Malaysia: Upside possible in the near term; Singapore chooses to play it safe with key policy address

What has changed – highlights from the Centennial summary table

  • Global economy: Federal Reserve Chair Powell’s speech at Jackson Hole has two main implications for Asian economies. First, by clarifying how the Fed will act on tapering and rate hikes, he reduced the risk of an abrupt liquidity shock in emerging markets. Second, while tapering may constrain Asian central banks’ leeway for monetary actions, the signal that rate hikes in the US are some distance away has bought Asian policy makers more time to address vulnerabilities and more space to conduct monetary policy.
  • Asian economies: Two policy developments in China are noteworthy: First, the regulatory crackdowns have continued, even extending to online fan clubs. Private businesses will become warier of state intervention as a result and may hold back on investment. Second, a modest loosening of monetary policy is likely. India’s sub-par monsoon raises downside risks to growth. Indonesia’s risk profile may have worsened a tad with the central bank’s decision to extend debt monetisation by another year. South Korea’s rate hike is likely to be followed by a second increase soon.
  • Asian political risks: The Philippines is likely to see a feisty presidential election next year, with many political heavyweights eyeing a run. Our base case remains for President Duterte’s daughter, Sara to run with his close ally Senator Bong Go as her running mate.

Malaysia: Upside possible in the near term

  • Two factors point to upside possibilities. First, there are signs that the current wave of covid infections is waning, allowing the economy to revive. Second, the new government is likely to enjoy a honeymoon, allowing the 2022 budget and 12th Malaysian Plan to be passed.
  • Beyond this immediate uptick in prospects, though, the outlook is less clear. A general election appears likely in early 2022 but the political combinations that are likely to emerge may lead to continued erosion of institutions and long term political troubles.

Singapore chooses to play it safe with key policy address

  • There had been hopes of substantial policy moves in the run-up to Prime Minister Lee Hsien Loong’s National Day Rally speech. Lee did offer several new initiatives but they fell short of our hopes for decisive moves to transform the economy.
  • Lee noted that, having brought the pandemic under control and achieved one of the most impressive vaccination programmes in the world, his government would shift the emphasis of policy from pandemic control to re-opening the economy. However, the model for further economic development he outlined was similar to what Singapore has pursued for decades.
  • Similarly, the initiatives he announced to assist low wage earners were incremental rather than transformative. Existing schemes, for government to supplement low-wage workers’ earnings and to raise wages through skills training and productivity gains will be expanded. A nudge would be given to wages through a government-mandated floor to wages paid to Singaporeans by firms seeking to employ foreign workers. On our calculations, while many Singaporeans will see improved earnings, the net benefit to the lower-income groups will be relatively small.

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