Regional Economic Outlook: Asia and Pacific | UHY Dawgen Chartered Accountants Blog:
External risks remain. A sudden or sharper-than-anticipated tightening of global fi nancial conditions remains a key downside risk. Economies with weaker fundamentals would be the most affected, similar to what happened a year ago when market participants abruptly revised their expectations of U.S. Federal Reserve tapering. Since then, though, policymakers in Asia have taken policy actions to address vulnerabilities and we now see those actions starting to bear fruit. As an indicator of this improving resilience, India, Indonesia, and other Asian emerging markets were able to better weather the bout of global fi nancial volatility in January.
Asia also faces several risks originating from within the region. A sharper-than-envisaged slowdown in China—due to fi nancial sector vulnerabilities and the temporary cost of reforms along the transition toward a more sustainable growth path—would have signifi cant adverse regional spillovers. In Japan, there is a possibility that Abenomics-related measures could prove less effective in boosting growth than envisaged unless strongly supported by structural reforms. Domestic and global political tensions could also create trade disruptions and weaken investment and growth across the region. In some frontier economies, high credit growth has led to rising external and domestic vulnerabilities.
Domestic vulnerabilities could magnify some of these risks. For the bulk of Asia, fi nancial stability risks appear contained and bank balance sheets have scope to absorb negative shocks. However, as global interest rates and term premiums move higher, vulnerabilities stemming from pockets of high corporate and household leverage could become more salient. more
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Sustaining the Momentum: Vigilance and Reforms
Asia is well positioned to meet the challenges ahead provided it stays the course on reforms. The
region has strengthened its resilience to global risks and will continue as a source of global economic dynamism. Recent actions taken to address vulnerabilities are starting to bear fruit. However, with the risk of further bouts of volatility ahead, policy complacency will be penalized. Asia’s reform momentum must therefore be nurtured so as to secure the region’s position as the global growth leader.
Growth in Asia is projected to remain steady at 5.4 percent in 2014 and 5.5 percent in 2015. External demand is set to pick up alongside the recovery in advanced economies, and domestic demand should remain solid across most of the region. With the expected upcoming tightening of global liquidity, Asia will face higher interest rates and potential bouts of capital fl ow and asset price volatility.
Nevertheless, despite some tightening, fi nancial conditions should remain supportive, underpinned
by still-accommodative monetary policies, strong credit growth, and exchange rates that remain weaker than they were a year ago.
region has strengthened its resilience to global risks and will continue as a source of global economic dynamism. Recent actions taken to address vulnerabilities are starting to bear fruit. However, with the risk of further bouts of volatility ahead, policy complacency will be penalized. Asia’s reform momentum must therefore be nurtured so as to secure the region’s position as the global growth leader.
Growth in Asia is projected to remain steady at 5.4 percent in 2014 and 5.5 percent in 2015. External demand is set to pick up alongside the recovery in advanced economies, and domestic demand should remain solid across most of the region. With the expected upcoming tightening of global liquidity, Asia will face higher interest rates and potential bouts of capital fl ow and asset price volatility.
Nevertheless, despite some tightening, fi nancial conditions should remain supportive, underpinned
by still-accommodative monetary policies, strong credit growth, and exchange rates that remain weaker than they were a year ago.
External risks remain. A sudden or sharper-than-anticipated tightening of global fi nancial conditions remains a key downside risk. Economies with weaker fundamentals would be the most affected, similar to what happened a year ago when market participants abruptly revised their expectations of U.S. Federal Reserve tapering. Since then, though, policymakers in Asia have taken policy actions to address vulnerabilities and we now see those actions starting to bear fruit. As an indicator of this improving resilience, India, Indonesia, and other Asian emerging markets were able to better weather the bout of global fi nancial volatility in January.
Asia also faces several risks originating from within the region. A sharper-than-envisaged slowdown in China—due to fi nancial sector vulnerabilities and the temporary cost of reforms along the transition toward a more sustainable growth path—would have signifi cant adverse regional spillovers. In Japan, there is a possibility that Abenomics-related measures could prove less effective in boosting growth than envisaged unless strongly supported by structural reforms. Domestic and global political tensions could also create trade disruptions and weaken investment and growth across the region. In some frontier economies, high credit growth has led to rising external and domestic vulnerabilities.
Domestic vulnerabilities could magnify some of these risks. For the bulk of Asia, fi nancial stability risks appear contained and bank balance sheets have scope to absorb negative shocks. However, as global interest rates and term premiums move higher, vulnerabilities stemming from pockets of high corporate and household leverage could become more salient. more
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