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March 8, 2013
Issue No: 13/06
Asia Economics Analyst
Research Report
China’s NPC: Pro-growth macro policy, property tightening, reforms debated
Growth and inflation targets in line, inflation remains a risk
China’s National People’s Congress (NPC) this year, scheduled for March 517, is of particular significance as it is expected to complete the top
leadership transition that started last fall, as well as set the tone of
economic objectives under the new leadership. Growth and inflation
targets have been set at 7.5% and 3.5% for 2013 as expected, and point to a
government commitment to maintaining strong growth while tolerating
some increase in inflation.
Andrew Tilton
+852-2978-1802 [email protected]
Goldman Sachs (Asia) L.L.C.
Goohoon Kwon, CFA
+82(2)3788-1775 [email protected]
Goldman Sachs (Asia) L.L.C., Seoul Branch
Tushar Poddar
+91(22)6616-9042 [email protected]
Goldman Sachs India SPL
Li Cui
Fiscal stance is expansionary
Fiscal expenditure as a share of GDP will rise further as the government
pledges increased spending on social areas, and fiscal revenue is expected
to recover along with the economy despite the tax cuts. Both revenue and
expenditure targets are likely to be exceeded. This puts pressure on
monetary policy to moderate credit expansion amid easy global liquidity.
+852-2978-0784 [email protected]
Goldman Sachs (Asia) L.L.C.
Yu Song
+86(10)6627-3111 [email protected]
Beijing Gao Hua Securities Company Limited
Mark Tan
Economic impact of the latest property measures is likely modest
We already have assumed conservatively that property investment will be
constrained in the near term as government controls remain effective. The
latest tightening measures reinforced our policy assumption. However,
uncertainties remain regarding further policy details and spillover effects.
MK Tang
+852-2978-6634 [email protected]
Goldman Sachs (Asia) L.L.C.
Prakriti Shukla
+91(22)6616-9376 [email protected]
Goldman Sachs India SPL
Awaiting details on key reforms
The government continues to pledge meaningful reforms in hukou
(household registration), land ownership, budget management, energy
pricing, and social safety nets, among others. Detailed measures are still
pending.
Sungsoo Chung
+82(2)3788-1726 [email protected]
Goldman Sachs (Asia) L.L.C., Seoul Branch
Yin Zhang
+86(10)6627-3112 [email protected]
Beijing Gao Hua Securities Company Limited
Contents of this issue
China’s NPC: Pro‐growth macro policy, property tightening, reforms debated
+65-6889-2472 [email protected]
Goldman Sachs (Singapore) Pte
page 2
Regional recap: Mixed growth, mostly steady inflation, unchanged policy
page 10
Asia ex‐Japan economic calendar
page 13
Forecast tables
page 15
Highlights of recent GS research
page 17
Vishal Vaibhaw
+91(80)6637-8602 [email protected]
Goldman Sachs India SPL
Hui Ying Chan
+65-6654-5459 [email protected]
Goldman Sachs (Singapore) Pte
Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification
and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html.
The Goldman Sachs Group, Inc.
Goldman Sachs
March 8, 2013
Asia Economics Analyst
China’s NPC: Pro-growth macro policy, property tightening,
reforms debated
This year’s NPC will complete the government transition and set
the tone for coming years
The National People’s Congress (NPC) this year, scheduled for March 5-17, is of particular
significance as it is expected to complete the top leadership transition that started last fall,
as well as set the tone of economic objectives under the new leadership. The top
management team of the new government, including the State Council and ministers, will
be nominated and confirmed. In addition, a range of institutional changes, including the
restructuring of several ministerial functions, are expected. As is the case each year, the
government is also set to unveil its policy priorities and parameters for the year, which will
be discussed and approved by the members of the NPC. The first few days of the
convention have focused on the government’s working report, next year’s budget, and the
annual economic plan.
Pledge of strong growth. Inflation remains a risk
Economic objectives highlight the government’s strong commitment to solid
growth. The government has maintained its real GDP growth target of 7.5%. While this
was expected, the reluctance to adjust downwards the growth target (which was set at an
average of 7% during 2011-2015 in the 12th 5-year plan) suggests that the government
remains committed to a strong growth performance. In its working report to the NPC, the
government justified the growth target on the basis of the large manufacturing capacity,
infrastructure improvement, high savings, and large labor supply. We share in particular
the view that the labor supply and high savings remain favorable factors to growth. The
inflation target is set at 3.5% for 2013, compared to the 4% target for the past two years.
The government emphasized the potential upside risks of inflation given rising factor costs
and the structural need to adjust upwards resource prices.
