The New Year has arrived, and with it the time for resolutions about the year ahead, regardless of their typically low success rate. In the spirit of the season, Pacific Money takes a look at what Asia’s major economies might be hoping for in the Year of the Rooster.
China: It’s the Economy
Chinese President Xi Jinping has vowed to deepen reforms at home while defending the nation’s maritime interests abroad in 2017. The Chinese leader pledged in his New Year’s speech to tackle areas such as employment, education, health care, and housing, while “resolutely” safeguarding its sovereignty, saying, “Chinese people will never allow anyone to get away with making a great fuss about it!”
Beijing also expects to achieve a 6.5 percent expansion in gross domestic product (GDP), helping to maintain stability ahead of the Communist Party’s key 19th National Congress. The latest data showed the nation’s manufacturing sector stabilizing near a post-2012 high in December, while economists surveyed by Bloomberg expect an average of 6.4 percent GDP growth in 2017.
Prospects: Despite the upbeat data, economists have pointed to a growing debt problem, which now exceeds 260 percent of GDP. Serious reforms would require reining in this debt, risking the government’s growth target, while a weakening currency could add to the pressures. As the famous slogan suggests, “It’s the economy, stupid” and Beijing would be wise to keep its focus on domestic issues, particularly with a new and untested president in the White House.
Japan: Fire Those Arrows
In 2017, Japanese Prime Minister Shinzo Abe enters his fifth year in office with high public approval ratings and may even have his term extended beyond the 2020 Tokyo Olympics. Abe’s historic visit to Pearl Harbor in December was a diplomatic success too, further reinforcing Japan-U.S. ties following his meeting with U.S. President-elect Donald Trump in November, while the center-right leader has also pursued better ties with Russia.
Domestically, a flood of international tourists has helped retail sales, while Abe’s move to legalize casinos should further spur investment in the hospitality sector ahead of the Olympics. The government has even moved to make life easier for the nation’s overworked employees, with its new “Premium Friday” campaign urging companies to finish early on the last Friday of each month.
Prospects: More efforts on the “third arrow” of structural reform will be vital, including on immigration, labor, taxes, and “Womenomics.” This is particularly crucial with the likely death of the Trans-Pacific Partnership (TPP), which will reduce the reform pressure on domestic industries, while Japan also faces the risk of being caught in the crossfire of a trade war between its two major trading partners. While “Trumponomics” is already delivering tailwinds for “Abenomics” in the form of a cheaper yen and stronger Tokyo stocks, Abe cannot risk relying on it.
India: Keep the Cash Flowing in
Indian Prime Minister Narendra Modi has urged citizens of the world’s biggest democracy to “walk shoulder to shoulder” with New Delhi in the fight against “corruption and black money” in his demonetization drive. His New Year’s Eve address also promised interest breaks for farmers and cheaper housing loans for the poor, as he attempted to prop up support ahead of key elections in five states.
Modi’s move to abolish 86 percent of the nation’s hard currency overnight on November 8 has seen about 13 trillion rupees ($191 billion) of bills deposited in banks, as Indians rush to legalize their cash holdings. However, the move has also hit the nation’s small business and farming sector hard, with economists slashing their growth forecasts for the South Asian giant. ANZ Research expects demonetization to shave 120 percentage points from GDP growth in 2017, which it sees falling to 6.8 percent compared to 8 percent previously.
Prospects: If Modi can stay the course on demonetization, India’s financial sector and government should receive a windfall in efforts to further spur domestic investment, both public and private. The elections will present an early test however, with any political backlash threatening the reform prospects for the world’s fastest growing major economy.
South Korea: Overcome Adversity
The impeachment of South Korean President Park Geun-hye has marked a turbulent year for Asia’s fourth-largest economy, blighting reform efforts amid both domestic and external threats.
North Korean leader Kim Jong-un warned in his New Year address that his government is in the “last stage” of preparations to test-fire an intercontinental ballistic missile, upping the pressure on South Korea and its allies to respond.
Meanwhile, the political uncertainty caused by Park’s impeachment threatens to impede Seoul’s ability to implement structural reforms to mitigate against financial risks, including an overleveraged household sector. Park’s three-year economic plan targeting 4 percent annual GDP growth has failed to deliver, with growth slipping to 2.6 percent in 2015 and likely around the 2 percent range in 2016.
Prospects: Swift action is needed to resolve South Korea’s political crisis and put the nation’s economic reforms back on track, while dealing with the growing threat from North Korea. An extended power vacuum at the top runs the risk of inflicting even further damage.
Australia: Stay Lucky
The “lucky country” has been fortunate enough to enjoy a record growth spurt, notching its 25th straight year of expansion in 2016. However, signs that not all is well in the world’s 12th largest economy were evident in the latest GDP data, with the economy contracting in the September quarter to post an annual growth rate of just 1.8 percent compared to its previous above-3 percent pace.
Treasurer Scott Morrison has promised corporate tax cuts to help revive business investment, which has been hit by the end of the mining boom. The Reserve Bank of Australia has also come to the party, keeping interest rates at record lows, even while a housing boom in the nation’s major cities of Sydney and Melbourne has economists worried about a potential bust.
Prospects: Australian Prime Minister Malcolm Turnbull needs to do more than reintroduce a building commission and enact budget cuts to revive reform. Some genuine tax reform, as flagged previously, along with other pro-competition measures could prove vital in ensuring the nation’s lucky streak does not end prematurely.
ASEAN: Keep the Rooster Crowing
Southeast Asia faces numerous risks in 2017, including the prospect for further withdrawals of investor funds from emerging markets in the wake of rising U.S interest rates, along with China’s continued slowdown and stagnation in global trade.
The Asian Development Bank (ADB) expects developing Asia to expand at a 5.7 percent pace in 2017, hit by weaker growth in India, although Malaysia and the Philippines are seen improving while China is expected to post a 6.4 percent gain.
Regional economic integration efforts appear to be making slow progress, however. A year after the launch of the ASEAN Economic Community, some 74 percent of Singaporean businesses polled said they had yet to see any benefits.
Politically, the region also faces a greater test in balancing relations between the United States and China, with the uncertainties over the approach of the Trump administration.
Prospects: ASEAN leaders should keep their focus on domestic reform and not allow external issues to distract them, particularly with the risk of capital flight and weakening currency and stock prices. Erratic statements by leaders such as Philippine President Rodrigo Duterte could further damage fragile investor confidence.
Will Asia keep its pledges in the Year of the Rooster, or will further economic and political turbulence rock the world’s fastest growing region? Pacific Money will keep a close eye on developments, while wishing all readers a very happy and prosperous 2017.