Asia-Pacific growth is broadly improving as energy pressures begin to ease

Overview

This report consolidates Goldman Sachs coverage of Asia-Pacific regional and country-level growth data. It includes June PMI, while most of the latest hard economic indicators are still as of May. The core conclusion is that Asia-Pacific growth has improved overall versus before, energy-price pressure is beginning to ease, activity indicators remain resilient or improved, and financial conditions have loosened in most economies.

Core views

The report argues that Asia-Pacific economic growth is marginally stronger and more balanced. June PMI month-on-month behavior was not uniform, but most indicator levels still support expansion in the factory sector. China's official PMI improved while non-official measures weakened; India showed declines in both manufacturing and services PMIs, while both manufacturing and services PMIs in Japan rose. Goldman Sachs Current Activity Indicators were broadly stable through May and early June data, so the bank recently raised GDP growth forecasts for multiple economies. On financial conditions, lower oil prices brought easing and most economies saw loosening; South Korea and Taiwan saw significant easing helped by equity market gains, Thailand eased due to currency depreciation, while Indonesia tightened noticeably due to higher interest rates and stock declines.

Analysis framework

The report applies a regional macro monitoring framework, combining PMI, trade, supply chain, GS Current Activity Indicators, GDP forecast revisions, and financial-conditions indices to compare growth momentum and changes in the financial backdrop across major economies in Emerging Asia and Developed Asia. Some charts use three-month CAI averages to smooth short-term fluctuations and improve comparability with GDP data.

Methodology notes

• Macro high-frequency monitoringGS Current Activity Indicator

  Current activity indicator

  Used to measure an economy's recent activity momentum. The report presents three-month averages to smooth outcomes and notes that monthly CAI readings typically become available only after more than 20% of constituent data has been released.

• Business cycle surveysPMI

  Purchasing Managers' Index

  Used to observe expansion or contraction in manufacturing and services. The report emphasizes that June PMI month-on-month patterns were mixed, but overall absolute levels still indicate manufacturing expansion.

• Financial conditionsFinancial Conditions Index

  Financial conditions index

  Used to assess the combined impact of financial variables such as interest rates, exchange rates, and stock markets on the economic environment. The report says financial conditions have eased recently in most Asia-Pacific economies, while Indonesia has tightened due to rate hikes and stock declines.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Asia-Pacific equity markets

  Improving macro growth and easing financial conditions generally support risk assets

  Strengths

  Stock market gains in South Korea and Taiwan delivered significant easing of financial conditions, while upward revisions to regional growth forecasts improved risk sentiment.

  Weaknesses

  Indonesia's stock weakness and simultaneous tightening in financial conditions show that market performance is not uniformly supportive.

  Comparison

  Financial-conditions improvement is more pronounced in South Korea and Taiwan; Indonesia is relatively weaker.

  Risks

  If energy prices rebound, policy rates continue rising, or equity markets fall, financial conditions may tighten again.

• Energy and commodity-related assets

  Easing energy-price pressure is a major backdrop to the forecast revisions

  Strengths

  Declining oil prices reduce regional import costs and inflation pressure, improving financial conditions and growth in some economies.

  Weaknesses

  The report does not provide specific oil price, energy supply-demand, or sector earnings forecasts; it remains a macro-impact-level assessment.

  Comparison

  Easing energy pressure is more beneficial for import-dependent economies, although the report does not quantify cross-country differences one by one.

  Risks

  A rebound in energy prices could reverse improvements in growth forecasts and the easing of financial conditions.

• Foreign exchange

  Exchange-rate movements are a major component of financial conditions

  Strengths

  In Thailand, currency depreciation played a key role in the observed easing of financial conditions.

  Weaknesses

  Currency depreciation can also create imported inflation or pressure on capital flows.

  Comparison

  Thailand improved financial conditions due to currency factors, while Indonesia tightened on rate hikes and equity weakness.

  Risks

  A stronger US dollar, capital outflows, or domestic policy shifts could amplify regional FX volatility.

• Asia-Pacific macro growth exposure

  The report's core monitoring focus is Asia-Pacific regional growth momentum

  Strengths

  CAI remains broadly good or improved, trade activity and East Asian exports rebounded, and several economies' growth forecasts were revised higher.

  Weaknesses

  PMI month-on-month behavior was mixed, India weakened, and supply-chain delays continue to bother manufacturers across multiple countries.

  Comparison

  Japan's recent data came in stronger than expected, while Australia came in weaker than expected; both Emerging Asia and Developed Asia exhibit internal divergence.

  Risks

  Supply-chain disruptions, energy-price rebounds, tightening-rate pressures, and equity declines could all erode the apparent growth improvement.

Key data

• Data coverageJune PMI and most hard data through MayThe report explicitly states that it includes June PMI, while most of the latest hard indicators are still May data.
• Growth forecastsMarginally raised for multiple economies recentlyGoldman Sachs says the revisions mainly reflect easing energy-price pressure.
• China PMIOfficial PMI strengthened while non-official measures weakenedThis shows diverging interpretations of China’s momentum depending on the methodology used.
• India PMIBoth manufacturing and services indices weakenedThis suggests a short-term cooling in India’s economic momentum.
• Japan PMIBoth manufacturing and services indices strengthenedThe report also notes that recent Japanese data came in stronger than expected.
• Financial conditionsMost economies loosenedSouth Korea and Taiwan saw significant easing from stock market gains, Thailand eased due to currency depreciation, while Indonesia tightened clearly.
• Trade activityRemains strongChart titles indicate trade activity remains accelerating strongly, with East Asian exports rebounding in May.

Impact & implications

For investors, the main implication is that risk appetite in the Asia-Pacific macro environment appears to be improving: easing energy-price pressure supports growth expectations and financial conditions, and manufacturing in the region remains on an expansionary footing, while stronger trade and improved East Asian exports support resilience. However, divergence across countries remains clear, with weakening momentum in India, tighter financial conditions in Indonesia, and persistent supply-chain delays as risk factors that could still drag performance.

Risks

• If energy-price pressure rises again, it could weaken the basis for the upward revisions to growth forecasts.
• Supplier delays remain a prominent problem for manufacturers across the region.
• June PMI month-on-month changes are mixed, indicating that momentum improvement is not uniform.
• India's manufacturing and services PMIs both weakened, suggesting near-term growth momentum may face pressure.
• Financial conditions in Indonesia clearly tightened, driven by policy rate hikes and stock market declines.
• Most hard macroeconomic data in the report are as of May, so June and later real-economy data still need verification.

What to watch

• Whether subsequent June and July hard data confirm the CAI improvement trend.
• Whether energy prices, especially oil prices, continue to ease.
• Whether the divergence between China's official and non-official PMI readings narrows.
• Whether India’s manufacturing and services PMIs can stabilize.
• Whether the above-expectation upside in Japanese data can continue.
• Whether stock market advances in South Korea and Taiwan can continue to support easing financial conditions.
• Whether the persistence of higher rates, equity performance, and tighter financial conditions in Indonesia continues.
• Whether East Asian exports and trade activity can maintain the rebound.