We expect the government to meet the growth target comfortably this year. We
believe the inflation target will likely be met as well but see upside risks
towards the end of the year. We emphasized before that these targets represent the
scope of policy tolerance (lower bound for growth and upper bound for inflation). While
during the years before the GFC, growth outturns exceeded the government target by large
margins, in recent years the gap has shrunk substantially, reflecting sluggish external
demand and constraints of relying on domestic growth drivers. Despite this, the
government has consistently over-achieved its growth target (Exhibit 1). By comparison,
the inflation record has been more mixed. Average inflation exceeded the official target in
four out of the past eight years. How well the government will contain inflation also
depends on cyclical policies, in particular leverage expansion this year (Exhibit 2). We
expect the government and the People’s Bank of China (PBOC) to remain vigilant against
excessive credit growth, and believe that inflation should stay within the official target for
most of the year. The latest anti-corruption campaign may also help to reduce near-term
pressure on food inflation (see Emerging Markets Macro Daily: China: Two unusual
inflation dynamics may give policymakers more room for manoeuvre, March 7, 2013).
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
Exhibit 1: GDP growth has outperformed official target
Exhibit 2: Inflation record is more mixed
%
%
15
15
%
Real GDP growth:
6
Actual
Target
5
12
%
7
7
CPI Inflation:
Average
6
Year-end
Target
5
12
9
9
6
6
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Haver, CEIC, GS Global ECS Research.
4
4
3
3
2
2
1
1
0
0
-1
-1
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Haver, CEIC, GS Global ECS Research.
Fiscal policy is expansionary, in line with expectations
Both discretionary policies and cyclical slowdown in revenues contributed to the
deficit increase last year. The budget deficit rose from 1.1% of GDP to 1.6% of GDP,
although the required financing was less as the government relied on the budget
stabilization fund to offset some of the revenue shortfalls (see Emerging Markets Macro
Daily: China’s on-budget fiscal stance: A quietly important policy lever, January 8, 2013).
Revenue growth improved in the latter part of the year along with the economic recovery.
Exhibit 3 shows that the fiscal impulse, i.e. the change in the fiscal deficit, turned positive
last year. Compared to the previous year, the turnaround was driven entirely by the change
of the “automatic stabilizer” which measures the change in fiscal balance due to the impact
of cyclical fluctuations rather than government policies. We estimate that discretionary
policies (such as tax cuts and increased spending) accounted for about half of the fiscal
impulse last year. The automatic stabilizer accounted for the rest of the impulse.1
For 2013, we expect both the budget revenue and expenditure targets to be
exceeded, with a deficit to GDP ratio largely in line with the official forecast.
Continued uncertainty in the external environment sets the stage for the supportive policy
stance to continue, with further re-orientation of the fiscal spending towards social areas as
in recent years (Exhibit 4). Based on news from the NPC so far, the budget stance in 2013
will continue to be expansionary despite stronger growth in revenue. In our view, the
budget revenue and expenditure growth targets of 8% and 10%, respectively, are both
conservative. Considering the expected economic momentum and the linkage of the fiscal
account with the economy, we estimate that revenue and expenditure should both rise
faster than in the budget (Exhibit 5). Similar to the budget, the fiscal deficit is likely to
reach about 2% of GDP. Compared to 2012, cyclical revenue shortfalls are likely to be much
smaller, and most of the fiscal impulse is likely to be through discretionary policies. For
instance, the government increased its contribution to the basic health and social security
system, National Rural Cooperative Medical Scheme (NRCMS), from Rmb240 to Rmb280
per head following a similar increase last year.
1
An estimated elasticity of the fiscal revenue to output growth enables to us to estimate the fiscal balance changes
that are affected by the economy’s cyclical position, i.e., the “automatic stabilizer”. The fiscal impulse is then
decomposed into the automatic stabilizer and discretionary fiscal measures.
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
We estimate that the fiscal impulse will add about 0.5 ppt to GDP growth in
2013 due to the multiplier effect of the expenditure. In principle, revenue tends to
have a lower multiplier than expenditure, especially if the savings rate of the private sector
is high and transfers from the public sector may be partly met by adjustment of private
savings. At the same time, fiscal expenditure tends to affect the economy’s cyclical position
with greater impact, particularly if some of the spending represents the equity injection by
the government into investment projects to enable a rise in leverage. Our calculations
suggest that a 1 percentage point (ppt) increase in fiscal expenditure is associated with
about a 0.5 ppt increase in real growth.
We expect both revenue and expenditure to rise modestly as shares of GDP in
coming years, as the government strengthens its budgetary management and
increases its spending in social areas. In recent years, revenue and expenditure both
grew strongly. Although revenue and expenditure as shares of GDP have now exceeded
those of regional peers, they remain modest when compared to other emerging markets
and advanced economies where the social safety nets are more expansive (Exhibit 6). As in
many emerging market countries, indirect taxes such as value-added taxes are the major
components of government revenue (accounting for over 70% of the tax revenue), and
direct taxation, including income and wealth tax, is relatively low. The government has
indicated the expansion of its property tax scheme, but the time table remains unclear.
