Asia In search of low hanging fruit? - ING.com

February 2018

Asia Research team

Asia – In search of low hanging fruit?

Photo source: Somodevilla/Getty Images

Team, coverage and contacts

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Rob Carnell - Singapore Chief Economist, and Head Of Research – Asia Pacific (Global / Pan Asia themes, Singapore, Japan, Korea, Australia, New Zealand) [email protected]

Prakash Sakpal - Singapore Economist (India, Malaysia, Thailand) [email protected]

Iris Pang – Hong Kong Greater China Economist (Mainland China, Hong Kong, Taiwan) [email protected]

Joey Cuyegkeng - Manila Senior Economist (Philippines, Indonesia) [email protected]

It’s not just about churning out publications: Call us, e-mail us or arrange for one on one visits, or just watch them on TV

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Asia- in a global context

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2008-2010 2011-2013 2014-2016 2017-2019 (F'casts)

World and Regional GDP

World US Euro area Asia-Pacific

NICE Economy…

4

Non-inflationary – consistently expanding

Globally and regionally, growth is good.

Source: World Bank, ING

And inflation is hardly in evidence…

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0.0

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1.5

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2.5

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2008-2010 2011-2013 2014-2016 2017-2019 (F'casts)

Global inflation

World US Euro area Asia-Pacific

YoY%

Source: World Bank, ING

6

Asia- regional trends and outlook

7

Trade weighted FX – not many stand-outs

• Most Asian currencies appreciated in 2016 and 2017 on a trade weighted basis • The Philippine peso and Indonesian rupiah stand out as exceptions on the downside • Taiwan dollar and Thai baht appreciated more than the others

85

90

95

100

105

110

115

120

Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17

Trade weighted exchange rates

TW

TH

AU

SG

JP

MY

IN

ID

PH

NZ

8

Real currency valuations – mostly fair

85

90

95

100

105

110

115

120

Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17

REER North Asia

China Japan Korea Taiwan 85

90

95

100

105

110

115

120


REER SE Asia

Indonesia Malaysia Philippines Singapore Thailand

85

90

95

100

105

110

115

120


Other Asia Pacific

Australia India New Zealand

• There are few stand-out misalignments in Asian FX space

• China could appreciate some more without becoming overvalued

• Malaysia is becoming fair value or maybe now exceeding it…

• Indonesia has declined to approximately fair value

• Philippines looks cheap, Singapore fair value

9

Export competitiveness

• A more direct way to look at competitiveness, and room for CB policy changes is export growth • 2017 export strength was partly a function of 2016 weakness. • Most of ASEAN has seen very robust export growth even accounting for base effects • The export story for Singapore is less impressive - suggests policy hangs in the balance • Indonesia’s exports are not a problem – it is cutting for other reasons • China on the other hand has seen a USD export bounce in line with the decline in 2016 • Taiwan and Korea are the stand-out N Asia economies for export growth • But that could all be about to change…

-10

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0

5

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15

20

Thai Phil Sing Malay Indon

ASEAN Export growth (full year cumulative YoY%*)

2016 2017

-10

-5

0

5

10

15

20

China Hong Kong Japan Taiwan Korea

North Asia Cumulative full year Ytd YoY%

2016 2017

10

Inflation – a mixed bag

• North Asian inflation is stable, and in a Goldilocks range (1-2%) – allowing policymakers to focus on other targets (growth – Korea; deleveraging, de-polluting – China)

• Inflation in SE Asia falls into 2 camps 1. Those for whom inflation is a bit high (Indonesia, Malaysia, Philippines) though typically

inflation targets are also a bit higher 2. And those for whom it is a bit low (Thailand, Singapore)

Likely policy response varies across both groups

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Jan 15May 15Sep 15Jan 16May 16Sep 16Jan 17May 17Sep 17

SE Asia

Indonesia

Malaysia

Philippines

Singapore

Thailand

Vietnam

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1.0

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4.0

5.0

Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16 Jan 17 May 17 Sep 17

North Asia

China

Hong Kong

Korea

YoY%

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Real policy rates – how much policy leeway?

• Real rates for most of Asia are close to zero, and negative for some.

• Positive real rates (China, Philippines, India) probably justified, could rise further

• Negative real rates (Japan, Malaysia) have room to rise

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0

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Policy rates and inflation

Inflation Rates

%

12

Asian growth boom – thanks to oil?

• Asian trade slumped in 2015 / 2016, and the pick up in 2017 has been flattered by what was a very

weak base

• One explanation rests on terms of trade for the oil exporting regions – weak oil prices left them with no

spending power for Asian produced exports

• This is no longer a drag, but how long does it last….?

• If oil resumes its fall, maybe this year but not 2019

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40

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Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17

Asian export total and Crude oil Price

Brent crude, lhs

Asian exports, rhs

YoY% YoY%

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0

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0

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40

60

80

100

120

140

Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18

Asian export total and Crude oil Price

Brent crude, lhs

Asian exports, rhs

$/bbl 3mma YoY%

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Chips Ahoy! Asia leads Semiconductor surge

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10

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20

25

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35

40

10 11 12 13 14 15 16 17

Semiconductor billings

Asia Pacific Japan Americas Europe

Bllions (per month)

Its all Asia

• A good chunk (not much less than 50%) of semiconductor production is coming from China

• Demand led by new generation communications devices / flagships and internet of things

• Handsets could take over from Chips as this product cycle matures

The key events for Asia in 2018/19

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Indonesia June 2018 elections for 17 regions, 39 cities and 115 districts

Indonesia August 2018 Filing of candidacies for President And Vice President

Indonesia April 2019 National Elections

Philippines May 2019 Mid-term elections

Indonesia Sept/Oct 2019 Run-off elections

India: Legislative assembly elections in eight states in 2018

India: National elections in April-May 2019

Malaysia: General elections to be held by August 2018

Thailand: General elections expected to be held by November 2018, the first since military coup in May 2014

China: CPPCC* and NPC** sessions held 1st week March

* Chinese People’s Political Consultative Conference and ** National People’s Congress

