Amro cuts Asean+3 growth forecast on gloomier prospects for China, Japan, South Korea

THE Asean+3 Macroeconomic Research Office (Amro) on Thursday (Oct 6) cut its 2022 growth estimate for the Asean+3 region to 3.7 per cent, from the 4.3 per cent projected in July, on gloomier prospects for China, Japan and South Korea.

For 2023, the 10-member states in the Association of Southeast Asian Nations (Asean) plus China, Japan and South Korea are projected to grow at a slower pace of 4.6 per cent, compared to the 4.9 per cent growth forecast in July. Excluding the latter three, Asean is expected to grow at 5.3 per cent for 2022, and at 4.9 per cent next year.

In its October update, Amro’s chief economist, Hoe Ee Khor, said the growth outlook for 2023 is dimmer now than what it was in July. 

He said: “The energy crisis in Europe and the US Federal Reserve’s more hawkish stance on inflation are raising the specter of global recession. Weaker global demand means that exports are likely to slow down, while tighter monetary conditions at home will dampen domestic demand.”

Already, the July-August Purchasing Managers’ Index for new export orders reflects a softening in global demand for key exports like electronics, automobiles and auto parts, and machinery and equipment.

China’s recovery remains constrained by strict Covid-19 containment measures and weakness in the property sector. This, along with weaker growth in other advanced economies and the recent surge in Covid-19 infections, weighed on growth in Japan and Korea.

Beyond the region, the prolonged war in Ukraine – now in its eighth month – is deepening Europe’s energy crisis, pushing it closer to recession. In the US, aggressive monetary tightening to fight inflation is intensifying fears of a hard landing. 

The probability of a recession in the US and Europe has risen to about 80 per cent, compared to around 60 per cent for Europe and below 40 per cent for the US earlier. 

Growth for Singapore, which grew at 7.6 per cent in 2021, has been revised downwards.

Khor said: “This is on the back of worse-than-expected developments in manufacturing activity resulting from a dimmer growth outlook in China, the US, and the European Union.”

On the planned goods and services tax (GST) hike from 7 per cent to 8 per cent at the start of 2023, Khor said while it would add to inflationary pressure, the Singapore government is mitigating the impact with a number of support measures that would help low-income and vulnerable households cope with higher living costs. 

Singapore’s inflation, which stood at 2.3 per cent in 2021, is projected to climb to 5.9 per cent this year, before moderating at 4.1 per cent in 2023. 

Regionally, the inflation forecast for 2022 has been revised up one full percentage point to 6.2 per cent for 2022 on persistent cost-push factors, weaker exchange rates, and the more robust recovery in domestic demand, especially in Asean. For 2023, it is projected at 3.4 per cent as global oil and agricultural commodity prices moderate and supply chain bottlenecks continue to unwind. 

Six potential downside risks to Amro’s forecast have been identified. These included a simultaneous full-blown recession in Europe and the United States, and a worse-than-anticipated slowdown in China – all of which will hit trade, investment, and tourism.

A prolonged rate hike by the US Federal Reserve could result in capital outflows, currency depreciations, and higher refinancing risks, especially where private sector external debt has risen sharply due to the pandemic. Regional central banks could be pressed to match the tightening pace, meaning borrowing costs in the region would remain higher for longer, further discouraging spending and investment and jeopardizing the full recovery from the pandemic.

Also on its watchlist is the energy crisis, China-US tensions and emergence of a new wave of deadly sub-variants of the Covid-19.