Think Asia Pacific cities Q2 2019 outlook
The Asia Pacific region ended 2018 on a relatively soft patch and headwinds will likely continue to slow economic momentum down through the first six months of 2019.
Risks are front-loaded, particularly relating to the trade resolution between the United States and China, and the threat of a no-deal Brexit. Indeed, regional economic data points to a weak Q1 growth outcome. China has recently downgraded its 2019 growth outlook to between 6.0-6.5% - the slowest pace in two decades reflecting a broadly-based slowdown in manufacturing, exports and industrial profits in recent months. The slowdown in global growth has also started to bite into Japanese exports, business sentiment and machinery orders, leading to rising probability of a contraction in Q1 growth. The latest Q4 2018 GDP print also points to a relatively weak near-term outlook in Australia. Weakness in household consumption is persisting, despite the relatively strong employment market, suggesting not just a cyclical but structural weakness in the labour market. The latest manufacturing data from Singapore and South Korea also points to a deepening slowdown in factory output, a reflection of rising unease on global trade prospects.
However, the risk from further tightening in global conditions has eased in recent months and will help to underpin consumer and investment sentiment. There is now rising market expectation for a Fed rate cut in late-2019. RBA tightening expectations have initially shifted to mid-2020 (from late-2019) but with weaker-than-expected growth prospects, the balance of risks has now shifted to a rate cut in Australia. In Japan, the Bank of Japan may consider additional easing measures to support growth if the yen continues to appreciate against the dollar. The surge in interbank rates in Singapore and Hong Kong will likely stall in the coming months too.
This reversal in monetary policy outlook will have a direct and positive measurable impact on the Asia Pacific real estate markets, noting in particular that most regional economies have a soft peg to the U.S. dollar. Beyond monetary policy, other countercyclical policy measures to boost growth are likely to help deliver a stronger H2 regional growth outlook. China is looking to further ease domestic liquidity conditions, on top of tax cuts and fiscal injection. As a result, we have lowered our near-term growth outlook for the Asia Pacific region this year. We expect Asia Pacific growth to expand by only a slightly slower 4.3% in 2019, from 4.5% in 2018.