March 20, 2017: MUFG’s banking subsidiary, The Bank of Tokyo-Mitsubishi UFJ, Ltd, has signed a Framework of Co-operation (Framework) with the Saudi Arabian General Investment Authority (SAGIA). MUFG, or Mitsubishi UFJ Financial Group Inc, is a Japanese financial services company headquartered in Chiyoda, Tokyo.

SAGIA is a government body whose main objective is to oversee investment affairs, including foreign investment, within the Kingdom of Saudi Arabia. MUFG has recently received preliminary approval from the Saudi Arabian Monetary Authority to establish a branch within the Kingdom. The Framework is a further milestone for MUFG, cementing its efforts to positively contribute to economic development within the Kingdom.

Elyas Algaseer, co-head of MUFG in the Middle East, said, “The Framework will enable both MUFG and SAGIA to support the development of trade and investment between Japan and the Kingdom. The execution of the Framework with SAGIA demonstrates MUFG’s commitment to the Kingdom generally, and more particularly, around the development of trade and investment between Japan and the Kingdom.”

SAGIA is focused on enhancing investments and economic development within the Kingdom, creating a business-friendly environment, servicing investors and fostering investment opportunities into the Kingdom.

The Kingdom of Saudi Arabia has one of the world’s largest oil reserves and is a major energy producer and exporter. In addition to having the largest economy in the Middle East, the Kingdom has a promising market with population of over 30 million. The Kingdom is also a member of the G20, and represents a strong presence as one of the leading countries in the Middle East and North Africa. There are around 120 Japanese companies who operate within the Kingdom, and it is expected that this number will continue to increase.

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Suparna Goswami Bhattacharya

October 20, 2016: It is the last quarter of the year and things have changed drastically since January for the global economy. Asia, in particular, has witnessed a change in outlook by economists.

Back in January, things looked shaky. Chinese currency wobbles, deterioration in economic data rattled investor nerves. In short, back then it was thought that the global economy, especially Asia, will be witnessing a rocky year.

Jump to the present and things have turned out to be pleasant surprise. Stronger-than-expected growth in China explains Asia’s stable growth trajectory.

Frederic Neumann, co-head of Asian Economics Research, HSBC, says, “Thanks to China, Asia has indeed had a decent year so far. Brexit, too, did not overtly rattle nerves in Asia.”

Additionally, the US Federal Reserve’s decision to postpone interest rate hikes also contributed to the stability.

“Monetary policy delay in the US due to mounting global headwinds has taken the pressure off Asia’s exchange rate and financial markets,” says Ricard Torne, head of economic research at FocusEconomics.

China government plays Santa

There is little doubt that China’s economy fared better mainly because of the policy support it received from the government. One of the consequences of government-led growth has been a surge in housing prices, particularly in main cities.

“More recently, in an attempt to tackle burgeoning corporate debt, the government unveiled a series of measures, which included encouraging mergers and acquisitions, swapping debt for equity and facilitating firms’ bankruptcy,” states Torne adding that he expects the economy to grow at 6.6% this year and 6.3%  in 2017.

A reduction in growth though is not necessarily worrying.

Adam Cotter, head, Asia Pacific, Official Monetary and Financial Institution Forum, says, “Slower growth is normal for the world’s second-largest economy. GDP growth around 6% is still impressive by global standards.”

Though things certainly look more upbeat now with the renminbi’s inclusion in the SDR of the International Monetary Fund (IMF), it is unlikely to be a lasting phenomenon. The SDR is an international reserve asset created by the IMF to supplement its member countries’ official reserves.

“Notably, the likely tightening of monetary policy in the US in December would cause the renminbi to depreciate against the dollar temporarily. Since growth in recent quarters has been fuelled by short-term factors, notably government stimulus, this needs to be changed in the long run. Stimulus-driven short-term gains to the economy risk jeopardising its sustainability growth mode,” adds Cotter adding that China anyway is overly reliant on credit expansion.

Other growth engines

Though China continues to be the one of the most important drivers of growth in Asia and perhaps the world, the fact that its economy is rebalancing and maturing means other countries in region will have to pull up their socks.

Japan and Hong Kong are experiencing zero or sub-par growth.

“Japan’s aggressive monetary policy easing and bold fiscal stimulus are failing to jumpstart the economy and reviving inflation. This situation is exacerbated by appreciation of the yen and weak global demand,” says Torne adding that Prime Minister Shinzo Abe will have to launch the ‘third arrow’ of his reform plan in order to assure a sustainable growth trajectory in the future.

As far as Hong Kong is concerned, growth is lower than expectations, but the economy is shaping up remarkably better than at the outset of the year. The economy picked up momentum in Q2 2016, as GDP grew by 1.7% yoy, up from 0.8% yoy in Q1 2016.