Exhibit 3: Fiscal impulse expected to remain positive
ppt
ppt
2
2
1
1
0
0
Automatic stabilizer
-1
-1
Discretionary fiscal expansion
Fiscal impulse
-2
-2
2006
2007
2008
2009
2010
2011
2012
2013
Source: CEIC, GS Global ECS Research.
Exhibit 4: Expenditure has shifted towards social areas
(in p e rce n t o f G DP )
2008
2009
2010
2011
2012
Re ve n u e
19.5
20.1
20.7
22.0
22. 6
Tax
17.3
17.5
18.2
19.0
19. 4
Non tax
2. 3
2.6
2.5
3.0
3.2
19.9
22.4
22.4
23.1
24. 2
6. 9
7.7
7.8
8.4
9.2
0.2
0.6
0.8
0.9
2.5
2.6
2.7
2.9
Ex p e n d itu re
of whic h: S oc ial s pending
Hous ing S ec urity
A gric ultural F ores try , W ater Cons ervanc y , E nviornm ent
1. 9
Source: CEIC, GS Global ECS Research.
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
Exhibit 5: Revenue and expenditure both are likely to exceed the budget
China Fiscal Table
Level (RMB Bn) General Government
Revenue
(yoy)
Expenditure
(yoy)
Fiscal balance
Share of GDP (%)
General Government
Revenue
Expenditure
Fiscal balance
2010 actual
2011 actual
2012 actual
2013 budget
2013 proj
8310
‐677
2010 actual
10387
25
10925
22
‐537
2011 actual
11721
13
12571
15
‐850
2012 actual
12663
8
13825
10
‐1162
2013 budget
13378
14
14527
16
‐1148
2013 proj
20.7
22.4
‐1.7
22.0
23.1
‐1.1
22.6
24.2
‐1.6
21.7
23.7
‐2.0
23.2
25.2
‐2.0
8987
Source: CEIC, GS Global ECS Research.
Exhibit 6: Fiscal revenue and expenditure as a percentage of GDP are modest by
international standards, though above regional peers
0
10
20
30
China (2012)
40
50
Expenditure/GDP (%)
Revenue/GDP(%)
ASEAN-5
NIE
Singapore
Korea
Emerging/Developing
countries
Japan
G7
0
10
20
30
40
50
Note: Data for all regions except China are average ratios over 2005-2012. For China, data are for 2012.
Source: CEIC, GS Global ECS Research.
Pressure for tighter financial conditions amid global easy liquidity
The supportive fiscal stance, coupled with an improved cyclical position and low global
interest rates, suggests that monetary policy will face a greater challenge this year. Unlike
last year, when external fund flows put little pressure on domestic liquidity, capital inflows
appear to have returned at the beginning of this year (Exhibit 7), forcing PBOC to intervene
in the FX market to manage the liquidity impact. PBOC actively withdrew liquidity in recent
weeks and resumed repo operations after a six-month suspension, a sign that capital
inflows are again easing monetary conditions. As a result, the interbank rate has recovered
from its low level in January (despite the downward drift in recent days). We believe a
tendency toward tighter liquidity conditions this year through open market operations will
be needed to prevent overheating risk from building.
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
Exhibit 7: Capital inflows have returned
Exhibit 8: The PBOC started to withdraw liquidity again
Total FX purchases and components (three-month moving avg)
PBOC Open market operations
US$ bn
US$ bn
60
60
30
30
0
0
Rmb bn
Rmb bn
600
600
400
400
200
200
0
0
-200
-30
-30
Trade balance
Net FDI
Other flows
Total fx purchases
-400
Net repo
-600
-60
Sep-11
-400
Net bill due
-60
Mar-11
-200
Net reverse repo
Mar-12
Sep-12
Source: CEIC, GS Global ECS Research.
-800
Jan-10
-600
Net injection
-800
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
Source: CEIC, GS Global ECS Research.
Property sector measures: Near-term growth impact likely limited
The government announced new restrictive measures on the housing market on the eve of
the NPC. The new policies followed the State Council directive in February that local
governments are responsible for dampening the climb of property prices as observed
across several major cities in recent months. Besides reiterating and reinforcing the
existing measures, the announcement also highlighted the enforcement of a 20% capital
gain taxes in the secondary market. This has been widely interpreted as a strong signal of
continued efforts to rein in property prices under the new leadership.
Pending further policy details likely announced in coming weeks, the available information
suggests limited impact from the new set of measures on our growth forecast. Our forecast
already incorporates ongoing policy restrictions on the property sector, assuming they may
lead to flat or slightly negative growth of property transactions in 2013. The latest policy
announcement takes away some of the upside risk from the stronger-than-expected data
before the policy announcement. Unless the new policies generate another round of much
sharper decline in primary market property transactions, say of more than 10% from last
year, the limited downside risk to our current growth forecast seems limited (see Box).
However, there remain uncertainties regarding further measures to be announced and the
spillover impact to consumption and other sectors. The capital gain taxes mostly pertain to
secondary market transactions, which appear to have rebounded much more strongly than
the primary market (where the nation-wide inventory level is still high2; Exhibit 9).
