Asian governments step up stimulus as economic growth stalls

“We’re going to see more of this,” said Hak Bin Chua, a senior economist at Maybank Kim Eng Research in Singapore. “The space for monetary policy has narrowed, given how close interest rates are to the zero bound. There’s an increasing recognition that you can’t just depend on central banks; governments have to provide support through fiscal policy.”

That may be easier said than done. Unlike interest-rate decisions generally made by a small central bank committee, fiscal stimulus needs approval from governments and sometimes parliaments, and may run up against debt limits anchored in law. In addition, the impact of fiscal policy may appear only with a considerable lag -- a disincentive for leaders who might be out of office by then.

Still, policy makers “are starting to accept that something more needs to be done,” said Tuuli McCully, head of Asia Pacific economics at Scotiabank in Singapore. “I think the reality is kicking in that they need to loosen their purse strings.”

Here’s an overview of what various Asian countries have done to date:

Japan

Prime Minister Shinzo Abe described the new stimulus as a three-pillared package to boost disaster relief, protect against downside risks and prepare for longer-term growth after the 2020 Tokyo Olympics. It should boost real growth by about 1.4 percentage point, according to a draft of the package obtained by Bloomberg.

“Monetary policy is fast moving, technocratic, and -- especially when rates are on the way down -- enjoys broad political support. That’s what makes it so effective as a tool for demand management. It also explains why it’s now all but used up. Fiscal policy, in contrast, is slow moving, mired in ideological debates, and hemmed in by political constraints. Sometimes a blunt instrument is the only one there is,” says Tom Orlik, Bloomberg’s chief economist.

China

The centrepiece of China’s “proactive” fiscal policy this year has been about 2 trillion yuan ($284 billion) in tax cuts. While those reductions helped swell the deficit, they haven’t arrested the economy’s slowdown, and growth is projected to slip below 6% next year.

A key meeting to set economic policy this month will detail the balance between monetary and fiscal settings for 2020. Meanwhile, officials are bringing forward from next year the use of some off-balance-sheet infrastructure spending financed by local government debt.

India

Prime Minister Narendra Modi’s administration has taken a series of steps to halt a slump in the economy, adding to the monetary stimulus from five interest-rate cuts this year.

Measures include a US$20 billion ($27 billion) corporate tax cut, a US$1.4 billion fund to salvage stalled residential projects and a US$7 billion stimulus for exporters. Finance Minister Nirmala Sitharaman is open to doing more, but room is limited with the government expected to breach its deficit goal of 3.3% of GDP.

South Korea

As economic growth slumps to a decade low, South Korea’s government proposed a record 513.5 trillion won ($587 billion) budget for next year, a 9.3% increase from this year’s main budget. Finance Minister Hong Nam-ki called the budget “as expansionary as possible.” The Bank of Korea has already cut its benchmark rate to match a record low.

Government spending has been a key source of support for the economy, offsetting a pullback in private investment. The proposal to raise 2020 spending came after the government implemented a supplementary budget in the second half of this year.

Hong Kong

Hong Kong’s embattled government has responded to recession with a range of fiscal measures aimed at shoring up business confidence and households. The HK$4 billion ($696 million) package announced Wednesday brings the total since June to about HK$25 billion.

The government now expects to run a rare budget deficit this fiscal year. Still, given the city’s structural problems and the sharpness of the downturn, economists and the International Monetary Fund say the response has been insufficient.

Thailand

The government has taken a series of steps to boost an economy on pace for its slowest growth in five years. Last week the cabinet passed a fresh round of stimulus that aims to spur more than 100 billion baht ($4.5 billion) of spending.

That follows a US$10 billion package in August that included help for farmers and low earners, as well as initiatives to bolster consumer spending and investment. About one-third of the package will come from the government budget.

Indonesia

A slump in revenue is pushing the budget deficit closer to the legal limit of 3% of GDP. Rather than cut back on spending, the government has increased this year’s deficit target to as much as 2.2% of GDP and is ready to raise next year’s projection as well, Deputy Finance Minister Suahasil Nazara said. President Joko Widodo also is pushing structural and tax reforms to attract investment.

“Rather than a huge spending spree, the fiscal help you’re likely to see is more on a tax-reduction point of view. They’re going to try to put less burden on the economy,” said Trinh Nguyen, senior economist at Natixis Asia. “That is a much better approach than trying to deploy fiscal expenditure when you don’t have space and investors may be turned off.”

New Zealand

Seeking to boost a slowing economy, New Zealand’s government will take advantage of record-low interest rates to borrow and invest in infrastructure. Finance Minister Grant Robertson has directed the Treasury to present projects for a government pipeline of short- and medium-term investments, with details due Dec 11.

Australia

Then there’s Australia, where conventional monetary policy is almost exhausted, leaving the central bank governor to openly discuss quantitative easing. With S&P warning the country’s AAA credit rating could be at risk in the event of fiscal slippage to stimulate growth, there’s little sign of belt-loosening.

With the economy slowing, the government has resisted calls to utilize record-low borrowing costs to finance infrastructure or bring forward tax cuts planned for coming years. Instead it’s determined to achieve a budget surplus next year for the first time in more than a decade.