Thailand
Inflation, U.S. rate hikes weigh on ASEAN economy: JCER/Nikkei survey
TOKYO — Economists have raised 2022 growth forecasts for Indonesia, the Philippines and Thailand as they expect growth in the first half of the year to be higher than forecast, thanks to a relaxation of COVID restrictions. However, there are downward revisions to forecasts for the latter half of 2022 for each country due to concerns about slowing economies following the U.S. interest rate hike and ongoing inflation.
Gross domestic product for the five biggest members of the Association of Southeast Asian Nations — Indonesia, Malaysia, the Philippines, Singapore and Thailand — will grow 5.0% in 2022, according to the latest quarterly survey by the Japan Center for Economic Research and Nikkei in June. The figure reflects a 0.1 percentage point upward revision from the previous survey in March.
Asian countries are steering their economies away from the pandemic to resume economic and business activities, including accepting tourists. The outlook for Indonesia was upgraded to 5.1% from 5.0% in the previous survey. The Philippines ticked up to 6.6% from 6.3%, while Thailand’s figure was up to 3.2% from 3.1%.
Juniman, chief economist at Bank Maybank Indonesia, said the “recovery growth of the Indonesian economy is driven by an improvement of the global economic environment that is driving up performances of exports and investment, and the decline in cases of COVID-19 infection.”
On the other hand, Malaysia’s growth rate forecast dropped to 6% from 6.1%, while Singapore’s dropped to 4.3% from 4.6%. India, also part of the survey, was downgraded to 7.2% from 7.8%. Compared to 2021, a turnaround in economic growth is anticipated in most nations surveyed. However, forecasts for the second half of 2022 for each country have been lowered from the previous survey.
The major reason for the downgrade lies in the U.S. Federal Reserve’s interest rate hike. The Fed raised the benchmark interest rate on June 15 by 75 basis points — the largest hike since November 1994 — setting the target federal funds range at 1.5% to 1.75%, eyeing to curb the worst inflation the country has faced in 40 years. The Fed has also lowered its 2022 U.S. economic growth forecast from the 2.8% projected in March to 1.7%, casting a long shadow on Asian economies.
Most central banks in Asian countries are moving to raise policy interest rates, with India leading followed by Malaysia and the Philippines. Vincent Loo Yeong Hong, senior economist at KAF Research in Malaysia, noted that “such steep hikes in U.S. interest rates would likely trigger a sharp slowdown [or] recession in the economy.”
Indonesia and Thailand are expected to follow. Wisnu Wardana, economist at Bank Danamon Indonesia, believes that with “inflation on the rise … Bank Indonesia needs to adjust its policy rate in the third quarter [of] 2022.” Krungsri Research of Bank of Ayudhya also says: “We anticipate the first rate hike at the next Monetary Policy Committee meeting in August,” though the pace of hikes will be slower than in neighboring countries “because the rate hike in Thailand this year should aim at anchoring inflation expectations rather than depressing domestic demand.”
In addition to currency depreciation associated with higher interest rates, inflation caused by factors such as high material prices due to the prolonged Russia-Ukraine war is likely to be a major negative risk in the second half of the year.
“Singapore’s economy remains on an unstable trajectory as a result of its exposure to geopolitical risks and the fallout from the situation in Ukraine,” said Randolph Tan of Singapore University of Social Sciences. Dharmakirti Joshi, chief economist of CRISIL, also pointed out that the “downside risks to growth have increased on account of surging commodity prices and global supply disruptions.”
The shift in potential threats to Asian economies was reflected in a survey of what economists think are the top risks for the coming 12 months. “Inflation” was ranked No. 1 in all six countries, while “U.S. monetary policy” was ranked as the second risk in Indonesia, Malaysia and Singapore. Almost no experts listed “COVID-19 infection” as a risk factor, except for Malaysia, where it was ranked sixth.
“Chinese economy slowdown” also was ranked as one of the primary risk factors in Thailand, given the high linkage between the two economies. Lalita Thienprasiddhi, senior researcher at the Kasikorn Research Center, said the Chinese economy “has already slowed down considerably due to Beijing’s zero-COVID policy and lockdowns.” Even though China has recently eased its lockdown, “China’s overall zero-COVID policy remains in place, which would continue to impact Chinese consumer sentiment and cause hiccups in Chinese manufacturing,” she added.
The survey was conducted from June 3 to June 23, with 36 economists and analysts responding.
Source: https://asia.nikkei.com/Economy/Inflation-U.S.-rate-hikes-weigh-on-ASEAN-economy-JCER-Nikkei-survey