2
Nationwide secondary market data is unavailable.
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
Exhibit 9: Secondary market the main driver of recent property sector transaction growth
yoy %
yo y %
250
250
V o lum e o f p ro p erty trans ac tio ns :
200
200
p rim ary m arket in 5 m ajo r c ities *
p rim ary m arket natio nwid e
150
150
s ec o nd ary m arket in 5 m ajo r c ities
100
100
50
50
0
0
-50
-100
M ar-09
-50
-100
S ep -09
M ar-10
S ep -10
M ar-11
Sep -11
M ar-12
S ep -12
* 5 m ajo r c ities are B eijing , Shang hai, Guang zho u, Shenzhen, Cheng d u
Source: CEIC, Soufang, GS Global ECS Research.
Reforms: awaiting details
The Chinese government has consistently made pledges to take meaningful steps to
alleviate growth bottlenecks, improve public policy management, and address social
equality. The government working report identified the general direction of the reforms.
We expect several areas to receive particular attention during the NPC discussions.
Urbanization: Though the urbanization initiative has often been associated with large
infrastructure spending and city construction to drive near-term growth, increasingly there
has been a subtle shift of the official emphasis towards “soft” reforms such as hukou
(housing registration) and social safety nets, which are critical to facilitate the integration of
migrant workers into cities. The government announced further steps to improve the
pension system and expand the health insurance coverage during the NPC.
Hukou reforms: in this connection, during the NPC officials indicated that a system of
“residency certificate” may be established to reform the hukou system, with the former to
be based on the location of jobs, residency, and tax records, so that migrant workers can
access the same social services as their urban counterparts. One of the key road blocks
regarding hukou reform is the funding source. A government thinktank estimates that an
estimated 3% of GDP of fiscal spending is needed to convert migrant workers to urban
residents, a significant requirement for fiscal resources at the local level.
Land reforms: The government report highlighted “farmers’ property rights” for the first
time. This follows the recent discussion regarding a system to make farmers’ land
transferable. This will involve a complicated set of changes, as rural land is collectively
owned under the current law and individual farmers do not have the right to sell. Allowing
the land to be transferrable based on market mechanisms would provide a channel for
farmers to convert their land into liquid assets, or possibly in exchange for urban social
services, and to support the urbanization process. However, there are also concerns that
without proper safeguards, land concentration may escalate, aggravating rather than
lessening social inequality.
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
Population policy: Expectations have been high that the one-child policy will be
abolished. The policy has been widely blamed for the country’s rapid population aging and
rising dependency ratio. The working report of the government has made it clear that the
population policy will be kept, without specifying the details about the one-child policy.
Continued relaxation of the one-child policy seems to be a sensible and likely move in the
coming years, although the timing remains unclear.
Li Cui, Yu Song, MK Tang
Goldman Sachs Global Economics, Commodities and Strategy Research
8
March 8, 2013
Asia Economics Analyst
Box: The impact of primary market property transaction volume on macro forecast
Property market measures may dampen speculative and investor housing demand, thus potentially hurting transaction
volume. That in turn could lead to property developers scaling back their new construction plans, impinging on GDP
growth. Primary housing transaction volume, new floor space started, and residential FAI indeed show quite close
correlation. We examine the likely impact of a hypothetical reduction of property sales on real growth.3 To quantify the
relationship, we take the following two steps:
1)
How would lower property sales reduce new residential construction?
2)
How would decreased residential construction hurt overall residential investment and hence growth?
For the first step, we regress changes in residential floor space started (in sq mn) on various lags of changes in property
sales in the primary market, alongside China’s financial condition index as a control for the ease of financial access by
property developers and a measure of housing inventory in the primary market. All variables are seasonally adjusted,
and the sample runs from 1Q2006 to 4Q2012. Results suggest that a 1 ppt decrease in floor space sold reduces the
growth of floor space started by roughly 0.5 ppt after 2 quarters (see Exhibit B1, left panel).
For the second step, we then regress the growth of residential FAI on growth of floor space started. We find that a 1 ppt
decrease in floor space started tends to reduce growth of residential FAI by around 0.3 ppt immediately, and perhaps
another 0.2 ppt cumulatively over the subsequent 3 quarters (see Exhibit B1, right panel).
As residential FAI makes up about 6% of total GDP, summing up the estimates from (1) and (2), overall a 1 ppt decrease
in primary market transactions would reduce GDP by 0.01 ppt after 2 quarters, and possibly another 0.01 cumulatively
over 3 quarters thereafter. Considering the multiplier effect, we estimate that 1 ppt change in primary market
transactions is likely to reduce GDP by 0.02-0.04 ppt over 2-5 quarters.
