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Global economy: Darkening clouds but the US economy remains a beacon; Malaysia: Slow but steady as she goes – CAA Weekly
Highlights from the CAA Weekly Table
- Asian economies: In China, the economic deceleration, deleveraging push and regulations on bad loans have intensified financial stresses, resulting in a precarious situation fraught with more pronounced policy dilemmas. In India, growth is returning but so are stability concerns about the economy, as elevated oil prices are weighing on the external accounts. In Indonesia, the central bank stays ahead of the curve by raising rates to rein in the turmoil and volatility that has afflicted the Rupiah. In the Philippines, President Duterte struggles to channel his popularity into political momentum for his legislative agenda.
- Asian politics: The outlook for the election remains uncertain in Thailand with a new date of May 2019 being bandied about. PM Prayuth will clarify his future position in politics in due course but the military looks unlikely to relinquish its leading role in Thai politics even post-election. In Singapore, PM Lee used his National Day Rally speech to announce a modest strengthening of social safety nets while also beginning to address the prickly issue of the 99-year leases on public housing flats. The flurry of measures appears to be setting the stage for early elections in late-2019.
Global economy: Darkening clouds but the US economy remains a beacon
- There are unambiguous signs of an economic slowdown across the world and things could get worse, albeit from a relatively high base. Several forward-looking indicators are foreshadowing a moderation in growth in production and trade for the rest of the year. This darkening outlook is further compounded by the uncertainty fomented by ill-tempered negotiations over trade spats.
- Thus, developing Asia faces a more fraught global environment. Export-oriented economies will take a hit as global demand moderates. This is compounded by investors more finely-attuned to risk premia as financial conditions tighten and who would need a lower hurdle now to depart from EM asset classes. However, the proactive policymaking of Asian central banks has shored up their credibility and will provide a buffer.
Malaysia: Slower but steadier as she goes
- The Malaysian economy eased further in 2Q18 from the blockbuster growth in 2017, as private investment remains languid, given the lingering uncertainty posed by the government’s stance on China-backed infrastructure projects.
- Malaysia is poised to ride through the storm posed by a confluence of scarcer liquidity and a brewing US-China trade spat, given its solid external accounts alongside a buoyant economic outlook going forward.
- The first 100 days of the Pakatan Harapan government have been marked by bold policy moves to improve political accountability and transparency in Malaysia, alongside the re-imposition of the SST, of which the latter is a necessary evil.
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.