Aisa: Spring Still Visible In The Smog
Danske Markets | Mar 22, 2013 08:18AM ET
In Asia, growth is still expected to improve in the coming quarters driven by a moderate recovery in China and a strong rebound in Japan. The outlook for 2014 is more challenging, as Japan's growth is expected to slow markedly on the back of substantial fiscal tightening and the pace of the deceleration in China's long-term growth potential remains a major uncertainty.
In China, recent data suggests that the recovery could have lost some momentum in Q1 13. However, leading indicators like money supply and credit growth have remained strong, indicating that China remains in a moderate acceleration phase. Growth is expected to ease in H2 12 as the impact from last year's fiscal stimulus starts to wane and People's Bank of China gradually moves to a tightening bias. A rate hike is now possible in Q4 13.
In Japan the aggressive growth focus of the new government is expected to spark a strong recovery in the coming quarter with GDP growth exceeding 3%. However, in 2014 the Japanese economy will face substantial headwinds from fiscal tightening and gradual unwinding of the reconstruction boom after the earthquake in 2011. Japan could again be balancing close to recession during 2014 if the economy does not continue to get support from a weaker yen and a global recovery.
For that reason the Japanese economy will continue to be dependent on an extremely accommodative monetary policy. With Bank of Japan unlikely to reach its new 2% inflation target soon, asset purchases will be continued at an aggressive pace next year.
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