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Key highlights from the CAA Weekly Table
- Global economy: The US economy is strengthening smartly but the Fed could be caught behind the curve and be forced to hike rates faster than expected. This will cause abrupt capital outflows from Asian emerging markets, resulting in destabilising swings in currencies.
- Asian economies: Intensifying inflationary pressures in China will have spillovers into the world economy; Singapore could be the potential beneficiary of a export-led cyclical upturn even though structural issues still need to be resolved.
- US-China relations are at risk, as President-elect Trump lashed out at China again, questioning the need for the US to recognise the “One China” policy. This could stretch China’s initial even-handed approach to the US and compel it to consolidate its clout in East Asia further.
Rising import intensity sets global economy up for a better 2017
- The stop-start nature of the recovery in the global economy has resulted in desultory growth in world trade. However, as major economies embark on more resilient growth trajectories, import demand has embarked on an incipient turnaround.
- There are two reasons why we think this nascent upturn can be sustained. First, core capital goods orders are gradually gaining momentum and should garner pace as the US economy strengthens further. Second, US new orders for computer and electronic parts – a lead indicator for Asian manufactured exports – picking up pace after a number of months of deceleration.
- If this upturn in import growth persists, a corresponding increase in demand for Asian exports could provide an upside surprise to expectations for growth, especially in places like Singapore, Malaysia, Thailand, South Korea and Taiwan.
Myanmar: Rising challenges but limited capacity to respond
- Barely eight months after taking power, ASSK’s government is facing growing challenges on both political and economic fronts. These challenges reflect deeply entrenched weaknesses in the system which cannot be easily resolved.
- On the economic front, the lack of specific details in policymaking has resulted in businessmen delaying long-term investment decisions while inflation is also rising. Political and social challenges have also grown – the plight of the Rohingya Muslims has drawn international scrutiny and compromised Myanmar’s relations with its ASEAN neighbours while sullying ASSK’s reputation for upholding human rights and democracy.
- ASSK needs to a more effective economic policy framework to buttress confidence while cutting a deal with the still all-powerful military to smooth out security issues.
Key highlights from the CAA Weekly Table
- Global: Tradeable price deflation is easing while PMIs are rising with positives to Asian exports. The OPEC agreement, if sustained, will stabilise oil prices – another reason for the end of global deflation. The US economy continues to be resurgent but the conduct of President-elect Trump will upset the equilibrium; a clear risk of a US-China clash looms.
- Asian economies: India’s de-monetisation move will chill economic growth even though 3Q16 GDP growth has held up well. The political troubles in South Korea will weigh on economic prospects; already, exports continue to decline while economic growth decelerates. The deterioration of the labour market in Singapore reflects the more challenging economic reality; on the brighter side, bank lending rose, driven by rising consumer loans while the decline of business loans narrowed further.
Religious tensions in Southeast Asia
- Nations across Southeast Asia continue to face the challenge of combating the growing capacity of extremist militants.
- Strengthened cross border links between Indonesia, Malaysia and the Philippines have made the Sulu Sea Triangle an important network linking fugitives within the region and a key mode through which the Islamic State (IS) has expanded its influence.
- While Thailand remains void of IS links, rising violence by Muslim separatists in the South increases its susceptibility to IS influence and could become an incubator for terrorism.
Thailand: New king, old fears
- Thailand’s economy has been steadily gaining steam with private consumption and exports the main growth drivers. In line with the brighter export outlook, the production scene in export-oriented Thailand has also improved steadily. However, private investment continues to be lacklustre as political concerns linger.
- Rama X of the Chakri dynasty, King Maha Vajiralongkorn, has ascended the throne, ending seven weeks of interregnum. While the royal succession appears to have proceeded smoothly, there is uncertainty over whether the new king can match the extraordinary achievements of his father. Even as power dynamics begin to shift, King Vajiralongkorn has signalled that he will not move hastily by re-appointing long-serving and highly respect General Prem Tinsulanonda to head the Privy Council.
- The Thai economy is healing well and should continue to garner traction as major economies recover and boosts Thailand’s exports. However, a fundamental resolution of politics in Thai society is sorely required.