China

CHINA will retain a high economic growth in the future. Recently economic growth rate has slowed down, compared to previous quarters due to influences from the world depression and domestic economic adjustments. However, industrialisation and urbanisation still speed up in China and there is great growth potential in both demand and supply. Therefore, the long-term trend of high speed growth has not been changed.

Current concern was not the rate of economic growth. Though most projections point to slower growth, it would still be a relative good growth rate, compared to the rest of world. What is worrying is how to improve the efficiency of growth and realize sustainable development. It can be predicted that China’s growth rate will be speeded up again in the near future as the problems of domestic demand are resolved or improved, international environments take a turn for better, and new local governments take posts in this or next year.

China’s growth lies in urbanization, which will boost investment and consumption and protect the economy from external turmoil, according to a latest report prepared by the China Strategy think tank. Urbanisation will spur real estate and infrastructure development, which will create more job opportunities. The report reveals that increase in the urban population will double annual retail sales from the current 10 trillion yuan to 20 trillion yuan. If the targets are realised, no matter how bad the international environment will be, China’s economy will remain unaffected and step onto the track of consumption-driven growth.

To feed its high growth, the report predicted that China will import massive amounts of raw materials, which will eventually account for at least half of its total imports, compared with roughly 34 per cent last year. Commodity imports will eat up China’s trade surplus, which has accumulated from cheap manufacturing goods, and reverse the surplus to a deficit. China will face grim export conditions due to a dire economic picture in Europe and escalating trade barriers in the United States.

With a slowdown in export growth, China has allowed the yuan to weaken this year. The currency has dropped about 1.4 per cent against the US dollar in 2012 after a 4.7 per cent gain in 2011. According to the IMF, China’s slowing economy faces significant downside risks and relies too much on investment, urging leaders to boost consumption and channel citizens’ savings away from housing. While the economy “seems to be undergoing a soft landing,” achieving it is a key challenge.

The IMF projects China’s GDP to expand eight per cent in 2012 and accelerate to 8.5 per cent growth in 2013. Inflation will range from three per cent to 3.5 per cent this year and slow to 2.5 per cent to three per cent in 2013, “barring further shocks to agricultural supply. It forecast a current-account surplus of 2.3 per cent of GDP this year, rising over the next five years to 4.3 per cent in 2017. That longer-term prediction is “well below the 7-8 per cent of GDP previously expected.

The Asian Development Bank lowered its prediction for China’s economic growth to 8.2 per cent in 2012 and 8.5 per cent in 2013. The agency predicted in April that China’s GDP would increase by 8.5 per cent in 2012 and 8.7 per cent in 2013. China has seen a fall in net exports, industrial production and fixed asset investment, although government spending on health, education and large infrastructure projects are expected to boost the economy.

GDP grew by 7.8 per cent in the first half of 2012. So, even if the economy continues to grow at 7.6 per cent in the second half, the entire year’s average will be 7.7 per cent. China’s 12th Five-Year Plan (2011-15) envisages an annual growth rate of seven per cent. Hence, if 2012 has a growth rate of 7.7 per cent, the economy needs to grow only by 6.4 per cent a year from 2013 to 2015. The government has set this year’s growth target at 7.5 per cent. To buoy the economy, China has adopted a string of pro-growth measures, including lowering banks’ reserve ratio to boost lending, subsidising energy-saving household electrical appliances and speeding up approval for major construction projects. China’s policy shifts have effectively prevented risks of financial debt as well as inflation, providing ample room for its macroeconomic policies to stabilise growth.

Japan

THE Bank of Japan (BoJ) expects the world’s third-largest economy to expand by 2.2 percent in the fiscal year to the end of March 2013 and has held off ushering in fresh stimulus. Latest forecast from the BoJ was slightly lower than its April outlook of 2.3-per cent growth. The central bank also kept its 1.7 per cent growth forecast for the next fiscal year unchanged, but warned that uncertainty in overseas markets, including Europe and the United States, could be a drag on Japan’s economic recovery. Bank of Japan Governor stuck to his recent projection that the economy may hit the BOJ’s longer-term inflation goal of one per cent in fiscal 2014. The BOJ wants to see a one per cent rise in consumer prices led by better supply-demand conditions based on economic activity, rather than higher energy and commodity prices.

Japan’s economic activity has started picking up moderately as domestic demand remains firm, mainly supported by reconstruction-related demand following last year’s quake-tsunami disaster. But there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem and the momentum toward a recovery for the US economy. The bank’s decision not to usher in further stimulus may surprise some dealers who had expected new policy measures after interest rate cuts last week by the European Central Bank and China’s central bank.

Japan’s economy is still expected to outperform most of its developed nation peers this year thanks to solid domestic demand, but analysts have slashed forecasts for factory output as the slowdown in the global economy becomes more pronounced. The central bank kept interest rates and a Y70 trillion asset-purchase program unchanged.