15

Long-run – some good, some bad

0%

20%

40%

60%

80%

100%

1994 1997 2000 2003 2006 2009 2012 2015

Global GDP

US

China

Non-China, non-Japan AsiaJapan

Europe

Middle East AndAfricaLatam

Other

16

Asia – taking over the world

• The US is the world’s largest single economy, and will remain so for many years to come

• But Asia is catching up, especially China

• As a proportion of the global total, the US accounts for only about 20% of total global GDP (measured in USD)

• China accounts for about 12% • And non-China non-Japan Asia about 7%, with

Japan about 5% • Pan-Asia is bigger than either the US or Europe • And as the Middle East declines, the relative

proportion is likely to get bigger still

0

20,000

40,000

60,000

80,000

1994 1997 2000 2003 2006 2009 2012 2015

Global GDP

US

China

Non-China, non-JapanAsiaJapan

Europe

Middle East And Africa

Latam

Other

$UStr

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Asia – thanks for all the global growth

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-0.5

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1.5

2010 2015 2016

US

China

Non-China, non-Japan

Asia

Japan

Europe

Middle East And Africa

Latam

Contributions to World GDP

Growth (pp)

Trailing 5 year averages

EURUSD rises from 0.85 to 1.60

Regional contribution to global growth (USD terms) pp

Contribution to global growth from China consistently exceeds that of the US

Europe only contributes when EUR surges

Non-China, non-Japan Asia a consistent contributor

18

Growth relative to “expected”

• Using a relative “catch-up” model to gauge how fast Asian countries should grow:

• Over the last 4 years: Most of ASEAN has grown on track, INDON and TH notable underperformers

• SK and HK the Asian outperformers, along with India

• (China outlier)

• Looking at the most recent growth rates:

• Singapore has slipped , as has TW, TH and INDON still underperforming

• JP actually doing OK on latest measures

• India also still outperforming

• China still outlier

y = -1.107ln(x) + 13.199

R² = 0.7168

0

1

2

3

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5

6

7

8

1000 10000 100000

Asia - relative GDP per capita (4Y avg)

Outperformance

UnderperformanceAusSing

HK

JP

SK

TW

MAL

CH

TH

SRIINDON

VN

IN

PH

MNG y = -1.342ln(x) + 15.31R² = 0.8253

0

1

2

3

4

5

6

7

8

1000 10000 100000

Asia - relative GDP per capita (latest)

Outperformance

UnderperformanceAus

Sing

HKJP

SK

TW

MAL

CH

TH

SRI

INDON

VN

IN

PH

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Asia – It’s not just Japan that’s ageing!

0 10 20 30 40 50 60 70 80

Philippines

Laos

India

Myanmar

Indonesia

Mongolia

Malaysia

Vietnam

Japan

China

Thailand

Hong Kong

Singapore

Taiwan

Korea

Old Age dependency Ratio Now and in 2030

2030 2015

Wrinkly

Spritely and youthful

20

China – qualitative and quantitative growth

Economy, loan market, bond market, stock market

Nominal GDP

CNY 74.4 trillion in 2016

CNY 82.7 trillion in 2017 +11%

Domestic bond market capitalisation

CNY 49.6 trillion

as of Dec 2017

+11.5%

RMB loan outstanding

Aggregate financing

(incld bank loan, trust loan,

entrusted loans, net chg in bond

and stock capitalization)

CNY 156 trillion in 2016

CNY175 trillion in 2017 +12% SHSZ300

Market capitalization: CNY 11.7 trillion 2017

+27.5% vs 2016

CNY 12.25 trillion as of 11 Jan 2018

(H-share :

HKD 3.1 trillion 2017 +21.8 vs 2016)

CNY 106.6 trillion in 2016 CNY 119.0 trillion in 2017 +13%

3

Source: Bloomberg, ChinaBond.com.cn

Xi has set the scene for China’s economic growth He may be too humble… we believe by 2035 China’s input in international issues would be taken very seriously

6

Expected hurdles from the aggressive plan

23

We are not particularly worried because Xi has consolidated his power, this increases execution ability so the plan can be achieved earlier

Technology needs more infrastructure investment

Preparation stage of being a high tech nation in the area of goods and services consumption and business

This needs a lot of money spending, probably from central and local governments

Other countries could feel the threat

in terms of economy size, development of

technology, and beefing up military power

1st hurdle: Build up of central and local government debt

3rd hurdle: Beware of trade and geopolitical conflicts and military competition

2nd hurdle: Not easy to narrow living standard of urban and rural given the wide gap today

China will face a lot of hurdles to fulfil what it plans

Disposable income was 2.8 times of rural

Consumption was 2.34 times of rural

Slightly higher income growth of 8.7% vs 8.3% in urban

Spending is growing at 8.6% while urban was behind at 6.2%

Urban

Rural

24

With infrastructure investment in the rural region as a supporting pillar

Implication of Xi’s new thought - consumption to drive growth

Consumption • Contributed 59% to GDP

growth

• Retail sales +10.2%

Investment • Contributed 32% to GDP

growth

• Fixed asset investment +7.2% YoY

2017

2017

• Deleveraging to put more pressure on investments in real estate

• But infrastructure investment will fill the gap to support growth

• Increase in consumption has changed growth structure of the Chinese economy from manufacturing driven to service driven

• We project that consumption would increase its contribution to GDP growth to above 75% by end of 2018

Main risk that could hurt consumption (though very unlikely)

• credit crunch that caused massive unemployment

• asset bubble burst reducing wealth accumulation

• Though we do not think a housing bubble burst is a likely scenario, credit deterioration in the manufacturing sector and the complex relationship between corporate bonds & loans and wealth management products should be a concern if deleveraging is either too fast or too slow

Forecasts China GDP to grow 6.8% in 2018 because we expect the service sector would continue to outgrown investment.

25

At the same time, corporate default cases would still be a headache in terms of possible contagion

Xi’s new thought needs leverage from government

China’s high leverage problem originates from corporates but will move towards government in order to fulfil Xi’s plan

Although household debt rose due to increase in property investment the government has imposed measures to limit this risk.

