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Nomura: Indonesia and Philippines to lead regional growth

Malaysia will brace for interest rate hike in January on strong economic growth prints

Consumers at a Jakarta mall. Nomura says the Indonesian economy will be bolstered by higher investment spending and reforms in business climate.   © Reuters

KUALA LUMPUR -- Economic growth in Indonesia and the Philippines will be sustained beyond 2018 driven by domestic demand and the rollout of infrastructure projects, Nomura Securities said in an economic outlook briefing on Tuesday. 

Brian Tan, Southeast Asia economist at Nomura, is most bullish about growth in these two countries of the five regional economies under his coverage.

The investment bank raised the Philippines' gross domestic product growth forecast from 6.7% in 2017 to 6.9% this year premised on a pick-up in global economies that propelled domestic demand. In addition, a proposed tax reform is expected to boost government coffers, paving the way for infrastructure and social spending. 

It also raised the country's consumer price index forecast for 2018 from 3.9% to 4.3% driven by the impact of the tax reform and Brent crude oil price assumption of $65 per barrel. Philippines central bank is expected to hike its policy rate by a total of 100 basis points to 4% during the year.

In Indonesia, Nomura said economic growth will be sustained by higher investment spending and business reforms. Its GDP is expected to grow by 5.6%, slightly lower than previous projection but still above 2017's 5.2%. 

As a net exporter of oil and gas, Malaysia, said Nomura is a "clear-cut winner" in the region. The strengthening of the ringgit to the U.S. dollar, rising by nearly 10% in 2017 to 4 ringgit currently has outdone Nomura's forecast, said Tan. The economy is expected to grow 5.5% this year, driven by exports and spending in the private sector. 

Tan said the Malaysian central bank is expected to normalize its accommodative monetary policy stance this month, hiking interest rate by 25 basis points to 3.25% before the window closes due to an upcoming general election. Nomura said a rate hike after the election is unlikely as the government will tighten its fiscal position to meet its budget deficit target of 2.8% of GDP. Nomura also predicts a win for the ruling alliance National Front in the election, which it says could be held as soon as late April. 

By contrast, Singapore's GDP will expand at a slower rate of 2.2% this year, down from 3.2% in 2017, with semiconductor-related exports underpinning growth. In Thailand, high household debt will weigh on private consumption, Nomura said.

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