After the likely sharp slowdown in Q4, we expect a significant
rebound in growthin Q1, with more even growth, prompting the MAS to
adopt a more hawkishstance, as inflation prints largely above its
Hong Kong: We have revised up our 2018 growth forecast
significantly, buttaken 2019 down as we expect falling property prices
and rising ex-housinginflation to erode consumption growth.
Although we are having a hard time finding statistical evidence, the
BoK may consider this year’s 16% hike in minimum wages as meaningful
risks to its inflation outlook. Positive effects of higher minimum
wages, however, may be rather limited, given the unintended negative
consequences on employment, despite the government’s efforts to
subsidize affected businesses.
Thailand: High frequency data points to stronger GDP growth of
around 4% in Q3 vs. 3.7% in Q2, as exports strengthen and private
The MAS expects this year’s growth to remain below 3%, suggesting a
relativelylarge payback in growth to below 2%yoy in Q4. Indeed, as
mentioned in ourOctober Asia Economics monthly, we expect destocking to
be a meaningful dragon growth during this quarter. Having said that,
however, the surge in GDP growthin Q3 would add about 0.5ppts to our
current growth forecast of 2.5% for 2017while posing 0.3ppts upside risk
to our GDP growth forecast of 2.4% for 2018.
Thailand: We expect stronger private demand to guide GDP growth
higher to4% in 2H. As inflation is also likely to head higher going
forward, we do notexpect rate cuts by the BoT, albeit risks remain.
Korea’s housing prices continued to head higher, especially in the
political sensitive areas like Gangnam. Gangnam housing prices rose
5.6%yoy in December, up further from the 4.3% rise reported in November.
There are obvious concerns that the BoK may opt for more aggressive rate
hikes to support the government’s efforts in taming the housing market.
The government is now contemplating additional capital gain tax hikes,
among other things. Over a decade ago, as Korea’s housing price
inflation reached double digits at its peak in 2005-07, the BoK deliver
a total of 175bps. In contrast to before, however, Korea’s housing price
inflation hover only about 1% today, as some regional areas struggle
with falling housing prices, while the number of unsold homes continues
to rise. Moreover, Korea’s household debt is sharply higher now, at 83%
of GDP in Q3 2017 vs. 58% of GDP in Q3 2005, warranting greater caution
with rate hikes. Having said that, however, we acknowledge that housing
price inflation is an important determinant of economic policies which
may garner greater attention as Korea prepares for local elections in
Vietnam: GDP growth surprised to the upside in Q3, rising to 7.5%
from 6.4% in 1H, supported by a larger net trade contribution, a surge
in FDI, and strong credit growth.
As expected, the Monetary Authority of Singapore (MAS) kept the slope of
theSingapore dollar nominal effective exchange rate (S$NEER) policy band
at zeropercent, with no change to the width of the policy band or the
level at which itwas centred.
EM Asia’s headline CPI inflation has been muted of late, thanks largely
to asharp fall in food price inflation. Given the latter’s volatility,
we warn againstpolicy complacency, especially as the region’s negative
We continue to expect the Bank of Korea (BoK) to keep its policy rate
unchanged when it meets on Thursday and the decision to be unanimous. In
the unlikely event of a dissent, i.e. calling for a rate hike, then we
will take that as a clear signal from the BoK that it intends to hike
Hong Kong: Fiscal and monetary policies are moving in new
directions. The CE has proposed running down fiscal reserves to finance
higher government spending while the HKMA is deliberately draining
liquidity to try to manage a gradual adjustment of interest rates.
Although the surge in GDP growth in Q3 prompted the MAS to become
moreoptimistic, noting that this year’s growth is likely to average at
the upper halfof 2–3%, it tempered its enthusiasm somewhat with the view
that growth couldmoderate next year. Having said that, however, it
expects growth to be moreevenly distributed, with rebound in
domestic-oriented services. According to theadvanced estimate,
Singapore’s GDP growth accelerated sharply to 6.3%qoq saar(4.6%yoy) in
Q3, from 2.4% (2.9%) in Q2, led by manufacturing. The latter surged23.1%
(15.5%) in Q3, up from 3.2% (8.2%) growth in Q2, while
constructioncontracted 9.2% (6.3%) vs. 2.4% (6.8% fall) in the same
period. Meanwhile,services growth slowed to 1.5% (2.6%) in Q3 from 3.3%
(2.5%) in Q2.
South Korea: The government’s supplementary budget is likely to
boost thisyear’s growth to 2.8%, while its labour market policies and
adverse weatherconditions pose upside risks to inflation.
While we have maintained our view that the next 25bps rate hike is
likely to take place in Q3, rising housing prices in Gangnam and sharply
higher oil prices, among others, may strengthen resolve of the BoK hawks
to push policy rate higher at a faster pace. However, there are
underlying weakness in the housing market and a tail risk to growth that
warrant attention and caution, in our view.
China: We expect a modest policy-led slowdown in growth to 6.6% in Q3
from 6.9% in Q2, as a continued land market boom adds to government
revenue and supports the economy.