Amro cuts inflation forecast for Asean+3 on easing commodity prices, normalising supply chains
THE Asean+3 Macroeconomic Research Office (Amro) has cut its 2023 inflation forecast for the economies of Asean plus China, Japan and South Korea (Asean+3), due to easing global commodity prices and normalising supply chains.
In its July quarterly update on Tuesday (Jul 11), Amro forecast that headline inflation for the Asean+3 region – excluding Laos and Myanmar – is expected to moderate to 3 per cent, down from an earlier projection of 3.4 per cent in April.
Nevertheless, the macroeconomics surveillance organisation noted that some economies, such as the Philippines and Singapore, will continue to see headline inflation surpassing 5 per cent due to higher domestic cost pressures.
As for its growth outlook, Amro stuck to its April forecast and still expects the Asean+3 region to grow by a “robust” 4.6 per cent in 2023 – though it raised its growth forecast slightly for China, Japan and South Korea and revised down its forecast for Asean.
Growth in the Asean region is expected to moderate to 4.5 per cent, down from the 4.9 per cent forecast in April. The latest forecast takes into account weak first-quarter gross domestic product figures from Singapore and Vietnam, which are highly exposed to weak external demand in manufacturing, said Amro chief economist Khor Hoe Ee during a media briefing on the report.
In contrast, Amro raised its growth forecast for the economies of China, Japan and South Korea to 4.6 per cent, from 4.5 per cent previously. This was mainly due to strong first-quarter outturn from the economies, said Dr Khor, reflecting stronger inbound tourism and domestic demand in Hong Kong and Japan.
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Since the last quarterly update in April, downside risks to the region have receded somewhat, but remain significant, and policymakers should remain vigilant, said Dr Khor.
Among the shocks to look out for is a potential recession in the US and Europe. Persistently high inflation in the two economies would compel the US Federal Reserve and European Central Bank to keep borrowing costs higher for an extended period of time, noted Amro.
“Restoring price stability could come at the cost of inducing an economic recession, which would mean weaker external demand for the region’s manufacturing and export sectors,” the research house added.
Another downside risk to watch out for is weaker-than-expected growth in China, said Dr Khor. “We actually think there is a small likelihood (of this happening). But if it does materialise it will affect trade, especially tourism trade.”
There is also a risk of financial spillovers from the US because of tight monetary policy, said Dr Khor, which Amro ranked as having a “medium” likelihood of occurring.
“Sustained higher borrowing costs in the US could precipitate another episode of financial stress,” said Amro. “Tighter US monetary policy could put pressure on the commercial real estate and other highly leveraged sectors, which could then threaten financial stability through the interconnectedness of the financial system.”
Another round of financial stress in the US could thus heighten global risk aversion, with negative spillovers to the Asean+3 region in the form of higher risk premiums and refinancing costs, as well as capital outflows, particularly in economies with high non-resident portfolio investments, wrote the organisation.
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