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Strong Growth to Continue in 2011
What’s New: Incoming data points during the past few weeks indicate:
1) First sign of reacceleration in external demand, after a pause? As we have been highlighting, over the last 3-4 months export data in the region was largely flat on a MoM basis. However, Korea today reported extremely strong export data for October. Korea’s exports increased 9.5% MoM on a seasonally adjusted basis (vs. -1.1% in September 2010 and -0.7% in August 2010). Korea tends to be the first country in the region to report export data and is usually a good indicator of the region’s overall trend.
2) Stabilization in China's policy-induced domestic demand: On a seasonally adjusted basis, China’s sequential GDP growth rebounded to +2.4% QoQ in 3Q from +2.0% in 2Q10, as per our estimates. September industrial production, retail sales, and fixed asset investment were better than expectations. China’s manufacturing PMI strengthened to 54.7 in October (vs. 53.8 in September), beating our forecast of 53 and market consensus of 53.8 (Bloomberg Survey) by a big margin.
3) Sustained growth trend in AxJ ex China: Korea reported preliminary 3Q GDP data at 4.5% YoY, below our (5.1%) and consensus (4.8%) expectations, mainly because of volatile inventory data. In Singapore, September IP growth beat our expectations, leading to upside risk to our 3Q10 GDP growth estimate. October car sales in India continued to accelerate, in line with our expectations.
Our View: We expect the AxJ region's GDP growth to moderate to 8.2% YoY in 2H10, compared with 9.5% in 1H10, because of a receding low base effect and moderation in domestic demand resulting from gradual reversal in policy support. In 2011, we expect GDP growth to remain strong at 8.2% (close to the trailing five-year average), compared with 8.9% in 2010 and 6.2% in 2009. We expect the region’s growth to be driven by domestic demand, with acceleration in private consumption and moderation in capex. Further, we forecast net exports to GDP to decline, again reflecting high domestic demand. In 2012, we expect more data points to confirm our structural stories on India and China for the next decade. We see India’s growth outpacing China’s by 2013-15 (see India and China: New Tigers of Asia, Part III). On China, our economist Qing Wang expects China’s GDP growth to decelerate over the coming decade but still achieve a strong 8.0% average (see our series of reports on China Economics through 2020: Part 1 Not Whether but How Growth Will Decelerate; Part 2 Labor Supply to Remain Abundant; Part 3: A Golden Age for Consumption).
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