This has come down, yes, still high, but overcapacity cuts will keep this falling

Total credit in China

Total credit is 258% of GDP down from 262% in Feb 2017

Corporate credit 159% GDP down from 170% in Feb 2017

￥213trn or

$33trn

Nominal GDP ￥82trn or $12.6trn in 2017

Gross government debt 50% GDP Up from 50% in 2016

This is a new risk on our radar To improve rural living standards, local governments will raise debts, and the central government would eventually bear some burden

Household debt 49% GDP Rising from 40% in Feb 2017

Updated on 25th Jan 2018

26

Deleveraging in shadow banking requires more restrictions on the underlying products of securitisation

Potential risks from tackling financial leverage:

Total social financing (TSF) outstanding 211% of GDP At CNY175trillion in 2017 with nominal GDP at 82.7trillion in 3Q17

Of which, core shadow banking 33% of GDP

At CNY 27 trillion contributed 15% to TSF 14.5%

14.7%

14.9%

15.1%

15.3%

15.5%

15.7%

Apr-16 Oct-16 Apr-17 Oct-17

Core shadow banking / TSF (%)

Core shadow banking = Trust + Entrusted loans+ Undiscounted bankers acceptance

Trust loans, entrusted loans, un-discount bills are off-balance sheet items.

Whenever there has been tight liquidity in the bank loan market, corporates tends to go for these loans

So corporates and local government debts are the rotten apples in the underlying basket of securitised products

Moreover, these could be packed into wealth management products (WMP), some WMP are off-balance sheet items

The interlinked relationship between corporate, bank liquidity, business of wealth management products has complicated regulators’ efforts to shrink these off-balance sheet items.

Since 1Q17’s MPA off-balance sheet wealth management products started to be included in broad credit on banks books.

That means more stringent risk control on wealth management products.

However, we are still aware that the underlying assets of the securitised products could default even they are brought on-balance sheet. It all depends on how banks balance profitability to risks.

27

Don’t worry, no bubble burst thanks to flexible macro prudential policies

Potential risk from housing? We don’t worry Housing bubble deflating

Regulators don’t tighten all the time, may start to relax housing policies in 2018

Location, location, location

It is a long way to destock housing inventory

Equivalent to 65 months

in 2014

50 months in

2015

41 months in 2016

37 months in Dec 2017

Third tier cities lagging Most of the destocking has not yet taken place in the third and fourth tier cities as buyers prefer buying brand new apartments rather than buying abandoned flats. Ghost towns are still ghost towns until they are torn down for rebuilding.

Recent rental measures: Our view is that luring potential buyers to rent instead of buying would push up rents in the short term but could divert some buying demand into the rental market for the longer term, which would keep prices in prime locations rising more slowly than before.

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Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17

China 70 cities newly built residential property price YoY%

First tier cities

Second tier cities

Third tier cities-8

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10

12

14

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50

70

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Residential floor space sold (12-month rolling average, YoY%)

China 70 cities newly built residential property price %YoY (rhs)

History tells us that the government relaxes policies when home prices fall, e.g. number of flats each household can buy, down-payment ratio

To avoid capital outflows, the central

bank needs to stabilise the spread against USD interest

rates

“Prudent neutral monetary policy

stance” is too general to give a hint on monetary policy

Tightening liquidity during financial

reforms is necessary and is already the

trend via daily open market operations.

That alone would push up interbank interest

rates.

Follow the Fed’s rate hike path but only

slightly

Monetary policy in 2018: Keep interest rate spread stable against USD

28

Follow Fed rate hike, but to what extent?

3 x 5 bps rate hike on 7D reverse repo in 2018 (also the same extent on other interbank

rates)

Too bullish on CNY? We have good reasons

Exchange rate policy in 2018 USDCNY – How strong can it go?

Strong yuan in 2017 and

getting stronger in

2018

PBoC pushing interest rates higher by lending longer to

banks

Net capital inflows possible for the government

The PBoC is scared to see capital flight.

USDCNY to follow more closely with the dollar index

after the counter-cyclical factor is reset to zero

Do not worry about negative impacts on trade -

EUR still stronger against CNY

29

6.5 4Q 2017 6.1 4Q 2018 USDCNY forecast

But if yuan appreciation is too fast then it would attract hot money inflows! So we expect sporadic interventions in the yuan when dollar is weakening very quickly

USDCNH… if you still care about the difference We don’t expect CNY and CNH spread to widen for a long duration

During 2015, when CNY depreciated, CNH demonstrated even stronger depreciation, and vice versa.

The CNH and CNY spread has been small. The PBoC has realised that the small liquidity RMB pool offshore would make the CNH interest rate very volatile if there are arbitrage opportunities between CNY and CNH. After early 2017, CNY-CNH spread has narrowed again, with spreads becoming less frequent, and lasting less time. In the 5th Financial Working Conference, liberalising the Rmb is one of the missions for the 5 year ahead. For us, it means CNY and CNH would move even closer, with fewer interventions intraday except near the closing to set the scene for next day’s fixing

30

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Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18

CNH-CNY USD/CNH USD/CNY

Hong Kong – ample liquidity

31

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A balanced economy, from consumption to trade of goods and services.

Hong Kong

• The economy has improved - thanks to a better global environment that supports not only the trade sector but also the financial sector.

• Local unemployment rate hit its low at 2.9% in Dec 2017 falling from 3.4% in 2016. That has given room for domestic consumption under low inflation environment.

• These two factors should continue in 2018 unless there is a big jump in energy prices. • Infrastructure investments, including Hong Kong-Zhuhai-Macau Bridge and various new metro and train

lines also supported the economy in 2017. However, infrastructure investment will fade as large projects are about to be completed in 2019.

• Overall, it is a stable, balanced economy. • However, its wealth gap is large, and amplified by the hot real estate market.

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2015 2016 2017

% Consumption InvestmentNet export of goods Net export of servicesGDP %YoY

2.5

2.7

2.9

3.1

3.3

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0

1

2

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4

5

Dec

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Headline CPI inflation

Underlying inflation exclude government relief

Unemployment rate (%)

%

33

Fuelling the hot property market

Ample liquidity means rates will lag US

• Liquidity is still ample, even after HKMA actively drained the interbank market by issuing exchange fund bills. That has pushed the HKD stronger.

