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Economy

ASEAN growth forecast downgraded further as trade war escalates

Key regional elections in 2019 seen as risk factors, economists say

A worker walks next to a stack of containers at Tanjung Priok port in Jakarta.   © Reuters

As U.S.-China tensions over trade and high-technology issues intensified, economists in Asian countries further weakened their growth outlooks. The 2019 growth forecast for Southeast Asia's most robust economies was revised down by 0.1 point to 4.7%, making two consecutive downward revisions since September.

In addition, projections for the Indian economy, which has been showing solid growth of 6 to 8% for years, were also revised down for 2018-2019 and 2019-2020. Economists see the negative impact of the trade war gradually reaching the real economies, a survey found.

The Japan Center for Economic Research and Nikkei conducted a quarterly consensus survey from Nov. 27 to Dec. 13, collecting 40 answers from economists and analysts in India and ASEAN5 -- the five biggest members of the Association of South East Asian Nations, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand.

The economic forecasts of ASEAN5 were revised down for both 2018 and 2019. The 2018 forecast was 4.8%, down by 0.1 point from the previous survey in September, and lower by 0.2 points than the 2017 figure. The projection for 2019 was 4.7%, down by 0.1 point and lower than the 2018 estimate.

Weaker exports were one of the major factors behind the slowdown.

The forecasts for export-oriented Thailand and Malaysia were revised down for both 2018 and 2019. "The economy is expected to grow at a more moderate pace this year and next, as strength in private consumption is expected to offset slowdown in net exports and public investment," said Wan Suhaimie of Kennanga Investment Bank in Malaysia. "The contribution to growth from external sectors [has] started to fade," commented Nattaporn Triratanasirikul of Kasikorn Research Center in Thailand.

The Indonesian economy is expected to grow at more than 5% through 2020, but the growth projection for 2019 was revised down. Wisnu Wardana of Bank Danamon Indonesia foresees growth relying on consumption as "investment and exports soften."

The Philippine economy is likely to grow at more than 6% through 2020 on strong domestic demand, but its growth forecast was still revised down for 2018. "We expect a modest slowdown" for 2018, said Jonathan Ravelas of DBO Unibank, adding that "rising interest rates should continue to put pressure on consumption and investment spending."

The Indian economy is expected to grow at more than 7% in 2018-2019 and in coming fiscal years. Economists see strong consumption as well as investment as driving forces. Nevertheless, forecasts were revised downward for fiscal years after 2018-2019. "Our caution on growth outlook is driven by a tightening of financial conditions, negative fiscal impulse, global slowdown and election-related uncertainty," reported Sonal Varma of Nomura India.

Many economists commented that their projections had a downward bias. Such sentiments were more explicit than in the previous surveys. "The forecast has a downward bias given that global growth and trade prospects are turning weaker," said Dharmakirti Joshi of CRISIL in India.

Dendi Ramdani of Bank Mandiri of Indonesia explained that "some risks could drive growth lower," and cited declining commodity prices, the trade war and volatile exchange rates as examples.

Asked about their risk analysis, Manu Bhaskaran of Centennial Asia in Singapore chose "U.S.-China relationship" as the greatest risk, reflecting the conflicts from issues involving trade, high-tech and security. "The U.S.-China relationship has led to a cloud of uncertainty weighing on global and regional business and investment decisions, a drag on growth," he said.

The combined category of "U.S.-China relationship" and "protectionism" was the largest risk in Singapore and Thailand, and the second-largest risk in Indonesia, Malaysia, the Philippines and India.

Market-related risks remained as concerns. The depreciation of the Indonesian rupiah, Philippine peso and Indian rupee accelerated in the summer and "currency depreciation" jumped to the biggest or second-biggest risk in these countries, according to the September survey.

Exchange rates are now recovering after bottoming out in October, but economists remain wary. It was the largest and third-largest risk in the Philippines and India, respectively, this time. "The peso is fundamentally weak due to high import volumes and weak exports," explained Alvin Ang of Ateneo de Manila University.

"U.S. monetary policy" was the biggest risk for Indonesia. Maybank Indonesia's Juniman said: "The obscurity of the U.S. Fed's monetary policy ... will create volatility in global financial markets." While "rise in commodity prices" was the largest risk in India, "fall in commodity prices" was the top risk for Malaysia.

Some concerns have become less urgent. Inflation was the biggest risk in the Philippines in the September survey, as the consumer-price index increase surpassed 6% in August amid rising oil and food prices. But inflation risk dropped to fourth in this survey. "Inflation has peaked in October and is now seen to continue tapering off gradually in the coming months," commented Pauline Revillas of Metrobank.

The survey asked economists about upcoming events that demand attention. The U.S.-China relationship, including trade war issues, was viewed as a matter of concern.

Regional polls were also in the spotlight: Presidential and general elections are scheduled in Indonesia in April; general elections are planned in Thailand and India; and a midterm election will be held in the Philippines. "The 2019 election is the big event in Indonesia to determine [future] economic policy," said Dendi Ramdani of Bank Mandiri.

Somprawin Manprasert of Bank of Ayudhya in Thailand commented that "the Thailand election result will determine future political risks [as well as] the country's short-term policy direction."

For more details of the survey, including a full list of respondents, please visit the JCER website.

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