Asia Pacific continues to lead global growth; except Japan, regional GDP should expand 5.5% in 2017, well above the world average of 2.9%. We expect regional growth to remain in the 5.5% range through the next fire years. Japan’s GDP grew 1.0% in 2016, a pace that is likely to hold for 2017 and 2018. Chinese real GDP grew 6.7% in 2016, but growth has now slowed for six consecutive years. Expect continued slowing to 6.5% in 2017 and 6.2% in 2018 as excess industrial capacity, the housing glut and rising debt remain problematic.
India has been slowed by cash shortages, but should return to 7% plus growth as economic reforms attract foreign investment in 2017. Over the medium term, Indian economic growth will easily outpace China (7.3% versus 6.0%).
While a slowing China has led to a lower expectation of construction growth, Asia-Pacific will lead global construction growth in 2017 with an anticipated 4.3% y/y increase. Global growth is expected to be 3.0%. The region will be led by Pakistan, the Philippines and Vietnam with infrastructure the driving force at 6.3% growth.
Australian economic growth will remain around 2.5% for 2017 and 2018. Export performance is a risk for commodities such as iron ore or coal- despite Australia being a low-cost supplier-as China continues its transformation from heavy industry. Solid growth is achievable owing to new LNG capacity coming online and the possibility that Australian dollar depreciation will boost the competitiveness of manufacturers.
With a combination of fiscal and monetary stimulus measures, Indonesia’s economy expanded 5.0% in 2016. The economy should remain strong in 2017 with real GDP growth of 5.0%, before expanding 5.1% in 2018. Domestic demand and foreign investment will key growth. Households and businesses with the means to borrow will benefit from Bank Indonesia (BI)’s aggressive monetary policy easing during 2016, although lending rates remain high among regional peers.
The Philippine economy grew 6.8% in 2016, underscored by sizzling domestic demand, first bolstered by election-related spending and followed by a surge in infrastructure investment.
Thailand’s economy is anticipated to expand 3.0% in 2017 due to increased fiscal stimulus, stable domestic politics, and favorable tourism revenues. Tourism will remain a bright spot as inbound tourists from China, Russia, and the United States continue to rise. Investment conditions should improve in the near term following the government’s ambitious public investment plans focusing on upgrading infrastructure, as well as a raft of tax breaks intended to revive private investment.
Pakistan offers one of the strongest construction opportunities in the world as investment in the China Pakistan Economic Corridor will power growth for several years. The Corridor is an ambitious plan to establish a trade link between Gwadar, Baluchistan, in southern Pakistan, to Kashghar, Xinjiang, in western China.
Vietnam’s economy remains one of the brightest points in the region. Government efforts to simplify business registration regulations, including improvements in infrastructure, should stimulate investment spending and the external sector will benefit from increasing FDI and favourable wage differentials with manufacturing powerhouse China.