New Year has arrived and with it that special time when resolutions are often made for the year ahead. With this in mind, Pacific Money takes a look at what the Asia-Pacific region’s biggest economies might be hoping for in 2016, and whether they might beat the typically low success rate for New Year pledges.
China: Exceed Growth Target
China has already lowered expectations for its growth prospects, with Chinese President Xi Jinping declaring a 6.5 percent target for annual GDP expansion from 2016 to 2020, down from the previous 7 percent target set from 2011 to 2015. But with even the communist party’s Global Times newspaper pointing to the problems of inflated growth data, Beijing may be hard pressed to achieve even its reduced target without further fiscal and monetary stimulus.
The world’s second-biggest economy may also have contracted the deflation disease, according to ANZ Research, giving policymakers another headache as they attempt to restructure the economy from investment to consumption-led growth amid its slowest expansion in 25 years.
However, ANZ has urged China economy watchers to abandon the so-called “Li Keqiang index” of industrial data in favor of services statistics comprising air passenger volume, box office revenues, e-commerce, and retail sales, given that the service sector now accounts for around half of GDP compared to manufacturing’s 40 percent.
Prospects: Only 8 percent of New Year resolutions are achieved, according to research by the University of Scranton. A refocus by Beijing on the economy, including consolidating its ‘One Belt, One Road’ program and promoting regional free trade, might go a long way toward beating the average.
Japan: Growth, By Any Means Necessary
Japanese Prime Minister Shinzo Abe’s reflationary program enters 2016 having yet to convince skeptics, including the bulk of the Japanese public. After three years of Abenomics, the latest opinion poll conducted by Kyodo News found more than 70 percent of voters did not feel any economic benefits, with only a quarter seeing improvement following massive monetary easing, fiscal expansion and pro-growth structural reforms including the Trans-Pacific Partnership (TPP).
The Bank of Japan’s (BOJ’s) latest announcement that it would spend another $3.4 billion a year buying shares in companies that are “proactively making investment in physical and human capital” amounted to a plea to businesses: Stop hoarding cash and spend it at home in the form of higher wages and dividends.
Although the central bank sees Tokyo Olympics-related spending delivering up to a 0.3 percentage point annual GDP gain through to 2018, the BOJ has urged further reforms to boost the economy’s growth potential, with most forecasts pointing to only around 1 percent growth in 2016. According to NHK, Japan’s per capita GDP has dropped from the world’s third-highest in 1996 to 20th, although the nation still ranks as the third-biggest economy.
Prospects: Abe’s success in persuading private companies of the merits of investing at home could be crucial in ensuring the economy achieves so-called “escape velocity” prior to being pulled back with another consumption tax hike in 2017. Nevertheless, stock investors are still smiling, with the benchmark Nikkei Stock Average ending 2015 at its highest annual close in 19 years and with more gains expected by analysts in 2016.
India: Make The Incredible Credible
The Modi revolution has already seen India surpass China as the world’s fastest growing major economy, with a 7.4 percent GDP growth rate in the latest quarter outscoring China’s 6.9 percent reported gain. Even more is expected in 2016 however, with the International Monetary Fund predicting a 7.5 percent gain for “Incredible India” and the OECD eyeing 7.25 percent.
However, despite the hype, India’s economy still remains a fifth the size of China’s, showing that there is plenty of work ahead for the South Asian emerging giant to maximize the benefits of its demographic dividend. A hostile upper house, delay in implementing the goods and services tax, and restrictive labor laws are all seen as barriers to continued outperformance, while there have also been questions raised over the quality of India’s GDP data amid weak corporate earnings and sluggish loan growth.
Prospects: The only BRIC left worthy of the acronym has much more to do in 2016 to achieve its promised destiny, with Indian Finance Minister Arun Jaitley calling for the growth rate to be raised from 7.5 percent by another 1 to 1.5 percentage point to sustain wage hikes and pension increases. Exports have also slumped for 12 straight months on the back of a stronger currency, making trade deals with TPP members such as Australia and Canada vital to achieve Modi’s goal of doubling exports by 2020.
Australia: Stay Lucky (And Innovate)
Innovation is the key theme under new Australian Prime Minister Malcolm Turnbull, who has urged the “Lucky Country” to use its brains rather than simply export more “rocks and crops” as the world’s 12th largest economy struggles to overcome its post-mining boom hangover.
The successful U.S. initial public offering of Australian software group Atlassian, with a market value of around $6 billion, was seen as proof that Australia “is much more than a big quarry,” according to the Australian Financial Review, providing a real-world example of the merits of “disruptive technology.”
Yet while the latest GDP data showed a 2.5 percent annualized gain, continuing the nation’s record-beating 25-year economic expansion in the face of tumbling commodity prices, weak business investment and a slowing housing market will require all the policy innovation Canberra can muster.
Prospects: Australia should extend its economic gains in 2016, helped by Canberra’s newfound acceptance of budget deficits and further export growth, aided by a weak Australian dollar. However, major policy reforms will await the outcome of the 2016 federal election, with Turnbull anxious to secure an electoral mandate to overcome internal opposition.
South Korea: Get Back To The Future
South Korea is finishing 2015 on an upbeat note, declaring an end to the outbreak of Middle East Respiratory Syndrome (MERS) and improving ties with Japan following an agreement on a longstanding wartime row.
MERS scared consumers and tourists, crimping growth in Asia’s fourth-largest economy by up to 0.3 percentage point. But chilly relations with its third-largest trading partner saw two-way trade drop by 17 percent between 2012 and 2014, while the number of Japanese tourists dived by 35 percent.
South Korean President Park Geun Hye warned Koreans to “reform or fail” in her 2014 “474 Vision,” which eyed 4 percent GDP growth, 70 percent employment and $40,000 per capita income. However, Seoul has cut its 2016 GDP forecast to 3.1 percent, with tighter rules imposed on home lending set to damage consumption after household debt reached a record 143 percent of aggregate disposable income.
Prospects: Improved ties with Japan should boost trade and investment and potentially aid Seoul’s membership of the TPP, which might prove essential given South Korea’s “extreme dependence on China.” Achieving the 474 Vision still appears a work in progress, however.
ASEAN: Make Integration Work
The official establishment of the ASEAN Economic Community (AEC) and its regional free trade zone should point to further growth ahead for Southeast Asia, with its 600 million consumers potentially becoming the world’s fourth-largest economic bloc by 2050.
The International Monetary Fund expects the “ASEAN 5” of Indonesia, Malaysia, the Philippines, Thailand and Vietnam to post 4.9 percent GDP growth in 2016, although stronger growth is expected for ASEAN as a whole, with the OECD estimating an average of 6.2 percent annually through to 2020.
HSBC economists expect the AEC to add at least 5 percent to the region’s economic size by 2030, while BMI Research suggests ASEAN’s share of global GDP could grow from 3.2 percent to reach 4.7 percent by 2023.
Prospects: Critics have panned the AEC’s impact due to the extent of non-tariff barriers, while ASEAN has been described as being “all carrot and no stick.” Dangling some more carrots and finding some sticks could prove vital in 2016, particularly with external threats to growth including China’s slowdown and capital flight due to rising U.S. interest rates.
With the challenges facing the region in 2016, policymakers might consider the advice of experts to keep the New Year resolution list short, tangible and obvious, at least if they wish to beat that lowly 8 percent achievement average.