Think Asia Pacific cities Q3 2019 outlook
The outlook for global growth has significantly deteriorated recently, in large part mirroring the heightened risk climate from the trade and technology war between the U.S. and China, and the U.S. tariff threats on other major economies. As a result, rising headwinds to global growth (and demand) will pose further downside risks to some regional economies already hit by softer domestic consumption. While labour market conditions remain relatively robust overall, it is unlikely that regional growth can withstand additional external headwinds on top of a domestic housing market slowdown (Australia, South Korea), soft retail trade (Singapore, Japan) and a generally more uncertain business investment climate. The step-down in Asia Pacific growth forecasts is likely to accelerate in the coming months from the 4.5% currently projected (according to Oxford Economics, May 2019), with the biggest drag reflecting the potentially sub-6% growth in China.
Alongside heightened risks, a weaker outlook for the global economy will likely keep global and regional central banks on a more accommodative monetary policy stance in the coming months to support economic activities. After slowing its Quantitative Easing programme since early 2018, the Bank of Japan may undertake additional Japanese Government Bond purchases if the macro outlook deteriorates, especially in view of the consumption tax hike in October. China will also likely turn on the credit tap in order to buffer short-term cyclical headwinds, a mainly liquidity injection through the reserve requirement ratio. A sub-trend outlook now points to potentially two rate cuts in Australia this year, reversing expectations for a rate increase (at mid-2020) at the beginning of this year. Loose(r) monetary conditions should support real estate pricing in the near term. However, investors should be conscious that if there is any one point in the current extended 10-year cycle where markets dislocate, this may be the year that we see a more pronounced divergence in performance due to significantly higher risks and a more uncertain outlook.