• HKD interest rates are still lower than USD rates. • Liquidity is so ample that rate differential between HKD and USD

is difficult to arbitrage away. • With Chinese money crossing the border into HK, this will

continue. • And HKMA will eventually need the mop again.

7.75

7.77

7.79

7.81

7.83

7.85

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2002 2004 2006 2008 2010 2012 2014

3M Libor

3M Hibor

Fed funds rate

USDHKD (rhs)

%

40000

70000

100000

130000

Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17

Home price (HKD per sqm) (40sqm at Kowloon, representing

the median)

(Source: Land Registry Hong Kong from Bloomberg)

• Home prices in Hong Kong keep rising, low interest rates are one of the factors

• Another is that investor demand comes from local as well as Mainland

• Newly built residential flats are small in size so that the overall amount is “affordable” to the Hong Kong public and this has pushed up the per sq m price.

• Most of the newly built flats are small, which trigger comments that there is oversupply of small flats. But under the current down payment ratio of 40% for most flats, the median public can only afford such small size flats. “Oversupply” would only occur if HKMA relaxed the down payment ratio (unlikely).

• As restrictive policies are in place most investors are not highly leveraged, so the scale of bubble burst would be moderate if there is one.

Taiwan – carried along by trade flows

34

35

Luckily, the world is on an upward trend

Taiwan: Small open economies depend on trade

• Taiwan’s economy has been very reliant on its trade sector. This makes Taiwan a typical small open economy which is prone to the global economic cycle.

• Luckily, the world is in an up trend and Taiwan has benefited from this. • Inflation has fluctuated with food prices. • Economic growth should be slower in 2018 (2.0%) due to a high base effect in 2017 (2.6%) and also

slightly higher inflation (1.2% in 2018 vs 0.6% in 2017) due to a mixture of higher food prices (due to adverse weather) and energy prices.

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2

4

6

8

10

2016 1Q 2Q 3Q 4Q 2017 1Q 2Q 3Q 4Q

Consumption

Government

Gross capital formation

Chg in Inventories

Exports

Imports

GDP %YoY

%

2.5%

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

3.5

3.6

3.7

3.8

3.9

4.0

Dec 15 Jun 16 Dec 16 Jun 17 Dec 17

Taiwan Unemployment and Inflation

Unemployment rate

CPI inflation (rhs)

CPI food inflation (rhs)

% % % % GDP by expenditure YoY%

36

Similar to Mainland China, imports are turned into export after value add production, so a strong TWD may not hinder export

Weak dollar would strengthen TWD but would it hurt trade?

• A strong TWD would make imports of parts cheaper and therefore may not hurt exports. • We expect export and import growth rates in the “mid-teens” in 2018. • However, Taiwan’s reliance on exports, of which, 41% go to Mainland China and Hong Kong, could be a

hidden risk for Taiwan and its electronics sector. Mainland China could try to force Taiwan to admit the One-China policy, using trade as their tool.

Mainland China

28%

Hong Kong

13%

USA

12%

Europe

9%

Japan

6%

Singapore

6%

S.Korea

5%

Others

21%

Taiwan export destinations in 2017

25

27

29

31

33

35

37

Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Nov 17

USD/TWD

TWD appreciated over 7.5% against the USD in 2017

Korea – Sweet spot is over

37

38

Korean Exports – something old, something new

• Year-on-Year measures are very popular in Asia, but they can be very misleading

• Semi-conductors top the export charts, mobile phones also top the charts but petroleum and petrochemicals also doing well and steel doing OK

• These results broadly hold even when you smooth the data (3 month moving average YoY%)

-60 -40 -20 0 20 40 60 80

Mob phone parts

Wireless comms

Autos

Flat Panel LCDs

Home Apps

Auto Parts

Flat Panels

Fiber

Steel

Gen Machines

Computers

Vessels

Mob phones

Petrochem

Petrol

Semiconductors

%YoY

-60 -40 -20 0 20 40 60 80

Mob phone parts

Home Apps

Wireless comms

Flat Panel LCDs

Auto Parts

Vessels

Autos

Fiber

Flat Panels

Steel

Gen Machines

Computers

Petrochem

Mob phones

Petrol

Semiconductors

YoY% 3MMA

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

08 09 10 11 12 13 14 15 16 17

Total Exports$mn

39

Korean Exports – very narrowly based

-3 -2 -1 0 1

Wireless comms

Autos

Mob phones

Vessels

Petrol

Flat Panel LCDs

Home Apps

Mob phone parts

Gen Machines

Semiconductors

Steel

Flat Panels

Petrochem

Fiber

Computers

Auto Parts

...compared to 15m earlier (Sept 2016)

% contribution to total growth of minus 8.9%YoY

-10 -5 0 5 10 15

Autos

Wireless comms

Mob phone parts

Flat Panel LCDs

Auto Parts

Flat Panels

Home Apps

Fiber

Mob phones

Computers

Steel

Vessels

Gen Machines

Petrochem

Petrol

Semiconductors

Dec 17 Contribution to Export growth

0

2000

4000

6000

8000

10000

12000

Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17

Exports by type

Semiconductors

Gen Machinery

Vessels

Autos

Steel

Petrol

$m

40

Korean GDP – exports not doing much

• So export strength is heavily reliant on semi-conductor growth, but exports aren’t doing the heavy lifting for the economy – domestic demand is.

• Net exports have reverted to being the drag on the economy they have been in three out of the last four quarters

• Government spending has been one of the more consistent though weak pushes for growth

• Consumer spending is mediocre, but would have been worse without benefits increases and minimum wages gains – at least it is consistent.

-0.5

0.0

0.5

1.0

1.5

2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

06/2017 09/2017 12/2017

GDP contributions (QoQ%)

Govt cons Govt FCF GOVT

PCE Facilities Construction

Stocks Net Exp GDP, rhs85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0

125.0

Mar 13Sep 13Mar 14Sep 14Mar 15Sep 15Mar 16Sep 16Mar 17Sep 17

GDP components

Construction

GOVT

Imports

Facilities

Exports

GDP

PCE

1Q 2015 = 100

41

Korean production – slowing…

107

108

109

110

111

112

113

114

115

104

106

108

110

112

114

116

Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17

Production capacity index and output

IPI: sa: Manufacturing (Mfg)

Manufacturing ProductionCapacity Index (MPCI)

• So far, export growth has had quite a limited effect on manufacturing output…maybe because it is focused on a narrow base

• Meantime, facilities investment has caused capacity to rise at a much faster pace, and operating ratios (and presumably profit per unit output) have declined.

