Natixis Asia 2020 Outlook: Growth Still Slowing

Hong Kong, December 13, 2019

Natixis Global Markets Research today released its “Asia Outlook 2020: Growth Still Slowing, and thus, Tougher for more Leveraged Sectors”. The report provides an in-depth analysis of the macroeconomic environment and main themes shaping markets around the region, broken down over six key chapters, which consider the year ahead from the perspective of; a regional and corporate assessment of the impact of the slowdown in different economies and sectors; the transformation of the regional value chain and the corresponding changing dynamics; a thematic look at Asia’s largest economies - China and Japan, and; a country-by-country analysis and forecast.

As the end of 2019 approaches, a slump in investment and consumption continues to drag on beleaguered domestic demand. Combined with worsened external conditions and structural headwinds, Asia is ending the year with more of a whimper than on a bang. Looking ahead, while the economic slowdown is expected continue across Asia, it is stabilizing.

Key findings from the report are as follows:

  • 2019 has been a difficult year for Asia. China’s economy has decelerated faster than expectations and previous years’ growth rates, with an estimated growth rate of 6.1% by year end versus 6.8% in 2018. And this is not helped by structural headwinds such as worsening demographic trends and higher indebtedness, especially in China’s case. 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. 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 stabilize 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 realize its potential.
  • As for the main risks, US-China strategic competition continues to be key in the region. 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 the reshoring of production 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 growth in China 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 not have a debt problem, growth is a concern.