For this financial year ending March 2013, the central bank expects core CPI to rise 0.2 per cent, slightly lower than its April forecast for a 0.3 per cent rise. Japan’s jobless rate improves slightly in June. Government data show Japan’s unemployment rate for last month improved slightly to 4.3 per cent, declining for the second straight month, but the nation continues to struggle after last year’s disaster.

The overall population continued to decrease but the unemployed decreased at a greater rate than those with jobs. The unemployment rate is expected to fall below the four percent mark in the first half of 2013. The country, however, recorded its worst trade deficit in the six months beginning this January, though the nation saw a goods trade surplus of about $790 million in June.

So far, there’s no clear sign that the economy is facing big enough. The Bank of Japan is expected to make only minor changes to its economic and price forecasts in coming weeks, and will hold off on easing monetary policy unless a sudden yen spike threatens the country’s recovery prospects. Some market players expect the central bank to offer further monetary stimulus at its next rate review to show its determination to beat deflation. But the policymakers will scrutinise the market fallout from overseas events, such as the European Central Bank’s policy meeting and U.S. payrolls data before deciding whether to ease policy again. The bank is unlikely to make any big changes to its current forecast.

India

NECESSARY steps are being taken by the government to put India back on the growth path and the economy is expected to turn around in fiscal 2012-13 that began on April 1. Renewed global uncertainty emanating mostly from the eurozone had affected domestic business sentiments last fiscal. Growth in Asia’s third-largest economy slowed to a nine-year low of 5.3 per cent in the March quarter of 2012, while GDP growth for the full fiscal slipped to 6.5 per cent, down from the 8.4 per cent growth in the past two years, down from the government’s estimate of 6.9 per cent announced earlier.

This is the slowest pace of expansion in the country’s economy since 2002-03, when it had registered a growth of just four per cent. In the Budget 2012-13, the government had pegged 2012-13 GDP growth at 7.6 per cent (plus-minus 0.25 per cent). The target seems difficult to be achieved unless policy reforms are put in place to address some of the core issues.

Director General of the Confederation of Indian Industry has called for immediate and bold actions from the government and the RBI in a coordinated manner, saying the economy is in the throes of a serious slowdown. The current global situation remains fragile and all steps need to be taken on the domestic front to guard against such uncertainties. The central bank has already cut its GDP forecast for India to 5.8 per cent for the fiscal year ending March 2013, and to 6.6percent for 2013-14 saying that the country’s monetary and fiscal policy is “in a deadlock”. The bank has also raised WPI inflation forecast for 2012-13 to 7.6 per cent from prior 7.1percent due to higher food prices and rupee depreciation. It revised its 2012-13 fiscal deficit forecast to 5.8 per cent from prior 5.2 per cent. Government has targeted 5.1 per cent deficit.

The Indian economy will grow by 6.9 per cent in 2012-13 notwithstanding problems like policy uncertainties, fiscal deficit and inflation, according to the World Bank. It will see growth increasing to 7.2 per cent and 7.4 per cent in fiscal years 2013-14 and 2014-15, respectively. Referring to developments in 2011, the multi-lateral lending agency said that growth in India was particularly weak due to monetary policy, stalled reforms and electricity shortages. These factors, along with fiscal and inflation concerns, cut into investment activity. OECD in its latest report on the other hand expects the Indian economy to grow 7.8 per cent in 2013 but continued policy uncertainty may weaken investment sentiment and result in softer near-term growth and an erosion of longer-run prospects.

According to OECD, the government’s fiscal consolidation plans this year would help reduce inflation, narrow the current account deficit and promote more balanced growth. Economic worries over the past few months like rupee depreciation, high inflation and current account deficit have acted as big dampeners for the India growth, which was seeing a growth rate of 8-9 per cent during pre-global crisis. The economy has slowed owing to “weakness” in manufacturing and investment spending. Softening external demand and rising imports have resulted in a widening current account deficit which stood at around $45.9 billion, or 2.7 per cent of the GDP in FY11 and is projected to be around four per cent (or $77 billion) of the GDP in FY13.

Indian economy is expected to grow by six per cent in the current financial year and would take at least two years to reverse to eight per cent growth trajectory, according to the Planning Commission Deputy Chairman. Although inflation has moderated from double-digit rates, it remains relatively high and expected increases in regulated prices of some oil-related products will add to price pressures which will continue to weigh on household consumption. But India is expected to be more than $5 trillion economy (current market price) by FY20, and reach close to Japan (in terms of GDP in US$) as of 2010, according to the information services company Dun & Brandstreet. However, the country will have to work towards bringing down corruption though stamping out the menace completely would not be possible.