After bottoming out in Q1 of fiscal year 2013/2014, India's GDP increased 4.8% annually in Q2 (Q1: +4.4% year-on-year). More recent indicators, however, suggest that the recovery remains fragile. Industrial production contracted an unexpected 1.8% annually in October, which contrasted the 2.0% expansion recorded in September. Conversely, the external sector continues to show signs of improvement; imports declined sharply in November, which mainly reflected the Government's and Central Bank's efforts to control the current account deficit. FocusEconomics panelists downgraded India's growth outlook for FY 2014/2015 for the eighth month in a row, cutting their growth projections by 0.1 percentage points to 5.4%. Similarly, panelists cut their forecasts for FY 2013/2014 by 0.1 percentage points over the previous month's estimate to a 4.7% increase.
Political developments took center stage elsewhere in the region. Following a month of ongoing anti-government protests in Thailand, King Bhumibol Adulyadej complied with Prime Minister Yingluck Shinawatra's 9 December request to dissolve the Parliament and call for early elections. The elections will take place on 2 February 2014. The decision was fuelled by all of the opposition deputies' resignation from the Parliament on 8 December. The call for early elections failed to quell the anti-government protests and the unstable situation could lead to another military coup, as the opposition seeks to replace the current government with an unelected "People's Council".
In the East China Sea, tensions regarding territorial disputes between China and neighboring Korea and Japan resurfaced again after China unilaterality expanded its air-defense identification zone (ADIZ). The new ADIZ includes the Japanese-run Senkaku/Diaoyu islands and the Korean-controlled Ieodo Reef. China's decision triggered United States intervention; the U.S. sent two unarmed B-52 bombers into the contested airspace without informing Beijing's authorities. Korea responded by expanding its own defense zone and conducting a joint military drill with Japan inside the controversial defense zone. Early in December, U.S. Vice President Joe Biden met with authorities in China, Japan and Korea in an effort to avoid an escalation and to tame the ongoing tensions.
Regarding monetary policy developments, the central banks of Indonesia, Korea and the Philippines have chosen to leave their policy rates unchanged since late November. The Reserve Bank of India has not held a meeting in the past few weeks, but analysts expect the Bank to hike the main policy rate by 25 basis points in the meeting scheduled for 18 December. Conversely, the Central Bank of Thailand reduced the one-day repurchase rate by 25 points to 2.25% in an attempt to shore up the economy against a backdrop of political tensions.
Preliminary data showed that inflation in ex-Japan Asia stabilized at October's 3.6% in November. FocusEconomics Consensus Forecast panelists expect inflation in ex-Japan Asia to average 3.6% in 2014, which is up 0.1 percentage points from last month's estimate. The panel left their 2013 inflation forecast unchanged at 3.2%.