• Manufacturing output appeared to soar in September 2017, but this is all due to different timings for lunar holidays, and reversed in October

• Inventory ratios suggest a slower period ahead for production, even after last month’s decline

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17

Production and inventory ratios

IPI: Manufacturing (Mfg)

Inventory to shipments, rhs, inv

YoY% YoY%

42

BoK hiked, now they have to live with it

9

9.5

10

10.5

11

11.5

12

12.5

13

90

100

110

120

130

140

150

160

2002 2004 2006 2008 2010 2012 2014 2016

Household debt (% income)

Debt to incomes ratio (%) lhs

Debt service costs, rhs

% %

• Despite all the uncertainty and arguments for unsustainable exports and production, GDP growth is close to 3.0% YoY and could come close to that in 2018

• But inflation is some way below the BoK’s target and could remain below it through until 2019

• Another reason to hike is household debt, which is high and rising fast…

• …but debt service costs are another reason not to hike…this is difficult. Scope for a policy error is high – best leave it alone…

1,000.0

1,050.0

1,100.0

1,150.0

1,200.0

1,250.0

1.0

2.0

3.0

4.0

5.0

10 11 12 13 14 15 16 17

BoK inflation, rate target, rates and KRW Policy Rate: Month End: Base Rate: Bank of KoreaInflation target Lower

target UpperUSD/KRW

% USD/KRW

43

Japan – Unusually strong

Japan - Abe’s gamble paid off

44

Coalition supermajority in the House of Representatives

LDP 284

Komeito 29

Constitutional Democrats 55

Party of Hope 50

Others 23

But what does he do with victory? 1. Push forward with consumption tax

hike in April 2019

2. Pressure corporates to pay higher wages

310 seats needed for supermajority

313 seats for LDP / Komeito coalition

Japan – consumption tax hike 2019 – we’ve been here before…

45

…and it didn’t end well

LDP 284

Party of Hope 50

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

03/2013 03/2014 03/2015 03/2016 03/2017

Consumption tax III: What can we expect this time round?

CPI YoY%

GDP, YoY%

Prices front-run

3 pp hike delivers2pp inflation spike for 12M

Consumption front-run

boom followed by bustinflation returns to "normal"

bust followed by slow recovery

Prices peak

• A consumption tax hike will deliver a front-run boom in consumption, a spike in inflation…

• …and then a bust in both, followed by slow recovery – there are better ways to do this.

46

Japan: Profits – strong, Mfg based

• Something is happening to Japan, and that probably starts at the corporate profit level.

• Profits are surging, driven by a 40%+ gain in recurring profits at manufacturing firms

• This is itself driven by soaring operating profits, which are driven by strong sales (global demand)

• Suggests corporate Japan can weather some JPY appreciation, USD/JPY100 not a problem

-30

-20

-10

0

10

20

30

40

50

14 15 16

Operating Profits

Interest & Other Received

Other Non Operating Income

Other Non Operating Expenses

Expenses: Interest & Discounting

4Q/4Q %

-200

-150

-100

-50

0

50

100

150

13 14 15 16

sales

cost of goods sold

Selling and admin

4Q/4Q %

Recurring Profits Operating Profits

47

Japan: If it all goes well….

• If Abe succeeds in strong-arming corporate Japan and causing them to pay faster wages than the glacial improvement seen until now…

• …and if growth and inflation expectations pick up…

• …and the BoJ begins to unravel QQE, then as well as seeing a stronger JPY, JGB yields will also rise, spelling rising debt service costs – up to 3.5% of GDP

• This is perhaps the best reason for expanding the tax base with a consumption tax hike

0

0.5

1

1.5

2

2.5

3

3.5

4

1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

high

medium

Low

%

Scenarios

Debt Service costs (% GDP)

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

2014 2015 2016 2017

Cash earnings

Scheduled

Hours worked, rhs

YoY% YoY% 3mmaCash wages

48

Japan: Inflation missing target – who cares?

• Who cares that the BoJ is missing its inflation target? Not the BoJ, if their asset purchasing is anything to go by

• The current run rate is only about JPY45-50tr pa

• This could be a hint at how they eventually stop doing QQE…”stealth taper”

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2013 2014 2015 2016 2017 2018

Consumer Price Index: YoY

Target

core

Tokyo headline

YoY% Inflation missing BoJ's 2% target

0

20

40

60

80

100

120

Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Aug 17 Oct 17 Dec 17

JGBs

Total assets (inc ETFs, JREITS,

etc)

Cumulative asset total if BoJ

achieving JPY80tr asset

purchase pace

BoJ cumulative asset growth, JPY tr

49

Singapore – slowly improving

50

Singapore: Output driven by inventories and chips

• Whichever way you look at it, Singapore’s GDP (expenditure basis) is predominantly driven by rising inventories

• That is rarely a sustainable position

• On the output side, computer electronics, of which semiconductors are a large part, is the only convincingly growing element.

• This leaves output looking vulnerable to any shocks

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

GDP Contributions to YoY Growth (ppt)

Cons Govt cons CW Invest and IP Invent Net Exp GDP

4Q16 1Q17 2Q17

70.0

90.0

110.0

130.0

150.0

170.0

190.0

Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17

Chemicals

Pharma

Computer, electronics etc

index 2015 = 100 Singapore Production - main items

51

Singapore: Exports losing momentum

• Singapore’s export story has lagged behind some of its Asian neighbours

• A quick look at NODX cuts through the flattering YoY comparisons that gave rise to optimism in 2017

• 6M annualised figures show machinery exports falling, pharma is a big drag and few other components are growing strongly

• A similar picture is evident from year-to-date comparisons.

