Asia in 2019: always darkest before the dawn

  • We expect Asia to soon enter the third and final wave of a bear market – a credit crunch, as an accelerated growth slowdown interacts with property market corrections
  • An economic recovery in H2 2019 will be Emerging Asia’s time to shine, a defining moment when it starts to be widely appreciated as the undisputed locomotive of the world economy

Our 2019 GDP growth forecasts are not too different from the streets – while we are more downbeat on China, India and Malaysia, we are more positive on Indonesia and the Philippines. What sets us apart is our quarterly profile: a sharper growth slowdown in H1, followed by an H2 recovery that extends into 2020. In bear markets, the risk-off price action often comes in waves, and we believe that Asia will soon enter a third and final wave.

A credit crunch in H1 2019

We expect China’s economic conditions to worsen significantly in the spring of 2019 due to the payback from the front-loading of exports, major property market correction in lower-tier cities, and more defaults and a widening of credit spreads. In addition to China, we forecast three other factors that will increasingly drag in H1 on broader Asia growth: 1) a deepening downturn in the global tech cycle; 2) renewed flare-ups in Sino-US trade/investment frictions; and 3) further tightening of Asia’s financial conditions.

The significant build-up of private debt is Asia’s Achilles’ heel to a sharp growth deceleration in H1 2019 amid simultaneous property market corrections in China, Hong Kong and Korea, and the switch to global quantitative tightening, a recipe for a credit crunch that could be exacerbated by evaporating market liquidity. We expect the current account surplus countries of Greater China, Korea, Singapore, Thailand and Malaysia to be at the center of this third and final wave.

Asia’s time to shine in H2 2019 and 2020

Invariably, economies recover and we expect Asia to do so in H2 2019. One driver will be the double-barreled support from when the Fed pauses and game-changing China’s policy stimulus in Q2. Low oil prices and an upturn in the global tech cycle will also be a strong tailwind for Asia’s terms of trade in Q3.

In H2 and into 2020, we expect a widening of the GDP growth differential, in favor of Asia ex-Japan (AeJ) over slowing advanced economies. Additionally, we see H2 being the defining moment when AeJ starts to be widely appreciated as the undisputed locomotive of the world economy.

Asia strategy into 2019

We believe the performance of Asia FX/local markets over the coming year can be categorized into three episodes. In the first episode, which runs into the start of Q1 2019, we expect a continuance of our base case of slower but stable global growth and low oil prices. Episode two occurs from around February to April and should lead to some differentiation, where Indonesia and India local/FX markets outperform while Northeast Asia and Singapore are challenged by a drop in global growth momentum and concerns over US-China trade tensions in February (if trade talks progress too slowly). During episode three from May until year-end we expect some positive developments – such as a notable pick-up of fiscal stimulus in China – to support China (and markets closely linked to China). Following the expected period of capital outflows and reduced positioning in February-April, we see potential for a significant return of foreign capital inflows.

To read our full Asia Outlook for 2019, click here.

Click here to read our China Outlook for 2019.


  • Rob Subbaraman

    Head of Global Macro Research

  • Young Sun Kwon

    Senior Economist Korea, Taiwan and Hong Kong

  • Ting Lu

    Chief China Economist

  • Euben Paracuelles

    Southeast Asia Economist

  • Sonal Varma

    Chief Economist, India and Asia ex-Japan

  • Craig Chan

    Global Head of FX Strategy

  • Albert Leung

    Asia Rates Strategist

  • Vivek Rajpal

    Asia Rates Strategist

  • Andrew Ticehurst

    Rates Strategist, Australia


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