Asia: Cyclical growth recovery - ANZ

Global growth prospects have improved, helping Asian exports recover in 2017 after over two years of being stuck in a trade recession, explains the research team at ANZ.

Key Quotes

“Not only have exports performed better than anticipated at the headline level, they have progressively become more diversified on a geographical and product basis. The export recovery is set to be maintained into 2018, with an expected pick-up in capex spending in the G3 helping to sustain Asia’s export momentum.” 

“Asian currencies have largely priced in the positive export outlook. With volume growth still looking like it could rise further based on the latest PMI new export orders data, current levels for Asian currencies look sustainable in the near-term. Even if export volume growth were to start slowing, Asian currency strength can still hold for a while, as it did during 2007 and 2011. This is because we expect the export recovery to eventually broaden to support domestic demand in the region.”

“Stronger growth should also see Asian central banks contemplate raising interest rates from very low levels. Indeed, the Bank of Korea (BoK) was the first to increase its policy rate by 25bps to 1.50% at their November meeting. We expect a further 25bp hike from the BoK in February 2018. Bank Negara Malaysia (BNM) is likely the next to join the rate hike camp with a move at their January meeting. We expect Bangko Sentral ng Pilipinas (BSP) to tighten rates as well starting in Q1 next year, while the Monetary Authority of Singapore (MAS) looks set to exit from its neutral policy stance most likely at their October review. The People’s Bank of China (PBoC) will maintain a tightening bias in their monetary policy and we forecast the 7-day reverse repo rate to be raised by 40bps in 2018.”

“The improved macroeconomic environment in Asia and rising interest rates should be supportive for currencies in the region and help offset the reduction in global liquidity. Industrial commodity prices have been rising on the back of improving global demand. Given the strong correlation between Asian currencies and commodity prices, this suggests there is scope for more currency gains.”