In its January update on the ASEAN+3 Regional Economic Outlook, the ASEAN+3 Macroeconomic Research Office (AMRO) has revised its regional growth estimate downwards to 5.3 per cent for 2018, from its previous estimate of 5.4 per cent, following a weaker Q3 2018 performance in some economies. While its 2019 growth forecast remains unchanged at 5.1 per cent, AMRO said it sees greater uncertainty in the outlook for the year ahead. Recovering global oil prices pose some upside risks to headline inflation, it added.
For eight out of 10 Asean economies, AMRO's growth forecast for 2019 is similar or lower than its estimate for 2018. The exceptions are Brunei (2.1 per cent in 2019, up from 0.5 per cent in 2018) and Laos (6.7 per cent in 2019, up from 6.5 per cent in 2018).
Nonetheless, AMRO chief economist Hoe Ee Khor and senior economist Anthony Tan said in a blog post: "Fundamentally, the region is on a stronger footing compared to other emerging markets outside the region. Major ASEAN economies (Indonesia, Malaysia, the Philippines, and Thailand) and Korea continue to have relatively strong external positions with adequate reserves and current account balances that are either in surplus or in small deficit."
The key downside risks they identified for the region are a further escalation of the trade conflict between the United States and China, for which they see a high likelihood and high impact; and weaker growth in the G3 economies of the US, Eurozone and Japan, which they see as having a medium likelihood and medium impact.
"Considering that downside risks have become more pronounced, it would be prudent for regional policymakers to prioritize financial stability while supporting growth," they said. They urged policymakers to remain vigilant and continue to push ahead with longer-term structural reform.
Consistent with weaker factory output, the region’s exports decelerated sharply in November 2018, driven mainly by a sharp fall in China's exports. Exports also saw slower growth in South Korea and Singapore, and contracted for Indonesia and Thailand. Said AMRO: "The near term outlook is for much weaker exports, judging from the pace with which export volume has declined, and to some extent, softer export prices. This could weigh further on the region’s business confidence and export-related capital investment."
In tandem with global markets, equities in the region saw volatility at the end of 2018 and in January. In the second half of December 2018, regional emerging markets -- Indonesia, Malaysia, the Philippines, Thailand, South Korea and China -- shed an average 1 per cent, with China's benchmark Shanghai Composite losing almost 4 per cent. In January, China, Indonesia, the Philippines and Thailand saw rebounds, while the other markets were down.
Excluding China, regional emerging markets posted net capital outflows in December. Equity markets lost US$0.4 billion in non-resident flows, offset by bond inflows of US$0.3 billion -- though this was largely driven by investment in South Korea.
Interest rates on hold
Amid moderate growth and inflation starting to ease, some regional economies kept their interest rates on hold in their December policy meetings. The Philippines maintained its policy rate at 4.75 per cent at its December meeting, following four rate rises since May, as the peso has strengthened slightly while inflation has started to moderate. Indonesia maintained its 7-day Reverse Repo rate at 6 per cent to support the rupiah. In contrast, Thailand raised its key rate by 25 basis points to 1.75 per cent in December, a move that AMRO saw as being aimed at addressing concerns over high household debt levels and mitigating the risk of financial instability.