Asia’s consumers have been central to the region’s capacity to sustain growth through recent years of weak global demand. The cost has been a quick rise in consumer debt, which cannot be sustained.
In China it stood at 39.5% of GDP at the end of 2015; Singapore at 60%; Malaysia at 71%; Thailand at 72%; Korea at 88%; and Australia at an alarming 125%. At some point, consumers will stop borrowing to support spending, and that will bring a sharp slowdown in consumption growth.
In a low growth world Asia has split into four separate stories.
Asia’s trade-dependent advanced markets (Korea, Taiwan, Singapore, HK, and, to an extent, Japan) face weak growth with limited stimulus capacity.
Australia and NZ, Asia’s two commodity-driven advanced markets, are doing better because of strong population growth (driven by migrants), decades of steady reform, and cautious fiscal and monetary management.
Asia’s emerging markets excluding China have mostly been able to tap domestic demand to replace lost impetus from exports, and that has kept growth in a 5-7% range. That’s impressive by current global standards, and it will likely attract global capital into Asia’s emerging markets over the next few years.
China is a fourth story with growth still above 6%, but steadily ebbing while major variations in growth have emerged across industries and provinces. Taken together, it still leaves Asia with a steady rise in global market share from 33% in 2015 to 36% in 2020 (standard GDP measure).
Most of the region’s central banks found room for rate cuts this year, and governments have lifted or maintained spending, even as revenue growth slowed. However, there is a limit to how long such stimulus can be deployed. Apart from Singapore, few countries have the capacity for continued fiscal stimulus in 2017 if global demand growth remains weak.
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