SINGAPORE -- Southeast Asia saw slower growth in the first quarter of this year, with its six big economies all expanding at a more moderate pace in the January to March period than in the previous three months. With trade tensions between the U.S. and China likely to escalate, the region could face more headwinds in the second quarter.
The slower growth may prompt Southeast Asian central banks to reverse course on monetary policy and lower interest rates later this year, economists say.
Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam all slowed in the first quarter, the first time that has happened since the U.S.-China trade tensions flared early last year.
Singapore's Ministry of Trade and Industry reported on May 21 that the country's inflation-adjusted gross domestic product rose 1.2% from a year earlier, the lowest quarterly growth in 10 years. The manufacturing sector shrank 0.5% as global demand for electronics fell. "The contraction was on account of output declines in the precision engineering and electronics clusters, which were in turn due to weak global semiconductor and semiconductor equipment demand," the ministry said in a statement.
Non-oil domestic exports dropped 6.4% on the year, a further slowdown from the 1.1% contraction in the October to December quarter of 2018.
The same day, the ministry cut its growth estimate for the full year to 1.5%- 2.5%, down from its previous forecast for 1.5% to 3.5% growth, citing the U.S.-China trade conflict and the risk of slower-than-expected growth in China.
Thailand's GDP growth also weakened in January to March, falling to 2.8% from 3.6% in the October to December period, government data showed on May 21. Slumping exports weighed on the economy, with merchandise shipments falling 5.4% due to weaker external demand for electronics and agricultural products, reversing the 0.8% expansion of the previous quarter.
Thailand's National Economic and Social Development Council the same day lowered its 2019 growth forecast to a range of 3.3% to 3.8%, compared with its previous forecast for 3.5% to 4.5% growth, saying uncertainty over the US-China trade negotiations would will cause businesses to be cautious and cut investment.
Many economies in Southeast Asia are export-driven. According to the World Bank, exports accounted for 173% of Singapore's GDP in 2017, 101% for Vietnam, 71% for Malaysia, and 68% for Thailand. With the region's two biggest trading partners -- China and the U.S. -- at loggerheads, export-dependent economies have been hit hard since the second half of 2018.
Vietnam, the fastest-growing economy of the six, also registered a slowdown -- expanding 6.79% in the first quarter, compared with 7.31% growth in the previous quarter. While domestic private consumption supported continued solid growth, exports were relatively soft, rising 4.7% on the year, due to a global smartphone slump hitting Samsung Electronics, which assembles products in Vietnam and is a big contributor to the economy.
Indonesia and the Philippines are less sensitive to fluctuations in trade, with exports equal to 20% and 30% of GDP, respectively, but both marked saw their economies cool in January to March. Indonesian GDP rose 5.07% on the year, while the Philippines grew 5.6%, due to subdued private consumption and delays in public works projects.
Looking ahead, economists warn of the possibility of further weakness in the second quarter and beyond.
Howie Lee, an economist at Singapore's Oversea-Chinese Banking Corp., pointed out that exports to the U.S. rose in the first quarter, largely as a result of inventory-building in the U.S., as American companies attempted to beat the tariff increases. "The inventory-building by the U.S. is unlikely to last beyond the second quarter of 2019, and that is likely to be reflected in Asian trade data sooner [rather] than later," he said.
A continued downtrend would open the door to more monetary easing in the region. Malaysia and the Philippines have already cut key interest rates this year.
"We expect the Bank of Thailand to join its Asian counterparts in easing, with a 25 basis-point policy rate cut [from 1.75% to 1.5%] at the next meeting in June," Prakash Sakpal, an economist at ING wrote in a note on May 21.