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ASEAN outlook falls further as trade war drags on

Concerns rise over market and geopolitical risks along with US-China tensions

Singapore’s growth drastically slowed largely because of a decrease in exports. Economists say the downturn is expected to continue.   © Reuters

The outlook for Asian economies has once again been lowered as the consequences of the U.S.-China trade war, such as decreased trade, spread across the region. The 2019 growth forecast for the five major Association of Southeast Asian Nation countries was revised down 0.2 points to 4.1%, marking the fifth consecutive downward revision since a September 2018 survey. The Indian growth forecast for fiscal 2019-2020 decreased 0.8% to 6.1%, its fourth consecutive downward revision.

While U.S.-China tensions remained the biggest risk, concerns over capital outflows and other market-related risks increased. Economists also paid more attention to geopolitical risks and oil prices, with tensions in the Middle East rising after the attack on Saudi oil facilities in September, a survey found.

The Japan Center for Economic Research and Nikkei conducted a quarterly consensus survey from Sept. 6 to Sept. 26, collecting 42 answers from economists and analysts in India and the five biggest ASEAN members -- Indonesia, Malaysia, the Philippines, Singapore and Thailand.

The prospects for Asian economies have gradually darkened since the outbreak of the U.S.-China trade war in March of 2018. Following the previous surveys, downward revisions were again made in this survey. The 4.1% growth forecast for the ASEAN5 for 2019 was lower 0.9% than the projected 5.0% in the June 2018 survey.

The decline was particularly notable in export-oriented Thailand and Singapore. Thailand's growth projection in 2019 was lowered 0.4 points to 2.9% -- below 3% for the first time in five years. "The U.S.-China trade war has caused Thailand's exports to decline while investors are likely to postpone investment amid high uncertainty," commented Amonthep Chawla of CIMB Thai Bank. Singapore's forecast in 2019 fell below 1% largely because of a decrease in exports. "Drag is expected to continue, diminishing prospects of any pickup in the economy," said Randolph Tan of Singapore University of Social Sciences.

Malaysia's forecast in 2019 was revised up 0.1 point to 4.5%, but the figures were lowered for 2020 and 2021. Growth is expected "to moderate going forward and into 2020," predicted Wan Suhaimie of Kenanga Investment Bank. He remarked that external factors, including the U.S.-China trade war, "would weigh on Malaysia's growth prospect."

The 2019 forecast for the Philippines was revised down 0.4 points to 5.8% due largely to the delay of public investment in the first half of the year. Many economists, however, thought domestic demand would stay steady. Nicholas Mapa of ING Bank Philippines expected growth to accelerate in the second half "as capital formation resurfaces after [the central bank] cuts policy rates and as government spending comes back online."

Indonesia's forecast in 2019 was unchanged at 5.1% from the previous survey. Domestic demand would remain strong, but "growth is under pressure due to low export performance and low commodity prices," explained Dendi Ramdani of Bank Mandiri.

India's growth projection for 2019-2020 was largely revised down to 6.1%, partly due to the poor result of 5.0% in the April-June period. The global economic slowdown, as well as weak domestic consumption in the automotive and other sectors, slowed growth. "The U.S.-China trade tensions are having an adverse impact not only on global trade flows, but also business sentiments and investments," observed Dharmakirti Joshi of India-based analytics company CRISIL.

The Indian central bank cut policy rates five times in 2019, and the government announced a plan to reduce corporate taxes to stimulate the economy. Joshi expected the economy to "find some support from improved transmission of monetary policy easing, improving private consumption, and statistical low-base effect" after the second half of the fiscal year, from October 2019 to March 2020. On the tax cut plan, Punit Srivastava of Daiwa Capital Markets India commented that "the tax multiplier effect from the recent corporate tax rate cut should boost economic growth in the medium term, though in the near term, it may have very little impact."

Similar to previous surveys, "U.S.-China tensions" stayed in the center of concerns for the Asian economies. It was regarded as the biggest risk in five countries except the Philippines, where "infrastructure issues hinder economic activity" ranked first.

Market-related risks -- such as capital outflows, U.S. monetary policy, financial turmoil triggered by events outside the U.S. including Brexit and domestic currency appreciation -- received higher ratings than the previous survey. The risks were among the top-three risks in Indonesia, the Philippines, Singapore, Thailand and India.

Many economists highlighted concerns over tensions in the Middle East and other geopolitical risks. "If oil prices rise after the Saudi attack, that will have strong negative impacts on GDP growth, the current-account deficit, the fiscal deficit and headline inflation," warned Shekhar Shah of the National Council of Applied Economic Research in India.

The survey also asked economists about the impact of global financial easing on Asian economies. Economists found positive effects in the short term, as Vincent Loo Yeong Hong of RHB Research in Malaysia reported: "Easing helps the Malaysian economy in terms of keeping credit growing and lending support to economic activities."

Over the long term, these narratives may change. "With global interest rates already at a very low level, the impact of additional rate cuts on major economies could be marginal," commented Emilio S. Neri Jr. of Bank of the Philippine Islands. "Global easing will intensify search-for-yield behaviors, which will result in accelerating asset prices around the globe," remarked Naris Sathapholdeja of TMB Bank in Thailand.

More details of the survey, including a full list of respondents, can be found on the JCER website.

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