ANCHOR OF ECONOMIC

AND FINANCIAL STABILITY

THE ECONOMY
EXTERNAL DEMAND DRIVING GROWTH IN ASIA EX-JAPAN

Growth in the Asia ex-Japan economies slowed slightly to 5.1% in 2013 from 5.2% in 2012, as domestic demand weakened due to several headwinds. In China, monetary tightening and curbs on the informal financial sector restrained manufacturing and real estate investment, while an official campaign to rein in lavish government spending curtailed retail sales. Nonetheless, China’s economy grew by 7.7% in 2013, unchanged from 2012, as state-financed infrastructure spending helped to shore up investment in the second half of the year.

Growth in the ASEAN-4 economies slowed more rapidly to 5.0% in 2013, from 6.1% in 2012. Credit expansion, which had been constrained by deteriorating external balances and rising household leverage, moderated further amid tighter global liquidity and higher long-term interest rates. Economic activity across the region was also dampened by the partial retraction of fiscal spending. Nevertheless, an improvement in external demand in the second half of the year helped to cushion the pullback in domestic demand, with net exports contributing positively to growth since Q3 2013, after posing a drag for seven consecutive quarters.

The newly industrialised economies’ (NIEs) strong economic fundamentals enabled them to better weather the effects of market volatility arising from QE tapering. As a result, GDP growth in the NIEs as a whole accelerated to 2.7% in 2013, from 1.7% in 2012, as an export-led recovery towards the end of 2013 boosted domestic demand. Despite some slippage in Q1 2014 due to the temporary retraction in US demand and slower growth in China, Asia ex-Japan exports and economic activity have picked up again in recent months.