Exhibit B1: Quantitative relationship between primary market sales, new construction, and residential investment
Dependent variable
% change in floor space started
Dependent variable
% change in residential FAI
coeff
p-value
coeff
p-value
Constant
2.04
0.27
Constant
0.03
0.01
%change in floor space sold
0.15
0.43
%change in floor space started
0.28
0.00
%change in floor space sold (-1)
-0.05
0.76
%change in floor space started (-1)
0.05
0.51
%change in floor space sold (-2)
0.48
0.03
%change in floor space started (-2)
0.10
0.19
FCI
-0.02
0.27
%change in floor space started (-3)
0.05
0.49
0.93
%change in floor space started (-4)
0.01
0.89
Housing inventory measure
0.00
# observations
25
# observations
22
Adjusted R-sq
0.41
Adjusted R-sq
0.37
Source: CEIC, GS Global ECS Research.
3
The specification is similar to the one used by our commodity team in an earlier research piece (see Riding the
Chinese construction waves, October 10, 2012); a key difference is we add property sales but exclude a measure of
policy tightness as explanatory variables.
Goldman Sachs Global Economics, Commodities and Strategy Research
9
March 8, 2013
Asia Economics Analyst
Regional recap: Mixed growth, mostly steady inflation, unchanged
policy
The past week saw growth-related news for the three largest economies in the Asia exJapan region:

In China, all of the purchasing managers’ indexes (PMIs) softened in February. The
official manufacturing PMI weakened only marginally, while the more export-oriented
Markit PMI unwound all of its gains in December and January (Exhibit 1). Markit’s
service PMI dropped to 52.1, though it remains in the relatively narrow range (51.554.5) that it has been in for the past two years.
Exhibit 1: Softer Chinese manufacturing PMIs…
Index
Index
60
60
55
55
50
50
45
45
China manufacturing purchasing managers' indexes:
HSBC/Markit PMI
Official PMI
40
35
2008
40
35
2009
2010
2011
2012
2013
Source: Haver, GS Global ECS Research.

India’s fourth-quarter GDP report was a disappointment, with growth decelerating to
around 4% on a sequential basis and 4.5% year-over-year (Exhibit 2). Weakness in
growth was driven by the services sector—community and social services in
particular—which is likely related to the government’s efforts to reduce the fiscal deficit.
We expect a gradual pickup in growth over the coming year due to easing financial
conditions and liquidity (see Asia in Focus: India: An improving outlook, November 29
2012).
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
Exhibit 2: …and sluggish Indian growth in Q4 2012…
Percentage change, annualized
Percentage change, annualized
20
20
Real GDP:
Year-over-year (left scale)
15
Quarter-over-quarter, seasonally
adjusted (right scale)
15
10
10
5
5
0
0
-5
2006
-5
2007
2008
2009
2010
2011
2012
Source: CEIC, GS Global ECS Research.

After weakness in recent months, Korean growth was more encouraging. Though
February headline exports looked soft (-8.6% yoy), averaging with January (to
neutralize distortions from the Chinese New Year holiday) and excluding volatile trade
in ships, exports were up 4% year-over-year. Perhaps more importantly, two major
surveys show a sharp improvement in the exports outlook for March (Exhibit 3).
Consistent with this, the manufacturing PMI improved from 49.9 in January to 50.9 in
February, mainly on rising export orders. Our Current Activity Indicator suggests
annualized growth of 2.6% in January, compared with 1.3% in December and a Q4 real
GDP growth pace of 1.5%.
Exhibit 3: …but signs of life for regional exports?
Index
Index
130
130
Korean export forecast surveys:
Federation of Korean Industries
120
120
Bank of Korea
110
110
100
100
90
90
80
Sep-09
80
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Source: CEIC, GS Global ECS Research.
Goldman Sachs Global Economics, Commodities and Strategy Research
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March 8, 2013
Asia Economics Analyst
A number of inflation reports were also released this week, with the divergence in results
to a large extent reflecting recent growth across the region. Korea, which has seen the
most disappointing growth in recent months, posted CPI inflation of just 1.4% year-overyear, below expectations and near a 13-year low. In contrast, in ASEAN, inflation readings
were in line with or above expectations. The Philippines CPI reading was broadly in the
middle of its recent range at 3.4% year-over-year, while in Thailand inflation was steady at
3.2% yoy despite very strong recent growth. Meanwhile, Indonesia inflation surged to
5.3% yoy on higher food prices, likely affected by recent floods; core inflation was more
stable at 4.3% yoy. (Taiwanese inflation jumped to 3%, versus a post-crisis high of 3.4% in
August 2012, but Chinese New Year distortions may have played a role.)
Turning to policy, the Indonesian and Malaysian central banks met this week, both
choosing to keep policy on hold, in line with expectations. The backdrop of strong
domestic growth and benign inflation supports the case for an unchanged policy stance in
Malaysia this year. In Indonesia, we think Bank Indonesia (BI) will likely roll out further
macro-prudential measures to aid the external balance adjustment. Our base case is for BI
to keep the benchmark policy rate on hold this year before hiking by 50bps early next year,
though any faster-than-expected acceleration in inflation pressures could see the timing of
policy tightening brought forward.
