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​Here’s a quick exercise in etymology. What is the origin of Typhoon, the term commonly used in the Asia Pacific region to denote severe cyclones?

One explanation harks back to a Chinese source. In a common dialect form of Mandarin dà fēng means "big wind".  Not that anyone means to blame the Asian powerhouse for the formation of tropical storms. But if you investigate immense, unpredictable economic energy, look no further than China.

The title of our new report on the economic situation in the Asia-Pacific region is “Caught in a typhoon?”


Note the question mark. We assess the climate from India through Indonesia and the Philippines and all the way to China and Japan. We do not attempt to declare it.
Here are the analysis’ main findings.

Growth headwinds: It’s raining bankruptcies
• Global demand growth would rise by a limited +2.4% in 2016. Asia Pacific will slow to +4.5% in 2016.
• Insolvencies will pick up by +1% in both 2016 and 2017. APAC will see an increase of +13% in 2016 and +7% in 2017.
Three eyes of the storm
• Subdued prices hamper demand value growth.
• Tough credit conditions to reflect both external (diverging monetary policies, uncertainties) and domestic issues (high debt).
• China’s bumpy transition to hinder growth in the region.

Searching for casualties in Asia Pacific
In Vietnam, India, and the Philippines, economic activity would remain strong thanks to low oil prices (especially the latter two), solid domestic consumption and strong foreign direct investment inflows.

In Japan, modest growth will be supported by stimulus in consumption. Private investment and exports will be hindered by a strong Yen.
For primary industrial commodities exporters (Malaysia, Indonesia), macro-policies will make the difference. In particular, Indonesia will probably fare better than Malaysia as the economy benefits from stronger policy buffers (lower public debt and fiscal deficit).

Exports hubs might grow far below long-term trend
Hong Kong, Taiwan, and Singapore do seem to be caught in an economic typhoon. Activity growth will be hindered by depressed external demand, especially from China (lower demand, economy’s upgrading) and tighter financial conditions, including contagion risks. All three economies will grow below +2% in 2016-17, far below their long-term average.

In the short run, resilient domestic demand will come from reactive policy-making and stimuli in the pipeline are promising to safeguard growth. In the long run, each hub will have to diversify and reinvent its business model. Hong Kong appears to be the least agile and the most affected by Chinese woes. Taiwan has a strong innovation edge but China becomes a stronger contender. Last, Singapore will benefit from past diversification and branding efforts especially of its business environment and logistics.

In 2016, insolvencies will increase by +15% in both Singapore and Hong Kong, and by +17% in Taiwan. Vulnerable sectors include basic materials (too low prices), retail and electronics (Chinese collateral damage), and housing and real estate (leverage).

So should companies seek shelter or go dancing under the rain? As always, it all depends on the local weather and your taste for instability.

Ludovic Subran
Chief Economist
Euler Hermes
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