According to HSBC in the latest report, in Asia economies, soaring interest rates and volatile financial markets only added to the drag on growth, while global trade has started to tumble.
Not least, wobbly demand in mainland China contributed to the malaise. And yet, and yet: for all the furious headlines, most Asian economies managed to eke out respectable rates of growth. The Year of the Rabbit, however, is set to begin on a still softer note, as the lagged impact of all these crosswinds fully punches through. Quickly, however, firmer ground will come in sight: by mid-year, if not before, a swift rebound in mainland
China, led by pent-up consumer demand and a stabilising housing market, should provide a lift throughout the region. By then, central banks elsewhere will also have ended their tightening cycles, with some even looking to cut rates again to cushion growth. Another year, then, beckons when the region’s resilience is once more on display. The ‘Rabbit’, perhaps, may not speed ahead as quickly as one would like, but it’ll make steady, dogged progress nonetheless.
Full impact, not yet
It’s tempting to think that after a rough and dizzying year, stability is quickly setting in. And, yes, the tracks have been laid for an improvement over the course of 2023. Commodity prices have come off their towering heights, to the relief of hard-pressed consumers and many businesses.
Central bankers may thus also begin to ease off tightening in the coming months, while the news from mainland China, of economic ‘re-opening’ and greater support for the battered housing market, hints at stronger growth that may well put a floor under regional trade.
Alas, the impact of all the turbulence in 2022 is yet to fully come through in terms of growth. The tightening in monetary policy affects investment decisions with a lag; consumers are bound to slow their spending as higher prices curtail their purchasing power; and exports are yet to fully feel the hit from tumbling orders placed with manufacturers everywhere.
And then there is mainland China. The relaxation of COVID-19 control measures should support a strong recovery in consumer spending, especially services. But experience from other places suggests that the process can be bumpy, with a pull-back during any infection spike preceding the eventual bounce. Housing support measures, too, may take time to filter through.
As a result, growth in mainland China may turn out to be highly volatile, with a sharp contraction followed by a surge. On average, the economy should thus still deliver decent growth of 5% for 2023, which would also provide a boost to Hong Kong, not least with the arrival of more visitors. For Taiwan, however, the main challenge will continue to be a lacklustre global electronics cycle.
Japan, meanwhile, is also likely to see growth slide, despite additional fiscal support to offset the impact of higher living costs and weakening global trade. Korea, too, faces external challenges, while higher interest rates are curbing local demand. The Bank of Korea may thus be among the first central banks in Asia to cut interest rates in 2023.