In India, market reaction to last week’s release of the Union Budget was negative and our
foreign exchange strategy team recommended going short the INR in the wake of its
release. In our view, India’s weak real GDP growth reading for Q4 increases the probability
of monetary policy loosening at Reserve Bank of India's March 19 monetary policy meeting,
where we expect a repo rate cut of 25 bps.
Andrew Tilton
Goldman Sachs Global Economics, Commodities and Strategy Research
12
March 8, 2013
Asia Economics Analyst
Asia ex-Japan Economic Calendar
China exports (Mar 8): Many exporters often rush their orders ahead of the Chinese New Year holiday and do not
resume full production well after the end of the official week-long holiday. Specifically, we expect February exports
growth to fall to 13.0% yoy, from 25.0% yoy in January.
China money and credit supply (Mar 8-15): We expect the amount of CNY loans extended to fall significantly from
the level in January (Rmb1070 bn). This is partially because of the Chinese New Year effects and due to the PBOC’s
desire to rein in liquidity supply in light of the large amount of supply in January amid firm growth and the potential rise
in inflation. Specifically, we expect the amount of CNY loans made in February to be Rmb650 bn, down from Rmb1070
bn in January. The yoy growth in CNY loans should fall to 15.2% in February, from 15.4% in January, while M2 growth is
likely to fall to 14.8% yoy, from 15.9% yoy in January.
China inflation (Mar 9): Food prices tend to rise ahead of major holidays and especially so ahead of the Chinese New
Year. This year was no exception. Specifically, we expect CPI inflation to rise to 2.8% yoy from 2.0% in January.
China industrial production (Mar 9): Data since the start of the year, including the PMIs, point to modestly slower
sequential growth in manufacturing production. We expect January-February IP growth to rise to 10.8% yoy, from 10.3%
yoy in December from a low base.
India industrial production (March 12): Coincident real activity indicators such as core sector data, non-food credit,
and commercial vehicle sales indicate a marginal pickup in activity in January. Based on this, we expect a small monthon-month increase (0.3% mom s.a. ann.) with a still-subdued year-on-year IIP reading.
India inflation (Mar 14): The February wholesale price index is likely to remain flat due to the continued weakness in
growth acting on core (non-food manufactured) inflation. However, increases in diesel prices and pending pass-through
of past fuel price increases will keep the reading from falling sharply.
Korea central bank meeting (Mar 14): We expect the Bank of Korea’s Monetary Policy Committee (MPC) to keep the
policy rate on hold at 2.75%. We continue to expect the MPC to cut the policy rate by 25 bp most likely in April, on
coordination with fiscal easing and after assessing 1Q2013 GDP outcomes.
Philippines central bank meeting (Mar 14): We expect Bangko Sentral ng Pilipinas (BSP) to keep both the reverse
repo and repo policy rates on hold at 3.50% and 5.50%, respectively. Our base case is for BSP to keep the policy rate
steady through 2013 before a 50 bp hike in early-2014.
Date
Time (HKT)
Forecast
Bloomberg
GS
Consensus
Country
Indicator/Event
Period
Previous
*
*
China
China
China
China
Exports
Imports
Money Supply (M2)
CNY Loans
Feb
Feb
Feb
Feb
+13.0% yoy
-16.0% yoy
+14.8% yoy
+15.2% yoy
+8.1% yoy
-8.5% yoy
+14.9% yoy
+25.0% yoy
+28.8% yoy
+15.9% yoy
+15.4% yoy
Sat Mar 9
9:00
13:30
13:30
13:30
China
China
China
China
CPI
Retail Sales
Industrial Production
Fixed Asset Investment
Feb
Jan-Feb
Jan-Feb
YTD
+2.8% yoy
+15.0% yoy
+10.8% yoy
+21.5% yoy
+3.0% yoy
+15.2% yoy
+10.3% yoy
+20.7% yoy
+2.0% yoy
+15.2% yoy
+10.3% yoy
+20.6% yoy
Malaysia
Malaysia
Malaysia
Malaysia
India
India
India
Indonesia
Exports
Imports
Manufacturing Sales
Industrial Production
Exports
Imports
Auto Sales
Motorcycle Sales
Jan
Jan
Jan
Jan
Feb
Feb
Feb
Feb
Fri Mar 8
Mon Mar 11
12:00
12:00
12:00
12:00
*
*
*
*
-5.8% yoy
-6.5% yoy
+6.0% yoy
+3.7% yoy
+0.8% yoy
+6.1% yoy
Source: Bloomberg, GS Global ECS Research.
