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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.
What are the pertinent risks in China?; India’s demonetisation not to be underestimated – CAA Weekly
Key highlights from the CAA Weekly Table
- Global: US influence in Asia is already diminishing as China seizes leadership on key issues. Expectations for Trump’s economic policies pushing bond yields and USD higher, leading to higher cost of capital for Asian companies.
- Asian economies: The Indian economy was gaining momentum but the demonetization policy will slow it, allowing the Philippines replace India as the ‘bright spot’ of Asia. China and Malaysia remain on a steady growth path with downside risks.
- Asian politics: In Indonesia, the Christian-Chinese Jakarta Governor is likely to be prosecuted under blasphemy laws. But President Jokowi will eventually ensure that Indonesia remains moderate and secular. Anti-government protests in Malaysia garnered more support than last year but Prime Minister Najib Razak remains secure in power.
Risks in China: Guard against a downward spiral
- China’s recent stabilisation remains fragile. Financial indicators are flashing warnings; weak private investment is hurting growth prospects and inflation expectations are rising which could spur capital outflows and a weaker Yuan. China is also faced with the threat of being labelled as a currency manipulator by the incoming Trump administration. Finally, housing prices are frothy and increasingly unaffordable.
- Our baseline scenario remains one of episodic crises which are containable by policymaking. However, the risk of a downward spiral sparked by financial stresses has grown.
India: Negative impact of India’s demonetization not to be underestimated
- The Indian government may have underestimated the hit to growth from its demonetisation move. There is much anecdotal evidence suggesting that key sectors have been hurt by the cash shortage such as primary sector activities in Western and Northern regions and transportation across India.
- With the ‘black economy’ accounting for around 23% of GDP, the clamp down on black incomes could see diminished economic growth over a prolonged period.
- Over time, a widened tax base, fewer distortions from black market activities and an increased RBI dividend payment are likely positives. Liquidity in the banking system is also likely to improve the monetary transmission mechanism.