Economy in Brief

In this week's edition, we assess the recent economic developments across the Asian region. We find that there has been a noticeable shift in both investor and economist sentiment: optimism is rising about the economic outlook for economies such as India, but toward others, such as Japan, the market has become more cautious. We also explore the growth drivers of various Asian economies, highlighting potential vulnerabilities. Economies heavily reliant on export-driven growth face different risks compared to those with comparatively diversified growth drivers, including from private consumption. This discussion leads to the topic of twin deficits—current account and fiscal—that certain economies continue to grapple with. Although such deficits are not always an immediate concern, they can often become focal points for investors. On the fiscal front, many Asian economies are expected to run deficits this year. However, recent news of significant government spending plans in Indonesia and Thailand, alongside Malaysia’s efforts to cut subsidies, will likely influence the fiscal outlook for these nations. Lastly, we flag recent trends in investor flows, and the revival of foreign investment in India and outflows from China.

These movements underscore the dynamic nature of the region, with India remaining a favourite among economists and investors, while concerns persist about prospects in China and Japan. Taiwan and South Korea are also experiencing a revaluation of their investment potential, particularly regarding the technology sector. Overall, the landscape in Asia remains fluid, with ongoing shifts in economic sentiment and investor behaviour, especially regarding government spending in Southeast Asia.

Growth Growth expectations for Asia have shifted significantly from earlier in the year, as illustrated by the changes GDP forecasts shown in Chart 1. For example, perceptions about India’s economic prospects have improved markedly, especially after its elections concluded smoothly and reform optimism increased. As a result, India is now projected to be the world’s fastest-growing major economy for the year, according to our latest Blue Chip Economic Indicators (BCEI) survey and IMF forecasts. In the meantime, advanced Asian economies such as South Korea and Taiwan have seen significant upgrades to their growth outlooks due to the technology upcycle and strong demand for AI-related semiconductor chips, key exports for these countries. However, Japan’s economic growth expectations have deteriorated, with the latest BCEI survey suggesting no growth for the year. Nevertheless, investor perceptions might shift more positively in light of Japan’s unexpectedly strong Q2 GDP report released last week.