S&P economists trim GDP outlook for Asean emerging markets

DECEMBER 13, 2018 - 10:51 AM

STANDARD & Poor’s economists have trimmed their growth outlook for the Asia-Pacific, with regional economies expected to cool by between 0.1 and 0.2 points in the next three years.

While some watchers are banking on supply chain diversion into South-east Asia amid a US-China trade war, the team of Singapore-based economists warned that “short-term spillovers from worsening trade and investment friction would likely be damaging”.

On top of trade war risks such as the currency pressure from a softening yuan and general delays in investments being made, the tightening of United States Federal Reserve policy could also put the squeeze on South-east Asian inflation and rates, the economists added.

For instance, they wrote, rising oil prices and a depreciating peso were rapidly passed through into higher costs of items in the Philippines. Central banks’ monetary interventions in such a climate could weigh on economic growth.

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“We believe the risk of further capital outflows, depreciation pressures, and rising interest rates remain for economies with current account deficits in 2019,” the economists wrote.

“The risks appear to have eased somewhat recently, due to dovish Fed comments and lower oil prices, but our interest rate and oil price forecasts suggest that risks have not fully dissipated. As such, we will also be watching the potential for policy space in India, Indonesia, and the Philippines to deteriorate further, especially if this coincides with renewed oil price increases.”

Indonesia, Malaysia, the Philippines, and Thailand are expected to see their combined gross domestic product (GDP) growth come in at 5 per cent in 2018 and 2019, and tick up to 5.1 per cent the year after - against gains of 5.2 per cent in 2017.

“While favorable demographics continue to support domestic demand in these economies, third-quarter GDP numbers were on the weaker side due to reduced external demand,” the economists wrote in a report. “We have lowered our growth forecast for the group due to the slower trade growth and weaker consumption and investment activity in some economies.”