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Major Asia-Pacific Economies Show Stronger Growth; Risks Are Mostly Geopolitical

The macroeconomic picture in Asia-Pacific looks broadly positive heading into the 2017 home stretch. GDP growth has been decent if unspectacular, while inflation remains at or below target in most economies. The external environment has improved somewhat, and market volatility is low. Geopolitical risks remain elevated and very much in the headlines (and difficult to quantify) but economic risks look less pressing, at least in the near term.

Overview

  • The Asia-Pacific growth picture has improved in the latest quarter with China, Japan, and Australia posting solid numbers (as well as Malaysia and New Zealand). India's growth took another hit, this time from uncertainties around the launch of the goods and services tax.
  • We continue to see producer price inflation across much of the region, but little in the way of consumer price inflation. Central banks are mostly still on hold, but we believe they are leaning higher.
  • Most of the risk action is on the geopolitical and policy front with North Korea still firing missiles and U.S.-China trade disputes still simmering. In contrast, macroeconomic risks look contained.

The growth picture in the region looks fairly solid. Among the largest economies, China and Japan show better-than-expected growth momentum (although they have differing risk profiles). China's growth was 6.9% in the first half of the year--comfortably above the 6.5% official target. The credit metrics have improved, reflecting a public investment boost and higher producer prices, but credit quality is still a worry. Japan posted a strong second quarter of 2.5% annualized growth, driven by rising confidence and spending, although wages and prices remain stubbornly sticky. Australia's second quarter was strong as well, on the back of robust consumption and net exports. India suffered its second straight disappointing quarter of growth of about 6% as uncertainties around the launch of the much-awaited goods and services tax crimped spending.