As Asia’s private consumption remains lackluster, Asian economies should push ahead with structural reforms aimed at lifting productivity, notes a report from HSBC.

Frederic Neuman and team at HSBC in their June 12, 2015 research report titled: ”On top of the data” argue that continuation of slow GDP growth in the U.S. should bode well for Asia, especially for Indonesia and Malaysia.

Asian economies: Deterioration in exports and PMI data

The HSBC analysts note 2015 began with hopes that lower oil prices, an accelerating U.S. economy, and the bottoming out of Chinese growth that would provide some spark to Asian growth. However, they point out that the latest data out of the region shows no convincing signs of a bounce. The following diagram illustrates that things are moving in the opposite direction, with disappointing exports everywhere outside of Greater China:

Deteriorating export growth Asian Economies

The analysts point out that the continuation of the sluggish export trend may permeate to other parts of the economies. For instance, they believe consumption may suffer. As can be deduced from the following charts, the weak export growth coupled with slowing industrial output could affect employment:

Exports, PMI slowing Asian Economies

Neuman et al. note despite falling oil prices, inflation eased by a moderate degree at best. The analysts ascribe this phenomenon to limited pass through effect of global oil prices to domestic prices.

Moderate inflation Asian Economies

They also point out that despite moderating credit growth, Asia’s debt burden is enormous. As depicted in the following graph, despite the pace of debt accumulation moderating, slowing economic growth coupled with low inflation in the region has caused the debt to GDP ratio to tick higher:

Asia's debt burden Asian Economies

More easing warranted

Neuman and colleagues point out that the PMIs provide little reason to anticipate a quick turnaround, as new export orders have deteriorated nearly everywhere. The analysts argue that a slowing China is adding pressure on manufacturers and commodity producers across the region. As the HSBC China Manufacturing PMI still signaling contraction and fixed asset investment growth sliding to a historical low of 11.4% y-t-d y-o-y in May, the analysts believe there is clearly a case for more easing.

PMI Heatmap Asian Economies

Turning their focus to El Nino and the higher food inflation, the HSBC team notes the risk of some food inflation is not to be underestimated in a region where it encompasses up to nearly 40-50% of CPI baskets in places such as India and Philippines. Neuman et al. note when coupled with rising oil prices, higher food inflation could cut into household spending power, presenting further downside growth risks to growth:

Consumer spending Asian Economies

The following captures major events in Asia:

Asian Economies Need Structural Reforms To Lift Productivity: HSBC

The following captures HSBC indicators:

HSBC indicators Asian Economies