Goldman Sachs Global Economics, Commodities and Strategy Research
13
March 8, 2013
Asia Economics Analyst
Asia ex-Japan Economic Calendar continued
Date
Time (HKT)
Tue Mar 12
9:00
13:30
Thu Mar 14
9:00
14:30
16:00
Fri Mar 15
13:00
Forecast
Bloomberg
Consensus
Country
Indicator/Event
Period
Philippines
India
India
Exports
Industrial Production
CPI
Jan
Jan
Feb
+0.7% yoy
Korea
India
Philippines
Central Bank Policy Meeting
Wholesale Price Index
Central Bank Policy Meeting
Feb
2.75%
+6.6% yoy
3.50%
Singapore
Philippines
Retail Sales
Overseas Remittances
Jan
Jan
GS
Previous
+16.5% yoy
-0.6% yoy
+10.8% yoy
2.75%
3.50%
2.75%
+6.6% yoy
3.50%
-1.5% yoy
+9.7% yoy
* Release dates uncertain, date shown is the first possible date:
China M2 and CNY Loans (Mar 8‐15)
India exports and imports (Mar 11‐15); auto sales (Mar 11‐12)
Indonesia motorcycle sales (Mar 11‐20)
Source: Bloomberg, GS Global ECS Research.
Goldman Sachs Global Economics, Commodities and Strategy Research
14
March 8, 2013
Asia Economics Analyst
Forecast Tables
Real GDP Growth (year-over-year)
2012
Asia ex-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
USA
Euro area
Japan
6.4
7.8
6.2**
2.1
1.4
1.3
5.7
1.3
5.6
6.4
6.2
6.6
2.2
-0.5
1.9
GS
6.9
8.2
5.5**
3.1
3.7
3.5
5.4
3.0
5.3
4.8
6.4
5.5
1.8
-0.4
0.9
2013
Consensus
6.6
8.2
5.3**
3.0
3.4
3.6
5.3
2.7
5.0
4.6
6.2
5.9
1.9
-0.2
1.2
GS
7.3
8.4
6.7**
3.9
4.5
4.2
5.6
4.0
5.5
5.0
6.5
5.5
2.9
0.9
1.3
2014
Consensus
6.9
8.2
6.3**
3.7
4.1
4.1
5.5
3.9
5.3
4.8
6.3
5.7
2.8
1.0
1.2
Potential
Growth*
2014
Consensus
4.1
3.5
6.4*
2.9
3.7
2.0
4.1
3.3
2.9
3.4
5.2
4.0
2.1
1.8
1.7
Inflation
Target/Range
8.0
7.4**
3.8
4.0
3.5
4.0
5.0
4.5
6.0
5.0
2.5
1.3
0.8
*GS estimates for annualized grow th rate of potential output f rom 2013-16
**Fiscal year basis
Source: Consensus Economics, GS Global ECS Research Estimates
Consumer Prices (year-over-year)
2012
Asia ex-Japan
China
India *
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
USA
Euro area
Japan
4.0
2.6
9.0*
2.2
4.1
1.9
3.5
4.6
1.6
3.0
4.3
3.1
2.1
2.5
0.0
GS
4.0
3.0
7.7*
2.7
3.6
2.0
4.5
4.1
2.6
4.1
5.7
4.2
1.7
2.0
0.2
2013
Consensus
4.1
3.2
7.5*
2.5
4.0
1.8
4.0
3.8
2.3
3.3
5.2
3.6
1.9
1.9
-0.1
GS
4.0
3.6
6.8*
3.0
3.5
2.0
4.2
3.6
2.5
3.8
5.3
3.8
1.8
1.7
2.1
3.5
5.0*
2.5-3.5
0.5-3.0 **
3.5-5.5
3.0-5.0
2.0
2.0***
2.0
*WPI f or India on f iscal year basis; inf lation objective rather than target
**Core inf lation target
***ECB aims to maintain inf lation rates "below , but close to, 2% over the medium term"
Source: Consensus Economics, GS Global ECS Research
Goldman Sachs Global Economics, Commodities and Strategy Research
15
March 8, 2013
Asia Economics Analyst
Forecast Tables (continued)
Policy Inte rest Rate s (perce nt)
Curre nt
M ar 07
Asia ex-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
USA
Euro area
Japan
2013
2014
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
6.00
7.75
2.75
1.90
6.00
7.50
2.75
1.90
6.00
7.50
2.50
1.90
6.00
7.50
2.50
1.90
6.00
7.50
2.50
1.90
6.25
7.00
2.75
1.90
6.25
7.00
3.00
1.90
6.50
7.00
3.00
2.00
6.50
7.00
3.25
2.00
3.00
2.75
5.75
3.50
0.15
0.75
0.10
3.00
2.75
5.75
3.50
0.14
0.75
0.10
3.00
2.75
5.75
3.50
0.13
0.75
0.05
3.00
2.75
5.75
3.50
0.13
0.75
0.05
3.00
3.25
5.75
3.50
0.13
0.75
0.05
3.50
3.25
6.25
4.00
0.13
0.75
0.05
3.50
3.25
6.25
4.00
0.13
0.75
0.05
3.50
3.25
6.25
4.00
0.13
0.75
0.05
3.50
3.25
6.25
4.00
0.13
0.75
0.05
Policy interest rates : China: 1-year lending rate, India: repo rate; Korea: 7-day repo; Malaysia: overnight policy rate;
Thailand: 1-day repo, Philippines : repo rate, Indonesia: 1-month SBI rate, Taiw an: rediscount rate; USA : Fed f unds ef f ec tive rate;
Euro A rea: Main ref inancing operations: f ixed rate; Japan: Overnight call rate.
