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Asia growth forecasts drop another notch as trade war effects set in

JCER survey of economists shows persisting concern over US-China standoff

Much of the rest of Asia is also wary of China's economic slowdown.   © Reuters

Economic outlooks in Asia have once again been lowered due to the U.S.-China trade war, which has manifested itself in weakened exports throughout the region. The 2019 growth forecast for the ASEAN5 was 4.6%, marking a third consecutive downward revision since the September 2018 survey. The Indian economy is expected to maintain growth of over 7%, but projections were revised downward for the fiscal year through next March as well as the following 12 months.

The softening of U.S. monetary policy may encourage new momentum for growth, but U.S.-China tensions and the slowdown of the Chinese economy persist as major concerns. In addition, political uncertainty is seen as a risk, especially in India, Indonesia and Thailand, a survey has found.

The Japan Center for Economic Research and Nikkei conducted a quarterly consensus survey from March 8 to March 27, eliciting responses from 49 economists and analysts from India and the five biggest members of the Association of Southeast Asian Nations -- Indonesia, Malaysia, the Philippines, Singapore, and Thailand.

The 2019 growth projection for ASEAN5 was revised downward as the figures for Thailand, Singapore and the Philippines were all down. Outlooks were lowered for Thailand and Singapore due to weaker exports. "We expect Thai economic growth to slow down on weaker exports, given the more visible impact of a global economic slowdown and the negative impact of U.S.-China trade protectionism" in the first half of 2019, said Somprawin Manprasert of Bank of Ayudhya in Thailand.

In Singapore, the negative influence of U.S.-China tensions "is already visible from the trade figures," according to Randolph Tan of the Singapore University of Social Sciences. For Malaysia, another export-oriented economy, the 2019 forecast was unchanged, partly because it had already been lowered in the past two surveys. The figure for 2019 falls short of the 2018 reading by 0.2 points. "By the looks of how [the] global situation is panning out, 2019 is not expected to perform any better," observed Wan Suhaimie of Kenanga Investment Bank.

The situation in the Philippines stands apart in this survey. The 2019 growth forecast was lowered by 0.3 points to 6.4%, due largely to the delay in implementing budget spending. The figure is 0.2 points higher than the figure for 2018. Jonathan Ravelas of BDO Unibank suggested both positives and negatives: "Easing inflationary pressure and an improving interest rate outlook are likely to be supportive of GDP growth," he wrote, while cautioning that "U.S.-China trade tensions ... and an abrupt slowdown in Chinese growth pose downside risks."

The Indonesian economy is expected to grow 5.2% in 2019, unchanged from the previous survey and staying flat from the 2018 result. Pressure for rupiah depreciation and interest rate hikes, which mounted last year, has retreated. And political uncertainty could ebb within weeks. "After the presidential and parliamentary election in April, investment and consumption should grow," said Umar Juoro of the Habibie Center in Indonesia.

In India, the growth forecast for the year through March 2020 was 7.1%, marking a 0.1-point rise from the estimate for fiscal year through March 2019 but still down by 0.2 points from the previous survey. Nomura India's Sonal Varma highlighted "tight financial conditions, global economic slowdown, political risks and cyclical slowdown" as factors in forming her modest projection.

India will hold a general election from April to May. The outcome is uncertain. "Political instability or uncertainty is likely to be a serious risk with elections about to start and outcomes not as certain," said Shekhar Shah of the National Council of Applied Economic Research in India. According to Dharmakirti Joshi of CRISIL in India, "Private sector investments should start looking up once the electoral uncertainty is out of the way." In an economy that is heavily dependent on agriculture, many economists see the uncertain monsoon as a factor influencing India's future growth.

The softening of U.S. monetary policy could generate new momentum for the world and Asian economies. Manu Bhaskaran of Centennial Asia in Singapore expects the Singapore economy to "regain its footing from 3Q19 onward with easier monetary conditions helping to undergird global growth." However, there remain other factors that could hinder an economic recovery. Nattaporn Triratanasirikul of Kasikorn Research Center in Thailand, who also predicts a recovery after the second half of the year, said, "We are still aware of downside risks from China's economic slowdown and the unresolved trade war."

Asked about the risks they recognize at home, economists in five ASEAN countries identified "slowdown or decrease in trade triggered by U.S.-China tensions surrounding trade and/or high-tech-issue" as the biggest. "The trade war is still a major risk," said Dendi Ramdani of Bank Mandiri in Indonesia, because the date of any "agreement is still unclear and unpredictable."

Concerns over the "Chinese economy slowdown" heightened from the previous survey and now count as the second largest risk in Malaysia and Singapore and third largest in Indonesia and Thailand. "Thai exports, both goods and services, rely quite heavily on the Chinese market," said Naris Sathapholdeja of TMB Bank in Thailand. "Therefore, a Chinese economic slowdown will have a significant effect on the Thai economy."

"Political instability" was the largest risk in India, second largest in Thailand and fourth largest in Indonesia. Voting in Thailand's general election has concluded, but it may take time before a new government is formed. Amonthep Chawla of CIMB Thai Bank predicted that "the long process of forming a new government could deter confidence of investors." But, Amonthep added, "once political risk diminishes, the Thai economy could grow moderately."

With many countries facing political turning points, the survey asked economists about the achievements of current governments and the challenges nations themselves face. Infrastructure development was regarded as one of the biggest achievements in Indonesia, the Philippines and Thailand. Fiscal reforms, job creation and political stability were seen as challenges in various countries.

For more details of the survey, including a full list of respondents, please go to the JCER's website.

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