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

06/2016 12/2016 06/2017 12/2017

NODX 6m/6m annualised

NODX

Electronics

Pharma

Petrochem

Circuits

Machinery

Other

-40

-30

-20

-10

0

10

20

30

40

50

60

70

06/2016 12/2016 06/2017 12/2017

NODX YTD%

NODX

Electronics

Pharma

Petrochem

Circuits

Machinery

Other

52

Singapore – inflation looks worse than it is

• At 0.4%YoY, inflation is still running “too low” • But the heavily-weighted accommodation index is clearly the main factor keeping inflation low • And that is beginning to turn the corner, even if it is still negative YoY • Stripping out accommodation, or looking at the MAS core measure, inflation looks quite normal,

and stable… • …no hint at any need to change policy…in either direction

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Contribution to YoY% inflation

10/2017 11/2017 12/2017

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17

Inflation ex-accommodation and MAS core

Ex-accommodation

MAS Core CPI measure

YoY%

53

Singapore – SGD NEER and rates

• The SGD NEER is the MAS’ main tool for balancing the economy

• We have seen that the export backdrop is fairly ordinary, though overall growth at about 3.0% is reasonable.

• The currency too is close to the mid-point of its NEER range

• We were looking for a marginal tightening of policy from the MAS at their April meeting.

• But soft production data, disappointing exports, and softer than anticipated inflation mean this forecast now hangs in the balance.

• The recent spike in short-term interest rates suggests that liquidity may have been tightened deliberately.

• Most likely, this would be to keep the SGD from weakening against its trading peers and runs counter to the notion that official policy adopts a slight (1% pa) NEER appreciation in April 18, which we had previously thought likely.

• If the NEER band is to resume appreciation, this will likely require further sharp increases in short-term rates

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2012 2013 2014 2015 2016 2017 2018

3 month SIBOR%

MAS policy shifts

110

112

114

116

118

120

122

124

126

128

130

2012 2013 2014 2015 2016 2017 2018

SGD NEERIndex

54

Indonesia – pushing growth higher

55

Indonesia: Breaking above 5% growth?

• GDP growth has averaged 5.1% from 2013- 2017, below the 2005-2012 5.9% average • Recovery in public spending growth needed – fiscal leeway is available by pushing deficit spending

closer to 3% of GDP rather than keeping it at programmed 2.2% • Business spending slowed to 4.7% growth in last five years and lagged the 2005-2012 average

growth of 8% - 15 policy reforms have not generated significant business investments • But regional elections mid-year ushering in presidential elections in April 2019 may be in the way

0

1

2

3

4

5

6

7

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F

% C

H Y

oY

GD

P

% C

h Y

oY

HH

, Go

vt &

Bu

sin

ess

Sp

en

din

g

GDP (rhs) HH Spend Govt Spend Gros Invt

GDP YoY%

56

Indonesia: Steady policy rate and easing rules

• Bank Indonesia regarded the two 25bp rate cuts in 3Q 2017 after 100bps cut in 2016 as “sufficient”

• Vigilantly watching the inflation path, Indonesian rupiah movements and activity indicators to keep inflation within target range of 2.5% - 4.5% or close to point target of 3.5%

• To spur the economy - tweaked macro-prudential measures to encourage bank lending such as two-week average to calculate banks’ reserve requirement ratio

• Bank’s non-performing loan ratio has eased to 3% (with loan growth of 8%) but still above 2.2% in 2014 (when loan growth was 16%)

8000

9000

10000

11000

12000

13000

14000

15000

2

3

4

5

6

7

8

9

10

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

US

D/I

DR

% C

H Y

oY

; % p

.a.

Inflation BI Pol. Rate IDR

Inflation Target

Range

Inflation and policy rates (%)

57

Philippines – inflation worries

58

Philippines: Keeping growth at close to 7%

• GDP growth during the Duterte administration: average of 6.7% (government's target is 7-8%) • Domestic driven: Household, government and business spending growth higher than in past • Philippines just at beginning of the demographic window • Fiscal leeway (created through fiscal prudence from 2005 to 2016) now exploited with deficit

spending at 3% of GDP from 1.6% in previous administration • Infrastructure renaissance with roll out of major projects last year and in next few years

-2

-1

0

1

2

3

4

5

6

7

8

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

F

20

20

F

20

22

F

% Y

oY

Source: NSCB; ING

59

Philippines: Challenging External Balances

• Forget an environment of excess remittances against the trade deficit that existed before 2016 • The new norm is very tight, sometimes inadequate USD inflows • This results in a shortfall of cover for the wider trade deficit and near balance or deficits in the

current account lately • Before 2016, Philippine peso weakness mainly from external developments including taper turmoil

and US Fed shift in monetary policy, weak global growth etc • Now add the challenging external payments situation to external developments

40

42

44

46

48

50

52-1500

-1000

-500

0

500

1000

1500

2000

2500

Jan

-11 A J O

Jan

-12 A J O

Jan

-13 A J O

Jan

-14 A J O

Jan

-15 A J O

Jan

-16 A J O

Jan

-17 A J O

Jan

-18

US

D/P

HP

(in

re

vers

e o

rde

r)

OFW

less

Bo

T (

in U

SD

mm

)

OFW net BoT PHP

60

Malaysia – bounce back

61

Malaysia – A positive terms of trade shock

• Recovery in commodity prices since 2016 supported an uptrend in Malaysia’s trade

• There was a large positive swing in USD exports growth to +15% in 2017 from -5% in 2016

• Strong domestic demand and high import content of exports boosted imports

• Widening current account surplus; close to 3% of GDP in 2017, up from 2.1% in 2016

• Strong economy => strong Malaysian Ringgit. Asia’s second-best in 2017 with 11% appreciation vs. USD

• But this this wasn’t enough to recover 15% MYR-REER (real effective exchange rate) depreciation in the commodity crash

• Trade growth may have peaked but the MYR level does not undermine exports

• Trade wars the main threat to Malaysia’s robust trade performance

62

Malaysia – Outlook for 2018

Why BNM should tighten? • Strong growth; rising oil prices and election

spending to support growth above 5%. ING forecast 5.3% (5.8% in 2017)

• Elevated CPI inflation – key drivers - high food and transport prices - likely to remain in play ING forecast 3% (3.9% in 2017)

• Negative real interest rates, undervalued currency, tightening in developed countries

What may keep BNM from tightening? • Increasingly populist economic policy in run up

to general elections to be held by Aug-18

• Potential growth risks from trade, geopolitics, and domestic political uncertainty

• Possibly muted inflationary pressure due to high base and appreciating currency

• Still accommodative policy in developed countries

63

Thailand – where is the growth?

