How much upside to global demand is likely in 2020? ; China: Financial risks in check; watch for “unknown” risks instead ; Indonesia: A lot is riding on the cherished reform agenda

Highlights from the CAA Weekly Table

What has changed?

1. Geopolitical risks worsened:

  • US-China negotiations have become hostage to domestic political considerations. Thus, the “phase one” agreement will take more time to materialise. Taiwan could become the next flashpoint in US-China relations, threatening these negotiations and overall relations.

2. Asian economies – some pockets of resilience:

  • Taiwan is holding up better than Korea, with the latter’s growth prospects looking decidedly lacklustre. The Singapore economy could find its footing earlier than expected as its export engine benefits from the nascent upturn in the global tech cycle. GDP growth in India may have reached a bottom but any rebound will be insipid amid a dearth of private investment, compounded by tightening credit conditions. Budget talks have hit in the final stretch in the Philippines as Congress is on track to green-light the bill prior to the end of the year.

3. Asian political risks:

  • In China, a rare outburst of protests in Guangdong neighbouring Hong Kong was vigorously suppressed by the authorities. After a short respite, protests have resumed in Hong Kong. In Malaysia, the infighting within the largest party in the ruling coalition intensified.

How much upside to global demand is likely in 2020?

  • More signs of the global economy regaining its footing: rising US capital spending, improved business confidence in the Eurozone and firmer evidence of a turnaround in China.
  • While the global improvement will not benefit Asian export demand quickly, the odds of an export recovery in early 2020 are firming up, especially as more policy stimulus beyond monetary easing seems likely.

China: Financial risks in check; watch for “unknown” risks instead

  • Financial risks remain salient as worsening corporate profitability adds to the pressure on China’s rickety small banks. Our view is that these episodic stresses can probably be managed; the danger to the economy will come from the risks that the policymakers are not aware of, given the growing complexity and opacity of the financial system.

Indonesia: A lot is riding on the cherished reform agenda

  • The administration has moved aggressively on bureaucratic reforms, starting with the centralization of the investment promotion board’s functions, scaling back overlapping government regulations and ministerial decrees, and streamlining the bureaucracy by halving the number of echelons in the civil service.
  • An omnibus jobs bill that aims to do away with onerous restrictions on hiring and firing of workers and an omnibus tax bill to cut corporate tax rates will undergo deliberations in parliament. The best case scenario would be for both bills to be approved by 1H20.
  • Nevertheless, the passage of reforms is not without its risks. Parliament could still water down or even block the reforms in the face of a pushback from vested interest groups. Infighting within the Golkar party is intensifying, with a small risk that a defeat for the pro-Jokowi Airlangga faction could cast a pall over the reform agenda.The CAA Weekly is currently available only for our subscribers. Please email for subscription enquiries