The region’s analysts have been busy refining their forecasts for Asian economies in 2006. The consensus appears positive on the whole, with real GDP growth for Asia ex-Japan of 6.5% to 7% projected. That’s a pretty respectable performance at twice global growth.
Rob Subbaraman, regional economist with Lehman Brothers in Tokyo and one of the more bullish analysts around, believes Asia enters 2006 in a cyclical upswing “underpinned by an upturn in global electronics demand, competitive currencies and negative or close to zero real policy interest rates in most countries”. He also points to Asia’s better economic fundamentals as positive factors, including a healthy balance of payments, a strong financial sector and a rising middle class that suggests that domestic demand should start to play a greater role in driving economic growth in the years ahead.
| Asia growth rates, 2000 to 2005 |
| Source: UBS |
Jonathan Anderson, chief economist, Asia, at UBS, is less convinced on the issue of domestic demand. He points to his team’s forecasts of export growth for Asia ex-Japan and earnings growth forecasts for MSCI Asia ex-Japan (see chart). The lack of divergence between the two lines indicates the extent to which corporate earnings in Asia are still driven primarily by exports. “Earnings next year look solid,” says Anderson, “but less than exciting: that is, less than a big domestic reflation story for the region.”
Citigroup’s Asia Pacific economics team appears to sit somewhere in the middle, expecting growth in the region to consolidate first in most of the region before rebounding again, with robust export growth and huge current account surpluses continuing.
Of course with any forecasts there are risks. Citigroup cites its key uncertainties to be weakening US consumer spending and intensifying competition from China, particularly to exports from the region. Lehman Brothers identifies 10 key risk factors to watch out for in 2006. They include such staples as the US current account deficit, soaring global real estate and oil prices as well as inflation, protectionism, oversupply in China and even avian flu.
Sources of growth
There is one risk, however, that Asia will surprise on the upside, says Subbaraman: 2006 will be the first year since the financial crisis that Asia’s four largest economies – Japan, China, India and South Korea – will be growing simultaneously at or above their potential. And lest anyone needs reminding of what that could do for the region, as Subbaraman points out: “It is easy to forget that Japan used to be a major source of growth for the rest of Asia.”
Indeed. According to the Hong Kong Monetary Authority’s research, every 1% in Japan’s GDP growth will lift Asia’s GDP growth by 0.76%. Now that really is something to watch out for.