“That said, the rebound in growth also came on the back of inventory accumulation, the impact of which will likely to fade in the absence of any meaningful pickup in demand over the coming months,” says Neumann.

Onus on India and Philippines

With other Asian countries slowing down, the baton for the world’s fastest-growing major economy is being passed to India. India is projected to rise up the ranks of the global economic league table, with economic expansion supported by favourable demographics and modernisation through reforms, says Cotter.

Adds Torne, “The government’s positive attitude towards economic reforms bodes well for the longer term growth trajectory and concrete steps have been taken to improve the business climate.”

However, growth remains lopsided across the economy and reducing stress on banks’ balance sheets is vital to boosting credit growth and supporting fixed investment, which was a weak spot in Q1 FY 2016, he says.

For Philippines, domestic demand is mainly driving growth performance.

“However, policy unpredictability associated with President Rodrigo Duterte could threaten the country’s healthy economic outlook. The Philippines will expand a strong 6.5% this year, overshooting last year’s 5.9% growth,” says Torne.

Asia losing its sheen

Despite Asia being called the main source of growth for the world economy, the fact remains that it is no longer growing at the expected pace.

“In a number of economies, debt continues to climb at a rapid clip. Meanwhile, whatever small lift came through on the external side is bound to quickly fizzle, with continued lacklustre demand in the West,” says Neumann.

“The region has lost some steam compared to the growth rates recorded in the aftermath of the global financial crisis. Weaknesses in the region are mostly related to the slow global economic recovery, which weighs on Asia’s all-important external sector. Domestic vulnerabilities have also played a role in Asia’s slowdown. These include Japan’s inability to tackle an ageing population and long-lasting deflation, and the slow implementation of economic reforms in China, India and Indonesia,” concludes Torne.

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IFM Correspondent

May 27, 2016: After hovering around $30 per barrel for close to five months, oil price is finally heading northwards. The price touched $50 a barrel — around 70 per cent up on its February low.

It is a rapid climb, no doubt but not many experts are optimistic on the stability around $50 as prices have been driven up fundamentally because of supply considerations that are temporary.

According to a report by HSBC titled ‘Oil at 50’, higher consumer price index (CPI) in the US for April raised eyebrows. In this case, the report states, fuel was mostly to be blamed. In Asia too, such big moves tend to throw a ripple into things. Indonesia and India are probably most exposed in terms of inflation and growth. Even Thailand, Taiwan, Japan and Korea are big importers of oil.

Frederic Neumann, co-head of Asian Economics Research, HSBC says this not a big enough reason for oil importing economies to worry.

“Production outages, presumably temporary, are largely to blame for the latest pick-up. The forest fires in Canada, at some stage, will be brought under control, and production disruptions in Venezuela, Libya, Nigeria and elsewhere should also abate. That’s not to say that the days of super cheap crude are not behind us,” says Neumann.

Economists state that it is futile to think price at this level will impact oil importing nations.

“We need to keep things in perspective. Oil prices may be up sharply from January but they are barely back to November levels. Moreover, in annual terms, they are still handily down from 65+ USD per barrel. So it’s not as if crude has suddenly become a terribly expensive commodity,” states Neumann.

Moreover, how much oil importers will suffer depends on the drivers of the increase in oil prices. If the increase is caused by increased global demand, then such economies might have offsetting benefits from a potential global recovery. If, on the other hand, it is a supply contraction that is causing the increase, which is more likely the case, then net-oil importing countries could suffer more.

John Hall, chairman Alfa Energy, believes that with OPEC meeting only a week away on June 2, there is a view that ‘something’ could happen especially since Saudi Arabia is more likely to change its stand following the appointment of a new oil minister. “I personally feel that the market is gearing up prematurely and the price is moving up with it.”

Robert Hill, senior economist with FocusEconomics, says impact of oil price will differ with each country. However, in general, the impact should be relatively muted. “It was not that long ago that oil prices hovered comfortably over $100 per barrel. People and governments began adjusting to what was perceived as the new reality for oil prices: individuals bought smaller cars, governments invested more in public transport, greener energy became appealing not just environmentally, but from a cost perspective as well. With this in mind, the projected increases in oil prices, which analysts polled by FocusEconomics put at just of $60 per barrel by Q1 2018, should not have too much of an impact,” he says.

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Beijing, July 14, 2014: Consumer price rise eased a tad in June in China compared to May, official data released on July 9 said, even as an independent survey of its manufacturing sector – a gauge of the economy’s health – showed factory output rising for the first time since January and stocks of finished goods declining at the strongest rate since September 2011.

Data from China’s data office, the National Bureau of Statistics, said the price index had gone up 2.3 percent in June from a year-ago period, while it was down by 0.1 percent month-on-month. In fact, economists felt the drop, as compared to May, would allow policymakers more leeway to introduce measures in a bid to propel economic growth.