Source: GS Global ECS Research
Exchange Rates (local currency units per USD)
Current
Mar 7
3-Month Horizon
Forward
Forecast
6-Month Horizon
Forward
Forecast
12-Month Horizon
Forward
Forecast
Asia ex-Japan
China
India
South Korea
Hong Kong
Taiwan
ASEAN
Singapore
Malaysia
Thailand
Indonesia
Philippines
Euro area*
Japan
6.28
6.29
6.25
6.30
6.22
6.32
6.20
54.88
1087
7.8
29.7
55.89
1092
7.8
29.6
55.00
1080
7.8
29.7
56.83
1097
7.8
29.5
53.00
1050
7.8
29.6
58.40
1105
7.8
29.3
52.00
1030
7.8
29.1
1.25
3.11
29.8
9703
40.8
1.25
3.12
29.9
9788
40.7
1.22
3.00
29.5
9650
41.0
1.25
3.14
30.0
9895
40.7
1.20
2.95
29.3
9600
39.8
1.25
3.17
30.3
10140
40.6
1.18
2.90
28.8
9500
37.5
1.30
93.3
1.30
1.40
1.31
1.40
1.31
1.40
93.2
87.0
93.2
87.0
92.9
87.0
* USD per Euro
Source: GS Global ECS Research Estimates
Goldman Sachs Global Economics, Commodities and Strategy Research
16
March 8, 2013
Asia Economics Analyst
Highlights of Recent GS Research
Asia ex Japan
Domestic demand influencing interest rate differentials between Asia’s small open economies
Mar 5, 2013
Measuring growth in emerging Asia
Mar 1, 2013
Aggressive monetary easing in Japan: The net impact on the region could potentially be more complicated than the theory says
Feb 27, 2013
Sensitivity of Asian currencies to moves in the Yen
Feb 8, 2013
Ten questions for Asia in 2013
Jan 4, 2013
Greater China
China: Two unusual inflation dynamics may give policymakers more room for manoeuvre
Mar 6, 2013
Subtle evolution in PBOC policy behind greater CNY flexibility
Feb 21, 2013
China: Inflation risks still contained, but credit growth a source of concern
Feb 21, 2013
China's government fiscal stance in 2013 is likely to be similar to that in 2012
Feb 19, 2013
China: Growth and leverage—a fine balance
Dec 17, 2012
Korea
Korea: Change in our rate view: A 25 bp cut in April 2013 on JPY/KRW falls and an implementation risk for a new fiscal stimulus
Feb 12, 2013
Recent yen-won movements—a manageable headwind for Korean exports
Feb 1, 2013
Korea: Revision of our macro forecasts for 2013—weak 4Q2012 and lower JPY/KRW
Jan 23, 2013
Korea: Government transition: Near-term policy implications
Jan 9, 2013
Korean exports—a sustained positive momentum since August 2012, disguised by weak headline numbers
Jan 4, 2013
India
India’s Union Budget: A nod to consolidation, with eyes firmly on elections
Feb 28, 2013
What level of current account deficit can India sustain?
Jan 29, 2013
Can India’s balance sheets support growth?
Jan 18, 2013
India: Trade deficit remains high, but we still expect improvement in 2013
Dec 13, 2012
India: An improving outlook
Nov 29, 2012
ASEAN
Malaysia: Preview of the upcoming 2013 General Election
Mar 4, 2013
Singapore Budget 2013: At the crossroads
Feb 26, 2013
Indonesia: Less optimism on current account improvement
Feb 20, 2013
Indonesia’s Catch-22: The trade-off between a current account improvement and higher inflation from a weaker IDR
Jan 22, 2013
ASEAN: ‘Search for Growth’ and the ‘Yearn for Yield’ driving strong capital inflows
Nov 22, 2012
Japan (this section is provided by our Japan Economics Team based in Tokyo)
Global Economics Paper No: 215 - Sustainability of Debt Financing in Japan and the JGB Enigma
Aug 14, 2012
Monetary policy under Abe-nomics: Off to a good start but many risks ahead
Feb 14, 2013
Raising our FY2013 Japan growth forecasts to 2% on Abe-nomics
Jan 23, 2013
Weaker yen is beneficial for Japanese economy, even with rise in energy imports
Dec 6, 2012
China vs. 1970s Japan: Tipping point in a domestic demand-based economy
Sep 25, 2012
Goldman Sachs Global Economics, Commodities and Strategy Research
17
March 8, 2013
Asia Economics Analyst
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