6th Plenum in China strengthens President Xi; Prospects of stronger growth in Indonesia – CAA Weekly

Key highlights from the CAA Weekly Table

• Global: An OPEC deal to commit to production cuts looks increasingly unlikely, which will see Brent crude remain between USD50-60 per barrel. World trade, however is more encouraging. An uptick in trade volumes suggests headwinds to global trade activity are subsiding. The Eurozone and Japan are also positing signs of recovery, while in the US, the case for monetary normalisation remains strong.
• Asian economies mixed outlook: The South Korean economy slowed on the back of domestic shortfalls. Taiwan, however, strengthened further on the back of buoyant exports and robust domestic consumption. Signs of increased global activity bode well for the Singapore economy as it grapples with domestic deficiencies.
• Geopolitics: As North Korea accelerates towards posing a credible threat to US mainland with its increased nuclear power, the US will need to re-think its strategy to cap North Korea’s nuclear capacity.

China: 6th Plenum sets President Xi up for dominance

• The Communist Party of China concluded its annual four-day conclave on 27 Oct.
• First, President Xi has emerged from the meeting a more dominant force. He has attained the title of “core” leader in the CCP and looks to be the sole power centre.
• Secondly, Xi has set his mind to achieving a number of targets. These include extending his tenure at the top and installing trusted aides into key positions at the 20th Party Congress. His formal institution of the anti-corruption campaign is meant to strike fear into the hearts of his opponents, with the latest plenum endorsing a code of conduct which emphasises greater scrutiny on the senior leadership.
• Thirdly, this means that the fervour for reforms will ebb while nationalistic passions will be fanned in a bid to rally the Chinese people to Xi’s cause. Expect structural overhauls to take a backseat as politicking rises to the fore while foreign policy to be more robust, including a harder stance on maritime disputes.

Indonesia: Rising prospects of stronger growth

• With the Indonesian government making significant headway in returning confidence back to the economy, Indonesia is set to recover modestly.
• The key growth driver, private consumption, is regaining momentum, exports are showing signs of recovery, however the missing ingredient is private investment.
• With the leading indicator also suggesting above trend growth and improved external stability, the big question is Indonesia’s resilience to an inevitable US Fed rate hike.
• The Indonesian economy is vulnerable, but with the support from continued policy vigour, the economy should stabilise in the longer-term.