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Asean facing economic headwinds
All is not well on the regional front. The Year of the Rat under the Chinese zodiac, associated with surplus and wealth, begins on Jan 25. However, at the turn of the decade, Southeast Asia’s economic prospects face inauspicious circumstances.
While the amazing growth engine that transformed the region into a manufacturing powerhouse has not stopped, there are signs that it may begin to sputter in 2020.
In September last year, the Asian Development Bank revised the region’s growth outlook down to 4.4% from historic levels of over 5%. As a bellwether of the economic drift, Singapore reported a growth rate of 0.7% in 2019, its worst in 10 years, narrowly avoiding a recession. Thailand has seen its growth forecasts pared down. Indonesia and the Philippines both continue to enjoy GDP growth above 5% but face concerning geopolitical headwinds.
In fact, the only major Southeast Asian economy to breeze through and show promise for 2020 appears to be Vietnam, one of the few beneficiaries of the US-China tariff war. However, even that may change soon.
After a multi-decade period of dynamic growth in the long post-World War II era of multilateralism, the impetus for globalised free trade seems to be ebbing. Protectionism is on the rise. Since early 2019, the US and China have slapped tariffs against each other on goods worth more than $700 billion and it is uncertain whether a phase-one trade deal being signed this month can stem the tide.
In May last year, the US Treasury included Vietnam, Singapore and Malaysia on its “currency manipulation” watchlist, which could have potential ramifications for the countries’ export surpluses. They remained on the list in an update released on Jan 13.
Thailand has narrowly escaped watchlist status although it meets two out of the US Treasury’s three criteria for inclusion. Vietnam is still viewed as a target of action, with the US imposing steel tariffs in December and expressing concerns on transshipment from China. The tried and tested model of the region’s export-driven growth may be in for a rude shock in 2020.
Then there are the political headwinds plaguing Southeast Asia’s key trade partners. Forecasts indicate the trade tussle between US and China is dampening growth prospects. This is troubling as the two key markets account for over a quarter of Asean’s external trade.
The dispute between Japan and South Korea, meanwhile, has spilled over into the economic domain with their GDP growth outlook being pared down by Moody’s. India is in the throes of one of the worst periods of domestic unrest in recent memory, while experiencing its lowest growth rates in a decade.
Economic data from Hong Kong suggests it has entered its first recession in 10 years with no end in sight. All this has implications for Southeast Asian trade and investment, two important pillars that have formed the bedrock of the region’s growth.
The commodity price outlook is not helping. Many analysts expect 2020 to be a bullish year for oil prices, in part due to the recent flare-up in the Middle East, which is expected to hit energy-reliant manufacturing centres such as Bangkok, Singapore and Ho Chi Minh City. While oil-rich Malaysia, Brunei and Indonesia may derive some benefit, domestic energy consumption has been creeping up, affecting export surpluses.
Base metals and agricultural commodities also face demand pressures and an uncertain year ahead mainly because of a slowdown in major importing countries. Such trends do not bode well for the agricultural and mining sectors that have served as anchors for some regional economies, providing employment to large sections of the population.
Policymakers may have limited tools in their inventory to tackle the problems ahead. Other than Singapore, regional economies have limited fiscal space to launch stimulus with Malaysia, Thailand, Indonesia, Philippines and Vietnam all running budget deficits of 2% or more. Debt as a percentage of GDP for most Asean economies is not high, but is close to levels of concern in some economies.
Monetary easing remains a tool at the disposal of some central banks, but could exacerbate inflation at a time when the region’s economies may want to provide some relief to domestic consumers and businesses.
The combination of these macroeconomic, regional and political headwinds points to a tricky situation in 2020. Southeast Asia’s policymakers may be faced with daunting economic challenges that could mark a paradigm shift not seen since World War II. They may be forced to balance competing priorities in an environment with declining options as they closely watch what happens on the geopolitical landscape.
There is a long way to go before the rising tiger economies of Southeast Asia lose their roar, but 2020 may not be as benign as previously imagined.
The writer is a finance professional working in Bangkok. The views expressed are of the writer alone. He can be reached at [email protected]
Source: https://www.bangkokpost.com/business/1837679/asean-facing-economic-headwinds