ASIA’S GROWTH PROSPECTS FOR 2015

Asia will once again be the engine of global GDP growth in 2015, but the picture within the region is beginning to show signs of shifting. In aggregate, we forecast that the region’s economy will expand by 4.5%, the same pace than 2014. However, as China’s economic growth rate continues to slow, other countries will begin to compete for the title of regional star performer.

China will post another impressive performance in 2015. Although the size of its workforce is already shrinking, the country’s economy will expand by 7% this year supported by continuing high levels of investment and the rapid development of domestic consumer markets.

Asia’s fastest-growing economy in 2015 will be a country that most investors will not have considered closely before. Papua New Guinea tops the regional rankings with a GDP growth rate of 14.8%, owing to a huge increase in its energy exports. It will be closely followed in the double-digit club by Macau, at 10.6%, where a series of new casino developments.

Between these two and China come a series of tiny economies that are developing swiftly but remain very poor, such as Timor-Leste, Laos, Bhutan, Cambodia and Mongolia. The outlook for the latter economy remains very unpredictable: we expect it to hit 8% growth next year on the back of new mining investments and increased exports.

The success of these minnows highlights the fact that economic “catch-up” remains one of the underlying trends within Asia. The club of countries posting the sort of 6–8% GDP growth rates that tend swiftly to erode poverty is very much dominated by nations that have traditionally been laggards but are now making gains on their regional peers. In the Association of South-East Asian Nations (ASEAN) the group notably includes the Philippines, finally realising some of the potential that many observers have long felt it possessed under the leadership of Benigno Aquino. Indonesia’s economic growth should also pick up in 2015, to 6%, as the anti-business tilt of economic policy in recent years is softened by the new administration. Vietnam, Cambodia and Myanmar join it in the 6–8% bracket, supported partly by the continuing migration of low-cost export-oriented manufacturing from China. ASEAN’s wealthier members—namely Singapore, Thailand, Brunei and Malaysia—will lag with slower rates of expansion, although Singapore and Malaysia are nonetheless expected to deliver very respectable performances given their higher level of GDP per head.

The picture is slightly more complicated in South Asia, despite the considerable potential for catch-up there. India will post a slightly better performance, growing by 6.4% in fiscal year 2015/16 (April–March). However, this remains well below its potential. Sri Lanka should continue to expand strongly, with real GDP increasing by 7.1% in 2015, lifted by high levels of construction and a successful export sector. How long it will be able to continue this performance against a background of mounting communal and ethnic strains remains uncertain, however. Bangladesh, too, will continue to defy its fraught political situation, growing by 5.8% in fiscal year 2014/15 (July–June). In Pakistan, security is one of the most fundamental conditions for economic growth, and increasing violence in the country—coupled with other problems such as energy shortages and corruption—will cap its economic growth at just 4.1%.

Despite the impact of Japan’s economic-revival policy, known as Abenomics, its economy is expected to stutter in 2015, with an unimpressive growth rate of 1.6%. Australia, Taiwan and South Korea will do better, at 2.7%, 3.1% and 3.8% respectively, but these export-focused regions will remain hamstrung by the lacklustre domestic demand conditions in the OECD, especially in the EU. The increase in China’s GDP will outpace the rest of the region combined

The generally impressive growth rates across much of Asia will ensure that it continues to attract the attention of foreign investors. Many will be looking across the region for the “next big thing”, particularly given that rising costs, the slowing pace of economic expansion and the increasing tensions between the government and foreign companies in China are causing many to think again about their regional strategies. Nonetheless, when it comes to the actual growth of markets in the region, China’s dominance remains absolute.

In US dollar terms (at market exchange rates), the increase in China’s GDP next year, at US$1.2trn, will be more than the gain in the rest of Asia combined. Indeed, China alone will account for about 30% of the rise in global GDP in 2015. Even though China’s economic growth is slowing, its massive bulk now means that it will remain the engine of global expansion for some time to come. For many companies, it may make more sense to consider potential markets in China’s emerging interior provinces than to look to opportunities in other countries.

Those hoping that India will take up the slack as China’s economy slows will have to look again at their numbers. The US$1.2trn rise in China’s output will be equivalent to roughly one-half of India’s total GDP in 2015. Although India’s growth rate looks healthy, the smaller size of its economy means that the value of its output will increase by just US$395bn in 2015. Still, this will be roughly the same as the US$335bn rise in ASEAN’s output (most of it derived from the expansion in Indonesia), and much more than the combined increase in the size of East Asia’s three most-developed economies: Japan, South Korea and Taiwan.

Such countries as Japan and South Korea remain attractive investment destinations. They are already big markets—the rise in Japan’s GDP in 2015 will be four times the amount added in the eight fastest-growing economies in Asia combined. Their business and regulatory environments are also much easier to navigate than those of Asia’s less-developed countries. However, those looking to enter the markets that will dominate tomorrow’s global economy will need to look to other locations. For these firms, opportunities in India and ASEAN are tempting, but the 2015 forecasts show that getting China right must remain their biggest priority.

Estimated GDP Growth 2015 in Asia

1. Papua New Guinea: 14.8%
2. Macau: 10.6%
3. Mongolia: 8.0%
4. Sri Lanka: 7.1%
5. China: 7.0%
6. Vietnam: 6.0%-8.0%
7. Cambodia: 6.0% -8.0%
8. Myanmar: 6.0%-8.0%
9. India: 6.4%
10. Philippines: 6.4%
11. Indonesia: 6.0%
12. Bangladesh: 5.8%
13. Thailand: 4.3%
14. Pakistan: 4.1%
15. South Korea: 3.8%
16. Malaysia: 3.8%
17. Singapore: 3.7%
18. Taiwan: 3.1%
19. Australia: 2.7%
20. Japan: 1.6%