Asia macro outlookscaling back already muted expectations

While headlines are dominated by the volatility stemming from last week’s UK referendum, there are additional reasons for our concern that Asian growth outlook is dimming.

    For 2016, with the year at mid-point, our revisions are modest but the downside risks are substantial. We see growth momentum slowing in the US, and expect UK and the Euro Area to begin slowing in the aftermath of the Brexit decision as investment uncertainty rises and financial conditions tighten. Weak exports outlook compels us to revise down Taiwan’s GDP forecast by 0.5% to 0.8% for the year. China and Hong Kong get revised down by 0.1% (to 6.6%) and 0.3% (to 1.5%), respectively, reflecting some modest slowing of domestic momentum and external uncertainties.

    2017 forecasts get revised down more comprehensively. With Euro Area forecast being revised down by 0.4% to 1.1%, the knock-on impact on Asia, through the trade, investment, and financial intermediation channels, will be at least 0.2%, in our estimates. We therefore see EM Asia’s growth to be 6% (previous forecast: 6.2%) next year. Compared to the previous forecast, China, India, and Malaysia’s growth rates are expected to lower by 0.2% each, Singapore, S Korea, and Thailand by 0.5% each, and Hong Kong (0.6%), Taiwan (0.7%) and Vietnam (0.7%) by even more.