Asia Quarterly Outlook: Steady as they grow

Major Asian economies are carefully steadying their ships as they sail into the second quarter, while domestic imbalances and geopolitical risks persist.

Originally published on March 28, 2024 by Fidelity International
Written by Lei Zhu, Head of Asian Fixed Income, and Yi Hu, Investment Writer


  • Controlled stabilization in China
  • Optimism is abundant in Japan
  • Regional balancing act

Asia remains a top engine of global growth, with its economies largely on track for their annual GDP targets, but stability has become a major focus for the region heading into the second quarter.

China is battling structural headwinds to stabilize growth around its 5% target, while Japan searches for a balance between raising interest rates and keeping up the momentum of its reflating economy. In Southeast Asia, central banks patiently await clear signals from the U.S. Federal Reserve (the Fed) before they might start easing. In India, where growth is robust, stabilizing inflation has become an important task. 

How Asian countries address their internal imbalances will have a profound impact on the region’s outlook for the rest of 2024. 

Controlled stabilization in China 

China is engineering a controlled stabilization of its economy as the country weathers a property downturn and seeks to shift the balance from debt-fuelled expansion toward consumption and high-end manufacturing. Fidelity International is closely monitoring fiscal measures, such as bond issuance by the central government. The forecast for China’s annual growth rate comes slightly below the official target; Fidelity International hasn’t seen strong enough policy support. 

On the monetary side, Fidelity International is not expecting any significant rate cuts by the People’s Bank of China until the Fed clearly makes a pivot. Even if the Fed starts easing, rate cuts in China are likely to be moderate; however, monetary easing will probably play a supporting role to fiscal measures this year. 

Fidelity International is seeing some early yet encouraging signs that China’s economic activities are reclaiming momentum. As the chart below shows, services are climbing and industries are reverting to the long-term average – although the property sector stays below trend. All of this suggests the government is making progress in its aim to rebalance the economy.

Japan’s brave new world 

Optimism is more abundant in Japan, where the economy has emerged from more than two decades of recessions and stagnation with mild and broad-based price increases. However, the Bank of Japan (BOJ) is treading on eggshells with its pace of policy normalization, after raising interest rates earlier this month for the first time in nearly two decades. Hiking too fast could dampen growth and affect financial stability.

Following consumer price gains, many industrial unions have won pay rises for workers in this year’s “Shunto,” or spring wage negotiations. Fidelity International believes that a virtuous wage-price cycle is likely to be sustainable from here on, ultimately leading to a higher neutral rate for Japan. The BOJ may need to raise its policy rate further to adhere to the 2% price stability target.  

As reflation continues, Fidelity International expects Japan’s financial markets and property sector to keep receiving capital inflows, which are driven both by Japanese investors repatriating their overseas funds and by foreign investors.

The region’s balancing act 

Robust domestic consumption is supporting growth in Southeast Asia, but exports remain soft due to uncertainties in global demand. An ongoing reshoring of manufacturing activities from China could provide a boost to the region’s exports. Countries such as Vietnam, Malaysia, Indonesia and Thailand stand to benefit as global firms adjust their China exposure or pursue a so-called “China plus one” strategy by relocating part of their supply chains to the ASEAN bloc. 

Despite sluggish exports, ASEAN countries are reluctant to cut interest rates or weaken their currencies before seeing clear easing signals from the U.S. If history is any guide, easing too aggressively could trigger disastrous capital outflows in the region, where external funding plays an important role. 

On balance, Fidelity International thinks the region is on track for an annual growth rate slightly above last year’s 4.3%. Potential upside surprises could come from faster reshoring of manufacturing from China or stronger global demand. 

India is heading for a general election from April to June, with opinion polls favouring Prime Minister Narendra Modi’s ruling party. How policy makers can keep inflation at bay will have a big impact on the economy, while strong growth momentum continues. The country is also benefiting from the realignment of global supply chains, as well as capital inflows. 

That is symptomatic of the region as a whole. Asia’s economic ships remain fully powered, but their helmsmen are focusing on internal stability for longer and safer journeys.