Indonesia: Fiscal dynamics on a solid footing Singapore: Multiple catalysts, upside surprise to 2022 growth likely

Highlights from the CAA Weekly Table:

Asian political risks:

• China and India risk sleep-walking into another round of clashes. Both are deploying troops and more sophisticated weaponry to the border. Talks to disengage troops have failed to produce results.
• South Korea’s presidential election looks set to be won by the incumbent liberal party. That is likely to lead to more fiscal spending but also a slightly faster pace of monetary tightening.

Asian economic prospects:

• Looking beyond today’s better-than-expected GDP data, China’s economy is facing swelling headwinds: Consumer spending is weak, the property sector shakeout persists and covid- related restrictions are beginning to cause supply chain problems. More stimulus will be needed, today’s tepid monetary easing and other measures taken so far will not suffice.
• Elsewhere, the omicron wave is hurting rebounds in Indonesia and the Philippines. Lacklustre investment is holding back India’s recovery. But Malaysia’s economy is on a tear

Indonesia: Fiscal dynamics on a solid footing

• For 2021, the fiscal deficit is projected at 4.65% of GDP, or a full percentage point lower than the budgeted 5.7% of GDP. This was partly due to higher commodity prices which produced heftier collections, particularly in hydrocarbon royalties and commodity revenues.
• The fiscal deficit will narrow further over 2022 and 2023. We expect economic growth to surprise positively, which should deliver stronger revenues than budgeted. Moreover, the 1% VAT tax hike will kick in from April, which should give the government considerable fiscal room. No doubt, the government will restrict spending should untoward developments put the fiscal target at risk.
• This competent fiscal management should provide Indonesia with buffers in case the Fed’s monetary tightening precipitates capital outflows from emerging markets. There is a risk though that a better fiscal position may encourage parliamentarians to press for greater public spending which could then put the deficit target at risk.

Singapore: Multiple catalysts, upside surprise to 2022 growth likely

• A confluence of growth drivers is falling into place. First, we see borders being opened progressively through the year, allowing the return of migrant workers whose absence has constrained production in key sectors.
• Second, Singapore’s manufactured exports will prosper as semiconductor demand continues to strengthen, even off a high base.
• Third, the recovery in regional demand will spur a rebound in the cluster of services that cater to the region including finance and trade
• Fourth, Singapore’s modern services sector is enjoying a secular surge.
• Finally, backed by strong balance sheets, the household sector is in a position to ramp up spending, boosting domestic demand.

Read more: CAA-Weekly-170122.pdf