Economic growth across the Southeast Asian region is expected to cool in the second half of 2018 and into 2019, according to Institute of Chartered Accountants in England and Wales (ICAEW)’s latest “Economic Insight: South-East Asia” report.
Growth in the region is expected to ease to 5.1 per cent this year from 5.2 per cent in 2017, with growth moderating further in 2019 to 4.8 per cent as moderating Chinese import demand and escalating US-China trade tensions dampen exports and the business investment.
Economic growth edged lower in the second quarter in most Southeast Asian economies, with average GDP growth easing to 5.2 per cent year-on-year, down from 5.4 per cent in the first quarter. In addition, while recent regional trade data suggests some resilience in external demand, forward indicators point to softer export momentum in the coming months, with the aggregate measure of Southeast Asian PMIs moderating to 50.9 in July from 51.1 in June.
“Amid increasing global headwinds, including escalating US-China trade tensions and the added pressures of a stronger US dollar and rising US interest rates, we expect economic growth across the region to cool further in the second half of 2018 through to 2019,” said Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist. “This is against the backdrop of cooling Chinese import demand and increased trade protectionism.”
Among Southeast Asian economies, Vietnam is expected to continue to outperform the region, with the economy forecast to grow by 6.7 per cent in 2018 and 6.3 per cent in 2019. Meanwhile, Singapore is expected to see a more discernible slowdown, reflecting its heavy dependence on exports (around 174 per cent of GDP).
New tariffs set by both the US and China indicate an escalation in US-China trade tensions, which is forecast to worsen with a 25 per cent and 10 per cent tariff implemented on a cumulative $150 billion of imports from China and China retaliating in kind. While the US will remain focused on trade with China, higher US tariffs on Chinese imports will indirectly impact the region.
“Many of the region’s economies are small, open and heavily dependent on exports, with a high level of exports to China,” said Mark Billington, ICAEW Regional director, South-East Asia. “Added to this is the high import content of many Chinese exports, which means that some economies such as Malaysia and Singapore indirectly export a large volume of their exports to the US via China. In a challenging export environment and with rising protectionist sentiments, we expect overall growth momentum in the region to ease in the second half of 2018 and into 2019.”
FX resilience amid emerging market currency weakness
An escalation in US-China trade tensions and a slide in the Chinese yuan (CNY) and more recently the Turkish lira crisis has led to most emerging market (EM) currencies weakening against the US dollar this year. However, solid macroeconomic fundamentals have helped Asian currencies remain robust and only weaken moderately.
Looking ahead, EM currencies will likely see more volatility to come given the expectation of further near-term strength in the US dollar, rising US interest rates, and the eventual tightening of monetary conditions globally. Oil price movements, evolving US trade policies, and the unfolding of major geopolitical events (such as Iran sanctions, political uncertainty in Europe, etc.) will only add to this volatility.
Conversely, most Asian currencies are likely to remain relatively robust compared with other EM currencies. There are unlikely to be any major moves in Asian currencies and economies with strong fundamentals are expected to see their currencies appreciate modestly against the US dollar by end-2018.
Economic Insight: South-East Asia was produced by Oxford Economics, ICAEW’s partner and economic forecaster. Commissioned by ICAEW, the report provides its 150,000 members with a current snapshot of the region’s economic performance. It undertakes a quarterly review of Southeast Asian economies, with a focus on Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
Source: Vietname Economic Times