China-US tensions in the driving seat but Asia growth still resilient: Natixis

HONG KONG - Notwithstanding a deceleration of exports across the region and escalated geopolitical tensions, growth should be resilient in Asia, if not stronger for some countries, Natixis says in an updated economic outlook.

The French banking group says that, in China, a slowdown of the investment cycle and tight liquidity conditions are key reasons behind an expected GDP slowdown to 6.5% in 2018 from 6.9% in 2017.

“That said, consumption is clearly more resilient, putting a floor on growth.” Natixis says.

“And the PBoC has started easing, which makes the GDP growth target for 2018 all the more achievable even with potential headwinds from US trade conflict.”

Natixis says India, the Philippines, Indonesia, Malaysia and Korea should experience strong consumption growth thanks to relatively lax monetary policies.

“In other words, we do not expect central bank in these countries to follow the FED fully but rather limit their hikes.

“On the back of increased inflation in most countries this year, such dovish hikes should not impinge upon our positive outlook growth-wise.”

Natixis sees the Australian economy also gaining momentum because the currency is cheap and rates are low.

“Given high household indebtedness and high exposure to variable mortgage rates as well as a benign inflation outlook, the RBA will probably not follow the FED either.”

In Japan, political uncertainties and a more protectionist global environment are casting some shadow on the growth outlook, which Natixis expects to moderate to 1.2% in 2018 from 1.7% last year.

“ Against this background and a stubbornly low inflation outlook, the BoJ is expected to keep its monetary policy loose, which will lead to additional monetary divergence with the US.”

Natixis concludes: “All in all, even with robust growth rates, we expect Asian central banks to trail the Fed to shore up domestic demand and without much attention to growing inflation.

“ There are a number of reasons for their priority for growth.

“ The most obvious one is structural, related to the need for emerging Asia to continue with its convergence play with the developed world.

“ Besides this, geopolitical risks remain escalated. The most obvious one is a potential US-China trade war with relevant spillovers on the rest of Asia through the regional production chain.”  www.natixis.com (ATI).