“Inflation isn’t really going anywhere,” The Wall Street Journal quoted HSBC analyst John Chua as saying. “This probably gives Beijing more policy flexibility. They don’t worry about the economy running at full capacity,” Chua said.

The annualised 2.3 percent spike in consumer price index – a measure of inflationary trends – was in line of what was expected. It was a notch below the increase of 2.4 percent predicted by a panel of 21 analysts polled by Wall Street Journal. A similar Reuters’ poll also forecast an increase of 2.4 percent after a 2.5 percent rise in May.

The increase, however, was considerably lower than the annual target of 3.5 percent set by the government.

Bill Adams, economist at PNC Financial Services Group, found the inflation figures within predictions and auguring well for consumers. “Low inflation is good news for Chinese consumption growth, since it preserves the purchasing value of consumers’ disposable income,” he told CNBC.

China’s first quarter growth this year plummeted 7.4 percent compared to the January 1-March 31 period in 2013, the feeblest pace since 2012. Alongside, its manufacturing sector also notched its worst performance in April since last August.

Analysts polled by Bloomberg in May forecast the growth rate to fall even lower to 7.3 percent in 2014, compared to 7.7 percent last year. This would make it the lowest rate of growth since 1990.

The government, which has pegged an expansion of 7.5 percent for this year, has taken steps such as tax breaks for small businesses and measures to speed up investment in housing. The benign inflation figures should also help to stoke spending.

“What’s reflected here is no big surprise,” analyst Medha Samant told CNBC in a televised interview. “Food prices which make up a big chunk of the CPI basket have been stable in China.”

Samant, who is the investment director of Asian equities at Fidelity Worldwide Investment, said the process could be volatile at times, especially during festival times. “But they sort of trend at this slight inflationary level depending on demand, so we are well within expectations,” she said.

CONSUMER PRICE

On a year-on-year basis, the statistics bureau said, prices rose 2.4 percent in cities and 2.1 percent in rural areas in June, with food prices shooting up 3.7 percent and non-food prices by 1.7 percent.

The prices of consumer goods went up by 2.2 percent and the prices of services grew by 2.6 percent. On average from January to June, the overall consumer prices were up by 2.3 percent over the same period of the previous year.

Month-on-month in June, food prices went down by 0.4 percent, while the non-food prices kept at the same level. The prices of consumer goods decreased 0.2 percent while that of services increased 0.1 percent.

Food prices went up by 3.7 percent year-on-year, while that of for clothing rose 2.6 percent. Another area of immediate concern, prices for household facilities, articles and maintenance services, rose 1.2 percent year-on-year. The index for healthcare grew 1.3 percent.

Year-on-year increases were also seen in transportation and communication costs, which increased 0.6 percent. Of which, prices for fuels and parts for vehicles went up by 5.2 percent.

As a result, prices for touring and outing shot up by 7.8 percent while education service went up by 2.2 percent. Consequently, the price index for recreation, education, culture articles and services grew by 2.1 percent year-on-year.

The data also shows that property prices, always a source of concern in China, went north in the month under review. Prices for residence went up by 2.2 percent year-on-year. Of this, renting was 3.2 percent costlier while water, electricity and fuel went up by 1.2 percent.

“According to estimation, in the 2.3 percent growth in June, the carryover effect of last year’s prices rising accounted for 1.5 percentage points, while new prices rising factors in this year accounted for 0.8 percentage points,” the statistics bureau said in a statement.

MANUFACTURING UP

Meanwhile, what should also bring cheer is the latest manufacturing sector survey report by banking and financial services company HSBC, which said factories signalled the first improvement in overall operating conditions for six months in June.

“Output rose for the first time since January, and at a moderate pace,” the report said. “Growth was supported by the strongest expansion of total new work since March 2013, while new export orders rose for the second month running.”

Increased volumes of new business led to the quickest depletion of stocks of finished goods for nearly three years, while job shedding was the weakest in three months, it added.

The HSBC PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 50.7 in June, up from 49.4 in May, and signalled the first improvement in business conditions since last December.

“That said, the rate of improvement was only slight and weaker than the historical average,” HSBC added.

The report said an improvement in the health of the sector partly reflected the first expansion of total new business placed at Chinese manufacturers for five months during June. “Furthermore, it was the strongest rate of new order growth in 15 months,” it added.

Reports from panellists suggested that improving market conditions boosted sales in the latest survey period. New export business also rose in June, albeit at a marginal pace that was weaker than May’s 49-month high.

Anecdotal evidence suggested that unfinished business rose due to increased amounts of new work. Consequently, stocks of finished goods declined at a moderate pace, which was still the fastest since September 2011.

“The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments,” said Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC.

“We expect both fiscal and monetary policy to remain accommodative until the recovery is sustained,” he added.

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