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Key highlights from the CAA Weekly Table
- Global economy: Signs of an uptick in the global capex cycle bode well for export-oriented Asian economies while deflationary pressures continue to ease.
- Global geopolitics: Claimant countries are entrenching their military positions in the East and South China Sea even as US-China tensions rise.
- Asian economies: The cyclical recovery currently underway in China is coming at the expense of long-term stability. India’s cash crunch has dampened economic activity, putting pressure on fiscal and monetary policy to shore up growth. In Singapore, stronger export growth could offset the lacklustre domestic economy in the coming year.
- Asian politics: President Jokowi has skilfully prevented his rivals’ efforts to exploit Islamic extremism to undermine him. In the Philippines, President Duterte remains highly popular as his predecessors did in the early stage of their terms but this can change quickly.
US-China relations enter a more dangerous phase
- China carried out a brilliant manoeuvre by boldly seizing a US naval vessel from under the nose of the US then swiftly agreeing to return the vessel to the US, albeit on its own terms.
- The US does not take lightly to being humiliated and is likely to respond with stepped up surveillance activities in the region.
- While some countries like Malaysia and the Philippines may continue to edge closer to China, other Asian powers who have differences with China such as Japan, South Korea, India and Vietnam are more likely to seek ways of containing a rising Chinese threat than cave in to China. One obvious way is enhanced security ties with the US.
- China is likely to step up measures to gain more influence in East Asia by rewarding those countries who cooperate with China such as Malaysia and the Philippines, while penalizing those nations who have been wary of them such as Singapore. The situation will remain volatile and there are likely to be more incidents from time to time as China tests the US and carefully pushes the envelope further.
Five drivers of the global environment for Asia
- The world in which Asian economies operate will be shaped by five key themes: Stronger global growth, higher import intensity, improved inflationary expectations, more financial turbulence and heightened political stresses.
- Our best guess is that while many unpleasant things could happen, the worst risks can be contained.
- We analyse the implications of these global drivers and domestic forces on Asia.
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.