64

Thailand – Slow growth-low inflation trap…

• The pick up in GDP growth in 2017 from 3.2% in 2016 is an inventory story

• Private consumption contribution to GDP remains steady but much-touted infrastructure spending is missing in action

• The inventory story too lacks substance without obvious pick-up in manufacturing…

• … and it means de-stocking will weigh down production, and GDP growth

• Export performance has improved but not an exception given the trend elsewhere

• And manufacturing hasn’t really benefitted from exports

• Against this backdrop, the rise of GDP growth above the 3% average pace it had been on since 2011 could be transitory…

• … unless supported by a recovery in domestic demand, which needs greater policy easing

65

Thailand – … warrants more policy stimulus

• The economy is flirting with deflation, albeit returning to positive inflation in 2017…

• … thanks to strong farm production keeping food prices (36% in CPI weight) in check…

• …and appreciating THB keeping imported inflation at bay

• The BoT’s 1-4% medium-term inflation target needs to be scaled back

• And why is the THB appreciating? It’s a large current account surplus story - Two years of over 10% of GDP current surplus

• Wide current surplus signals gross economic imbalances, thanks to weak domestic demand

• 10% THB appreciation vs. USD in 2017 looks excessive for weak economic fundamentals

• The BoT is unlikely to do anything about it, with our forecast of on-hold rate policy in 2018

66

Vietnam economy – balanced mix

67

Vietnam – Economic structure

68

Vietnam – Domestic economy

69

Vietnam – External sector

70

Vietnam – Financial markets

India – ready to roar?

71

72

India – A mixed state of the economy in 2017

What was good? • Accelerated economic reforms

• drive to curb black economy • tax reforms, recapitalization of public

sector banks • boost to infrastructure spending

• … improved long-term prospects for the

economy and investors’ confidence

• Positive global growth story – strong exports

• Pro-growth macro policies – 200bp RBI policy rate cut since 2015

• Moody’s upgrade of sovereign rating

• Confidence sensitive capital inflows – rallying stock market

• Appreciating rupee, barring a bad stretch of a couple of months – still strong carry trade

What went wrong? • Two main shocks in 2017…

• De-monetization of late-2016 • Poorly planned goods and service tax

launch in mid-2027

• … depressed GDP growth through hit to consumer spending.

• 6% GDP growth in the first half of FY2017/18 (Apr-Mar), down from 7.1% in FY2016/17

• Tight liquidity post-demonetization hit lending and investment

• Rising domestic fuel prices halted a downward trend in CPI inflation

• The fiscal policy geared toward supporting growth raised risk of overshoot in fiscal deficit.

• Oil-related surge in imports widening external trade deficit

73

India – Cyclical risks, growth-inflation dynamics

-3

0

3

6

9

12

15

2012 2013 2014 2015 2016 2017

% YoY

Financial year starting April

Upward inflation pressure

Total CPI

Food, utilities and transport

74

India – What to look out for in 2018

The macro policy

• With inflation in target zone, the RBI will prefer to maintain the current neutral policy stance throughout 2018…

• … while the government is likely to struggle to stay on the course of fiscal consolidation

The markets

• Rising inflation and government borrowing needs will weigh on government bonds and the INR performance in 2018

• Investors start to build in risk premium for rise

of political uncertainty in the run up to general elections in 2019

• ING’s USD/INR forecast for end-2018 at 64.5

The economy

• Further stabilisation of the economy from dual shocks, albeit some tapering of export strength

• Boost from public spending => announcement

in late 2017 of US$108 billion investment plan for building highways in next five years

• Fiscal slippage and transmission of rising global oil price to domestic fuel prices will pressure CPI inflation higher

• But inflation is unlikely to break above the RBI’s 4-6% medium-term policy goal

• ING forecast of FY2018-19 GDP growth of 7.1% and inflation of 4.8%, up from 6.5% and 3.8% in FY2017-18

75

India – The market risks in 2018

76

India – Structural risks

India

77

India – Potential shocks to financial sector

Source: International Monetary Fund, Article IV Consultation, Feb 2017

Australia – Damned if they do…

78

79

Australia: Housing myths

90

110

130

150

170

190

210

230

250

Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15 Sep 17

Sydney, Melbourne House price index

Sydney Melbourne

0 20 40 60 80 100 120 140

Sydney

Melbourne

Canberra

Brisbane

Darwin

Adelaide

Perth

Hobart

Affordability

EXPENSIVE CHEAP

2.95%

9.4% 6.9%

13.8%

13.2%

4.8% -2.4%

-6.3% House Prices, YoY%

It’s more complicated than just asking, is this or is this not a bubble? No single housing market and starkly different valuations and directions. Just one of the problems for the RBA to consider

80

Australia: RBA should have hiked, but now what?

GDP growth, employment growth and house price growth suggest that the RBA should be hiking. Wages and inflation as yet do not. But every day the RBA waits, household debt rises, making the ultimate reckoning more difficult

100

120

140

160

180

200

220

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total household debt

Household housing debt

% disposable personal income

A bigger bite for every % rate hike

-50

0

50

100

150

200

250

300

350

400

450

2014 2015 2016 2017

Total

Full time

Part time

Cumulative full year change (000s)

Australia: Total annual employment change

0.0

1.0

2.0

3.0

4.0

5.0

6.0

07 08 09 10 11 12 13 14 15 16 17

Wage and inflation still soft

CPI Hourly Wages

YoY%

Forecasts – Asia-Pacific

81

82

Forecast summary – China, Hong Kong

Sources: ING, Bloomberg

China 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 6.7 6.9 6.8 6.8 6.7 6.7 6.8 6.7

