Asian marts remain resilient – Barclays US strength expected to offset drag from China slowdown

MANILA, Philippines - Emerging markets in Asia including the Philippines are expected to remain resilient amid a China slowdown, UK-based Barclays said.

“Reduced political uncertainty on the domestic front, and strength in the US on the external front, should offset drag from a weaker China, which in itself is unlikely to be uniform,” the bank said in its latest Emerging Markets Weekly.

The firm has cut its full-year economic growth forecast for Asia’s emerging markets to 6.1 percent from an earlier projection of 6.2 percent but left the 2015 estimate unchanged at 6.3 percent.

For the Philippines alone, Barclays maintained its 2014 and 2015 growth forecasts, both at 6.5 percent. This projection is a slowdown from the 7.2-percent expansion recorded by the country last year. 

At the same time, this is below the government’s 6.5-to 7.5-percent target for this year and the 7.5-to eight-percent assumption for 2015. 

“The stability in our 2015 growth forecasts is due to an improving outlook for US growth, which offsets our below-consensus growth projection of 6.9 percent for China,” Barclays said.

“Notwithstanding the impact from a weaker China on some economies, we believe the outlook for the rest of Asia is improving, with domestic demand-led pick-ups in India and Indonesia complemented by an external recovery-led upturn in industrialized Asia,” the bank added. 

“Further, with political uncertainty receding, we think growth in the domestic demand-led countries has the potential to surprise on the upside.”

Barclays recounted that the impact of a slowing China will not be the same across the region, as the hardest to be hit are forecast to be commodity suppliers in Southeast Asia.

The bank cut its full-year projection for China’s economic growth to 7.2 percent from 7.4 percent, but kept its 6.9 percent forecast for next year unchanged.

Barclays said it expects China’s slowdown to be confirmed in this week’s “flash” manufacturing PMI (purchasing managers’ index) from HSBC. Barclays has forecast China’s PMI to move back below 50 for the first time since May.

PMI, an important indicator of economic activity, reflects an expansion in the sector when it hits above 50.