The US poses two risks for Asia; Thailand: Solid growth, monetary tightening and greater political clarity; Indonesia: Budget 2019 – A mix of conservative and populist budgeting – CAA Weekly

Highlights from the CAA Weekly Table

• Geopolitics – watch North Korea: The US and South Korea are increasingly divided over the approach to North Korea. Moreover, the US-China trade spat gives China less incentive to enforce sanctions on North Korea and so reduces the US ability to pressure the North.
• Global economy: Risks to oil prices are tilted firmly to the upside, with supply-side disruptions on the horizon. Asian economies could suffer from dearer oil prices through worsening external accounts and growing fiscal pressures.
• Asian politics: In Malaysia, there is a growing suspicion of a rift between PM Mahathir and the man he has promised to hand power to, Anwar Ibrahim. The political honeymoon that prevailed after the May election is likely to end soon.

The US poses two risks for Asia

• The political threat to the Trump presidency has grown sharply, making it more likely that Trump will seek a distraction as the noose tightens around him. Key flashpoints such as trade tensions and geopolitical tussles could be aggravated.
• On monetary policy, the Fed’s potentially overly cautious stance could lead to a bigger shock later as we believe that there are more upside rather than downside risks to US growth and inflation. Failure to address this upside risk could lead to a much more abrupt shift in policy.

Thailand: Solid growth, monetary tightening and greater political clarity

• Thailand’s economy looks to be on track for a solid year in 2018, even though 2H18 should see some moderation. Growth will be supported by robust exports, rising domestic demand and concerted government spending.
• Consequently, the Bank of Thailand will probably have to start raising policy rates by end-2018.
• On the political front, the timeline for the upcoming election is now clearer but the junta is going after the emerging political star Thanathorn. He and two party colleagues face police charges. Furthermore, Gen Prem, a stalwart of the royalist establishment, appears to be in declining health, causing the vacuum left by the late King Bhumibol to grow ever larger.

Indonesia: Budget 2019 – A mix of conservative and populist budgeting

• President Jokowi submitted Budget 2019 to the parliament in his annual Independence Day address. The budget assumptions are more realistic, given modest estimates of growth while factoring in a weaker Rupiah and higher oil prices.
• The budget prioritises stability above all else, given the narrower budget deficit, alongside curtailed spending growth in infrastructure investment. That said, the government is expanding social spending to shore up the incumbent’s political base ahead of the 2019 Presidential elections.
• The fiscal stance remains mild, though further attempts to rein in spending remain possible if there is further depreciation of the Rupiah.

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