Asia Economics Comment:Another push on the string

　　At the surface, not too shabby. Growth in Asia may be slowing, but it hasn’texactly buckled. China’s economy in the second quarter, after all, kept tickingalong thanks to a generous stimulus. Also, Brexit has so far left barely a scratchon the region. Stabilizing data in the US, meanwhile, is providing a measure ofcomfort. All plain sailing, then? Not quite. Under the hood, things still look wobbly.

　　Trade remains stuck. Private investment spending, including in China, is fizzling.

　　Central banks in Asia look therefore set to cut rates further in the coming months.

　　Will it help? In itself not much, but that won’t deter them from trying.

　　Start with China. All told, the economy grew at a respectable pace in the second quarter (up 6.7%y-o-y). But, look closely, and things don’t appear quite as resilient. For one, private investment hascontinued to slow (to its lowest pace on record). Exports, too, haven’t rebounded. Growth, in short,was supported by generous stimulus, both fiscal and monetary (benefitting infrastructure and theproperty sector predominantly). Until the private sector snaps back to life, therefore, more easingwill be needed to keep things on an even keel.

　　China is not alone in this. Across Asia, exports continue to languish. And others are far moredependent on trade than the Mainland. Korea, Taiwan, Singapore, Hong Kong, Malaysia, andThailand are especially exposed to weak exports. It’s difficult to see a convincing rebound inglobal trade over the next few quarters that could fire up growth in these economies. New exportorders are barely expanding. And demand in the West is unlikely to accelerate any time soon.

　　On the domestic side, things also feel soggy. Private investment has slowed across the region, withfew signs that it will snap back in due course. True, consumer spending is still a bright spot, butthat alone will not be enough to keep growth aloft. And neither will infrastructure spending on itsown, which outside of China is usually rolled out at a too gradual pace to deliver that desired ‘pop’in demand.

　　The pressure is thus on for central banker to take rates lower still. Malaysia’s central bank kickedthings off last week with an unexpected move (unexpected in timing, not direction). Many othersare likely to follow. We’ve pencilled in rate cuts over the coming months in Korea, Taiwan, China,Australia, New Zealand, Japan, Indonesia, Malaysia, Thailand, and India.

　　Indeed, a window has opened up for central banks to chop down rates further. The global yieldcompression and the decline in FX volatility thanks to a plateauing US dollar (as HSBC’s FXstrategists have noted, the long dollar bull run has come to an end) is making it easier for monetaryofficials across the region to deliver more easing. And inflation, well that's been running too lowfor comfort for quite a while now (India may be an exception, but a good monsoon should capfood price gains).