Japan’s Structural Issues Hold in 2017 while Growth Elsewhere in Asia May Be Tamed by China Risks

Although a strong dollar should help increase business sentiment in Japan this year, the nation faces a host of challenges going forward, including very high public debt that’s mostly held by Japanese creditors and a declining working-age population, according to a series of reports from credit insurer Atradius on the economic outlook of Asia’s major economies. (See this week’s eNews on the payment and insolvency issues in China and growth in India.)

Deflation has been a major issue in Japan, with GDP growth fizzling below 1% in 2017, and analysts expect more of the same this year.

“To achieve a sustainable rebound and to boost the country’s long-term economic performance, there is an urgent need to make the labor market more flexible, to end protection for farmers, doctors and pharmaceutical companies, and to introduce more business deregulation,” Atradius said.

The Philippines’ GDP is anticipated to rise more than 6% in 2017, with private consumption accounting for some 70% of the economy and a growing middle class set to contribute to ongoing growth over the near term, the credit insurer said. Foreign direct investment in the country has tripled from 2009 to 2015. Infrastructure projects are big in the country right now, from railways and airports to roads and port development.

In Vietnam, real GDP growth is also expected to increase more than 6% in 2017, fueled by agricultural exports, while private consumption should grow thanks to low inflation, low local interest rates and rising wages, the credit insurer said.

Still, Vietnam is quite vulnerable to economic downturns in the broader Asian marketplace, where it sends about half of its exports, Atradius said. Also, “Vietnam was supposed to be a major beneficiary of the U.S.-led Trans-Pacific Partnership (which would have led to a significant increase of its medium-term growth prospects), but the decision of the U.S. administration to withdraw from the agreement has left its future in limbo,” the firm said. The business environment in the country is getting better, but ongoing infrastructure problems, corruption and the high level of state intervention in state-owned enterprises dampen productivity gains.

Malaysia should see GDP growth rise by about 4% this year, and economic growth in the country is primarily driven by private consumption and investment, Atradius said. The main risk to the economy is slowdown in China—the nation’s principle recipient of exports. “Malaysia has a well-developed financial sector, with well-capitalized banks, good credit quality and a low share of nonperforming loans (about 1%). However, a risk factor is the high level of private debt, which could become a problem if interest rates rise substantially,” the credit insurer said.

– Nicholas Stern, editorial associate

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