Asian economic integration headed in a new direction; Political risks high in Malaysia – CAA Weekly

Key highlights from the CAA Weekly Table

• Global economy: Latest data continues to suggest the US economy has fundamentally recovered. This could be cause for the Fed to tighten ahead of expectations.
• Geopolitics: Trump’s first 10 days in office has brought with it proposed changes to trade, immigration and international relations. American credibility is on the line.
• Asian economies: In Asia, supportive policy actions remain key to long-term vibrancy.
• Asian politics: In India, political parties are gearing up for make-or-break legislative assembly elections.

Asian economic integration headed in a new direction

• US President Donald Trump has officially withdrawn US from the TPP agreement. This wave of American isolationism is in stark contrast to the openness projected by China in recent weeks; China is poised to become increasingly influential in Asia.
• While existing TPP members can forge ahead and implement some sort of a TPP-lite deal without the US, countries may not be willing to open up politically sensitive sectors without commensurate economic returns that is access to the large US market.
• Export-oriented Asian economies could find it pragmatic and beneficial to establish closer economic ties with China and accept closer geostrategic relations too. Already, talks of accelerating the RCEP and even inviting China to participate in the TPP have begun.

Trade intensity leading to Asian expansion

• A recovery in global demand led by the G3 advanced economies have fed into export upturns in trade-focused East Asian economies. Japan, South Korea, Taiwan and Hong Kong have seen the renewed vigour in global trade leading to more robust growth.
• Furthermore, other Asian countries, such as those in Southeast Asia, will also see economic expansion being underpinned by an export upswing, chiefly in electronics and other tech components.

Malaysia: Politics poses risk to upside potential

• There are increasing signs that suggest Malaysia could enjoy a good upside surprise to growth. There are near-term hurdles that need to be overcome, however the overall fading of negatives will alleviate strains on growth.
• Consumer psychology looks to have turned and will bolster private spending. Agricultural prospects are looking better and encouragingly, Malaysia looks to be a clear winner from the upswing in the global tech cycle.
• The risks lie in politics. With little time to remedy economic pain leading up to the general elections, rising discontent amongst voters could bring mischievous elements, such as stoking racial tensions, into play.

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