Weekly: Nowcast says room for cautious optimism
- China is tracking 5.9% growth in Q4 and 5.8% in Q1 2020
- India’s GDP growth likely dipped to 4.3% in July-Sept, and would recover to 4.9% in Oct-Dec
- Our model is tracking Singapore’s real GDP at 1.3% growth in Q4 and 2% in Q1 2020
- Signs of a bottom in the electronics cycle and improved monetary conditions are the silver linings
China, India, and Singapore are ending 2019 on a considerably weaker growth trajectory than they did in 2018. India and Singapore’s last published real GDP growth outturns are about 200bps lower than they were four quarters earlier. China’s is close to 50bps weaker, although given the size of its economy, that slowdown percolates through the global economy the most.
As 2019 draws to an end, do we see any evidence that the pace of slowdown may be arrested in the new year? Judging by the ongoing rally in asset markets, expectations appear to be coalescing around an upbeat 2020, helped by easy monetary policy and a likely trade deal. The hard data however provide less room for such exuberance.
Starting with China, our in-house Nowcasting model, which analyses an array of high frequency (monthly) indicators to make a call on the ongoing and coming quarters on a real time basis, finds growth continuing to weaken, but the pace of slowdown to be moderating. The latest iteration of the model estimates 5.9% growth in Q4 and 5.8% in Q1 2020.
What’s driving these estimates? Hints of a trough in the growth rates of retail sales, industrial production, fixed asset investment, and non-oil imports. The credit impulse remains particularly weak and the exports outturn is mixed, but by and large, domestic demand may be stabilising.
A sub-6% growth outturn from the second-largest economy in the world still makes up for the largest contribution (nearly a third of the total) to global growth. As long as China manages to maintain its structural slowdown in an orderly manner, carries out economic recalibration (from heavy to smart investment, sustainable consumption, and focus on innovation), keeps the financial system stable, and protects social cohesion, global reliance on Chinese demand will continue to be fulfilled.
India’s financial markets have been particularly cheerful lately, buoyed by corporate tax cuts, monetary policy easing, announcement of large-scale public asset sales, plans to court foreign investment in manufacturing, and efforts to expedite asset restructuring of beleaguered banks and non-bank financial companies. There won’t be anything to cheer on the data-front for a while, however.
As per our Nowcast, real GDP growth dipped to 4.3% in the July-September quarter, and would only recover to 4.9% in October-December. Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy. Production and sales are under pressure, and public spending is running out of room due to poor tax collection. Foreign investors however remain particularly optimistic about India’s prospects, underscoring the divergence between markets and the economy.
We have been waiting for the electronics cycle to bottom for a while, and Singapore is our bellwether in this regard. Having observed semiconductor billing bottoming a couple of months ago, we are on the lookout for better shipment figures to emerge soon. Looking at regional PMIs, we are beginning to get optimistic that the year-and-a-half long soft patch in the global electronics cycle may be ending. This would of course brighten Singapore’s prospects going into 2020.
Our Nowcast model is tracking Singapore’s real GDP at 1.3% growth in Q4 and 2% in Q1 2020. We are seeing signs of a pick-up in the credit cycle, perhaps helped by the decline in interest rates this year. Additionally, tourism, residential transactions, production, and trade are on the road to recovery, in our view.
We therefore have reasons for cautious optimism. Global or regional growth is by no means reverting back to strength any time soon, and but there is some evidence to suggest that it won’t continue to register disappointing outturns like 2019. Singapore may already be on the path to recovery; China’s deceleration looks unlikely to exacerbate, although the jury is still out on India.
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