Japan’s growth in 2023 proved to be surprisingly resilient despite the challenges posed by the pandemic. The revival of tourism and positive net contribution from exports played a significant role in this outcome. Looking ahead to 2024, however, economic growth is expected to slow to 1.2% year-on-year as the post-Covid reopening boosts fade and inflation remains above 2%. Despite the slowdown, Japan will still record greater than potential growth for the second consecutive year. Investment in new technology is anticipated to continue, supported by policy measures, and consumption is likely to remain positive due to tight labor conditions.
According to experts, the strong earnings of Japanese companies will contribute to solid wage growth, which in turn will support the Bank of Japan’s sustainable 2% inflation target. This positive trend will enable the central bank to gradually move away from its ultra-easy policy stance. However, such transitions will take time, and it is projected that the short-term policy rate will only reach 0.00% by the end of 2024.
Shifting our focus to India, it is expected that the Reserve Bank of India (RBI) will be the first among major APAC central banks to ease rates in 2024. Presently, the RBI’s repo rate stands at 6.5%, making it one of the highest in the region. Moreover, it boasts one of the largest policy rate spreads compared to the US Federal Funds rate. The RBI’s favorable position stems from its successful efforts to tackle inflation and simultaneously support the currency, maintaining a tight range since October of the previous year. Although the RBI is not expected to preemptively cut rates ahead of the US Federal Reserve, it is anticipated that once the Fed begins to move, the RBI will be swift to follow suit.
In the Philippines, inflation is projected to remain above target due to supply-side shocks that persisted throughout 2023. Last October, the Bangko Sentral ng Pilipinas (BSP) implemented an off-cycle interest rate hike, responding to elevated inflation forecasts of 4.7% for 2024. The BSP’s Governor Eli Remolona expressed concerns about inflation expectations and emphasized the need for urgent action. Factors such as an extended El Nino episode and an ongoing dispute with China can contribute to further spikes in inflation in the coming year, particularly through shortages of essential food items like rice and fish. Consequently, the BSP may engage in additional tightening measures if inflation remains above the target range and expectations remain unanchored. Governor Remolona reaffirmed the commitment to bringing inflation back within target, even if it compromises growth. Therefore, the BSP is expected to continue hiking rates, irrespective of the easing cycle that the US Federal Reserve may embark on by mid-2024.
These predictions and analyses are based on insights provided by ING experts. As with any economic forecasts, there exist uncertainties and potential gaps between projections and actual outcomes. Nevertheless, they serve as valuable indicators for policymakers and market participants to navigate the economic landscape of Other Asia in the coming year.
