recovery in consumer spending, a decline in inflation, and a fall in the unemployment rate joined hands to help the financial center put up a much better show than what most economists had predicted.
In recent times, Hong Kong’s household spending has been robust thanks to a recovery in the labor market. As infrastructure projects spearheaded investment in the economy for the most part of 2013, consumer confidence has been buoyant in Hong Kong.
Further, as the recovery gained steam in the U.S., one of Hong Kong’s key trading partners, prospects for merchandise trade from Hong Kong improved as well. Favorable winds brought more Chinese tourists to Hong Kong in July and August, boosting retails sales. Chinese tourists typically support the sales of luxury goods such as jewelry and watches in Hong Kong.
On the back of improved economic performance, Hong Kong even raised its growth outlook for the financial year 2013 to 2.5 percent to 3.5 percent, up from its May figures of 1.5 percent to 3.5 percent.
Nonetheless, economists surveyed by Bloomberg cautioned about external threats to Hong Kong’seconomy arising from a possible slowdown in China. Further, Hong Kong’s property markets are showing some signs of strain after the city administration imposed curbs on demand in the wake of a relentless jump in home prices. Coupled with rising rentals and utility bills, this could dampen consumer confidence in Hong Kong, opined analysts.
NEW ZEALAND: RISING CONFIDENCE PUTS ECONOMY IN THE DRIVER’S SEAT
Leaving behind memories of a disastrous earthquake of two years ago and fighting a debilitating drought, New Zealand’s economy bounced back to post stellar growth figures during the second quarter of 2013.
Two years ago, a powerful earthquake shook New Zealand’s second largest city, Christchurch, leaving behind a devastation of vast magnitude to life and property. However, extraordinary monetary and fiscal stimulus from the country’s government to heal those damages is now paying dividends.
Construction in the Pacific island is growing apace. Both residential and commercial construction fueled a more than 15 percent expansion in the sector. Although the worst drought in nearly 30 years left New Zealand’s crops parched and dented farm exports by more than 10 percent during the first half of 2013, strong growth in many of the other important sectors such as services and consumer spending neutralized the effect of the drought. Even as New Zealand’s Northern Island, the country’s largest milk producing region, went dry, construction firms were busy building roads and other civil engineering ventures and pushed up business spending to its highest level since 1992.
For their part, New Zealand’s consumers enthusiastically purchased durable goods such as furniture and cars, keeping the economy afloat. What’s’ more? The IMF’s economic growth outlook gave a shot in the arm to the island. Of the 35 developed economies in the world, only four countries are expected to beat New Zealand’s growth figures for 2013, according to the IMF.
New Zealand’s government has managed its coffers much more prudently than many other developed economies. Despite a rise in spending, New Zealand’s government deficit remains a healthy 0.4 percent compared to an average of 3.5 percent for the developed world as a whole. At the micro level too, New Zealand has made much more progress improving labor productivity. New Zealand leapfrogged Australia in the World Economic Forum’s competitive index for the first time since the index started publishing in 2004.
In the wake of the rising strength in the economy, New Zealand’s central bank said it could start raising interest rates beginning next year.
SINGAPORE: SLOWING EXPORTS AND HIGHER INFLATION THREATEN RECOVERY
Singapore’s economy, which grew swiftly during the first half of 2013, hit a glitch during the third quarter. The country’s economy found its feet during the first half as the government’s efforts to cool the property markets paid off, inflation moderated and exports recovered. Services-led growth especially from the financial and business services, along with improvement in wholesale trade, helped GDP growth for the first half of the year.
In fact, gaining confidence from the second quarter performance, the country raised its growth forecast for the full year to range between 2.5 percent and 3.5 percent from its earlier forecast of 1 percent to 3 percent.
However, data from the third quarter brought some signs of caution over a full-paced growth in the city state. Firstly, Singapore’s exports sagged during August. Non-oil exports, in particular, fell sharply in August reflecting a patchy recovery in many of the country’s trading partners. Further, inflation, which tapered during the second half of 2013, flashed red signals. A spurt in core inflation, which excludes costs of accommodation and private transportation, rose. Consequently, the country’s chance of easing the strength of the Singapore dollar, which could have aided exports, dimmed according to analysts surveyed by Bloomberg. The Monetary Authority of Singapore, which controls monetary policy by regulating the strength of the dollar rather than by influencing interest rates, has tolerated a significant strengthening of the Singapore dollar during the third quarter of 2013. Analysts surveyed by Bloomberg forecast a strong Singapore dollar for the rest of the year as well.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
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