CPI (% YoY) 2.0 1.6 2.0 1.6 1.6 1.7 1.7 1.9

PBOC 7D reverse repo rate (%, eop) 2.25 2.50 2.50 2.55 2.60 2.65 2.65 2.80

10Y govt. bond yield (%, eop) 3.06 3.91 4.00 4.10 4.20 4.30 4.30 4.55

CNY per USD (eop) 6.945 6.507 6.300 6.250 6.200 6.100 6.100 5.800

Hong Kong 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 1.9 3.8 3.0 3.5 3.5 3.8 3.5 3.5

CPI (% YoY) 2.4 1.5 1.4 1.8 2.0 2.0 2.0 2.2

3M interbank rate (%, eop) 1.02 1.30 1.40 1.70 1.90 2.10 2.10 2.50


HKD per USD (eop) 7.756 7.815 7.810 7.810 7.780 7.790 7.790 7.760

83

Forecast summary – Japan, Korea


Japan 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 0.9 1.6 2.0 1.6 1.5 2.1 1.8 1.3

CPI (% YoY) * 0.8 0.5 1.3 1.1 1.2 0.9 1.1 2.0

Excess reserve rate (%, eop) -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10

3M interest rate (%, eop) 0.02 0.05 0.10 0.10 0.10 0.10 0.10 0.10


JPY per USD (eop) 112.00 112.69 113.00 113.00 111.00 110.00 110.00 105.00

* Assuming a consumption tax hike in 2019.

Korea 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 2.7 3.3 3.7 3.5 2.9 2.9 3.3 3.2

CPI (% YoY) 1.0 1.9 1.1 1.6 2.2 2.2 1.8 1.9

BoK base rate (%, eop) 1.25 1.50 1.50 1.75 1.75 2.00 2.00 2.00

3M CD rate (%, eop) 1.52 1.66 1.65 1.88 1.90 2.13 2.13 2.62


KRW per USD (eop) 1206 1067.4 1050 1030 1020 1000 1000 1000

84

Forecast summary – Taiwan


Taiwan 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 1.5 2.6 2.0 2.5 2.0 2.0 2.1 2.0

CPI (% YoY) 1.4 0.6 1.1 1.5 1.0 1.0 1.2 1.0

CBC discount rate (%, eop) 1.38 1.38 1.38 1.38 1.38 1.38 1.38 1.38

3M CP rate (%, eop) 0.66 0.65 0.65 0.65 0.65 0.65 0.65 0.65


TWD per USD (eop) 32.33 29.73 29.50 29.30 29.00 28.80 28.80 28.00

85

Forecast summary – Australia, India


Australia 2016 2017F 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 2.6 2.3 2.7 2.3 2.4 2.7 2.5 2.9

CPI (% YoY) 1.3 1.9 1.9 2.1 2.2 2.1 2.1 2.2

RBA policy rate (%, eop) 1.50 1.50 1.50 1.50 1.50 1.75 1.75 2.25

3M bank bill rate (%, eop) 1.65 1.65 1.65 1.65 1.65 1.90 1.90 2.40


USD per AUD (eop) 0.72 0.76 0.80 0.80 0.83 0.85 0.85 0.85

India (FY April-March) 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 7.1 6.5 7.3 7.3 7.1 6.9 7.1 7.4

CPI (% YoY) 4.5 3.8 5.5 6.5 5.0 4.0 4.8 4.5

RBI repo rate (%, eop) 6.25 6.00 6.00 6.00 6.00 6.00 6.00 6.50

3M T-bill rate (%, eop) 6.20 6.20 6.30 6.30 6.30 6.30 6.30 6.30


INR per USD (eop) 67.92 63.87 64.50 64.80 64.80 65.00 65.00 64.00

Note: Annual growth and inflation forecast on financial year basis, rest on calendar year basis.

86

Forecast summary – Indonesia, Philippines


Indonesia 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 5.0 5.1 5.2 5.4 5.5 5.5 5.4 5.8

CPI (% YoY) 3.5 3.8 3.6 3.5 3.6 3.7 3.6 3.6

BI 7D reverse repo rate (%, eop) 4.75 4.25 4.25 4.25 4.25 4.25 4.25 4.75



IDR per USD (eop) 13473 13555 13450 13480 13450 13500 13500 13400

87

Forecast summary – Singapore, Malaysia


Singapore 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 2.0 3.5 3.6 4.1 3.1 2.0 3.2 3.2

CPI (% YoY) -0.5 0.6 0.4 0.8 0.8 1.0 0.8 1.2



SGD per USD (eop) 1.447 1.337 1.310 1.280 1.270 1.250 1.250 1.200

Malaysia 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 4.2 5.8 5.1 5.0 5.2 5.8 5.3 5.2

CPI (% YoY) 2.1 3.9 2.8 3.0 3.1 3.2 3.0 2.5

BNM o/n policy rate (%, eop) 3.00 3.00 3.25 3.25 3.50 3.50 3.50 3.50



MYR per USD (eop) 4.49 4.05 3.86 3.82 3.78 3.72 3.72 3.62

88

Forecast summary – Thailand, Vietnam


Thailand 2016 2017 1Q18F 2Q18F 3Q18F 4Q18F 2018F 2019F

Real GDP (% YoY) 3.2 3.8 3.8 3.5 3.4 3.3 3.5 3.7

CPI (% YoY) 0.2 0.7 0.5 1.3 1.2 1.0 1.0 1.4

BOT 1D repo rate (%, eop) 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50



THB per USD (eop) 35.84 32.58 31.70 31.50 31.40 31.30 31.30 31.00

Vietnam 2013 2014 2015 2016 2017 2018F 2019F

Real GDP (% YoY) 5.4 6.0 6.7 6.2 6.5 6.5 6.5

CPI (% YoY) 6.6 4.1 0.6 2.7 3.6 4.3 4.0

Central bank policy rate (%, eop) 7.00 6.50 6.50 6.50 6.25 6.50 6.50

3M interbank rate (%, eop) 4.85 4.20 4.93 4.97 4.37 4.70 4.70

10Y govt. bond yield (%, eop) 9.00 7.00 6.95 6.30 5.20 5.70 5.70

VND per USD (eop) 21095 21388 22485 22761 22698 22500 22500

89

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Asia In search of low hanging fruit? - ING.com

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