ASEAN the bright spot for economy in 2020, says Natixis

December 20, 2019

HONG KONG - Asia is ending 2019 not with a bang but a whimper as investment and consumptions sag on beleaguered domestic demand and worsened external conditions, exacerbated by the US-China trade-war, says Natixis in a year-end review.

"This is not helped by structural headwinds such as worsening demographic trends andhigher indebtedness, especially in China's case," Natixis says.

"Looking into 2020, we expect the sharp slowdown in 2019 to decelerate, with China growing by 5.7% in 2020 from an estimated 6.1% in 2019.

"Developed Asia will still suffer from weak demand and a decelerating Chinese economy, with growth hovering around 2.3%.

"ASEAN will continue to be the bright spot, excluding Singapore, with average growth reaching 4.8% in 2020."

Natixis says the slightly improved scenario, in terms of the speed of deterioration, is due to the cyclical of some of the key sectors for Asia's value chain, such as the semiconductor and tech industries, and the easing financial conditions.

"External demand may stabilise but the V-shaped recovery hoped for remains elusive; the key external risks for 2019 are also ebbing, namely Brexit and the trade-war. 

"To add to the positive sides of 2020, central banks will continue to be supportive, although China and India will need to deal with higher short-term food inflation.

"Fiscal easing is also limited, both in India by public finances and, to a lesser extent, also in China.  Asia is expected to muddle through in 2020 with less friction to growth but saddled by demographic trends and, in some cases, by growing debt.

"ASEAN is clearly the bright spot but with heterogeneity across geographies. India will need major reforms to realise its potential."

As for the main risks in 2020, US-China strategic competition continues to be key, Natixis says.

"Downside risks, especially in the short run, are obvious, but the outlook is brighter for South and Southeast Asian economies as they may benefit from production reshoring away from China.

"The other key risk lies in China's increasingly weak corporate health and especially private companies. 

"Credit to the private sector is key for China's growth but the transmission mechanism is not working well for a number of reasons, including rising fragility in smaller banks which are the most important source of funding of private firms.

"That said, while Japanese firms, well-cushioned by less leverage and low rates, do ot have a debt problem, growth is a concern." (ATI).