S&P Global lowers SEA growth forecast

S&P Global has lowered its growth forecast for emerging South-east Asia to a still robust 5 per cent, from 5.6 per cent, on inflationary risks, with the Philippines seeing the biggest cut in growth forecast and Singapore, the largest uplift in consumer inflation.

Louis Kuijs, S&P Global's Asia Pacific chief economist, said on Monday: "The war in Ukraine, US policy rate rises, spiking energy prices, and escalating Covid cases in China are complicating the outlook for what has been healthy expansion in regional economies.

"S&P Global Ratings believes these new risks will generally present as inflation, and that they will dent an otherwise strong rebound from the pandemic."

In its quarterly economic update for Asia-Pacific, S&P Global projected Asia Pacific to grow at a robust 5.1 per cent in 2022, and around 4.5 per cent in 2023-2025, making the region still the world's fastest-growing.

South-east Asia's growth has been revised down to 5 per cent as softening global demand growth and the Russia-Ukraine conflict weigh on the region's economy in 2022.

"This should slow the expansion of exports and manufacturing, which were key growth drivers in 2021, while greater uncertainty and higher energy prices will weigh on domestic consumer sentiment," Kuijs said. The growth forecast for the Philippines has been cut by 0.9 percentage points to 6.5 per cent.

High energy prices will be a pain point for the region's consumers and will strain some nations' current-account balances.

Malaysia is well positioned to weather higher energy prices as a net energy exporter, primarily of gas. Producers will not be able to fully benefit from energy price rises, because the government will likely limit the increases they can pass onto domestic consumers.

Indonesia is also a net energy exporter, but much of its surplus is driven by coal exports. The country is an oil importer. Oil product consumers will still feel the pinch of higher crude prices. The other economies in the region are net energy importers; higher energy prices will hit purchasing power and the current account in these countries.

Kuijs said broadening inflationary pressure and rising US policy rates are pushing regional central banks toward tighter policy. Weakening confidence and risk sentiment will weigh on growth.

"South-east Asian central banks will cautiously raise rates in such an environment. Our baseline forecast is for less monetary policy normalisation than in the US. However, if rates rise in the US and deteriorating risk sentiment triggers capital outflows, South-east Asian central banks may be forced to tighten monetary policy more than we now anticipate in our base case," the economist said.

S&P Global's growth forecasts for Japan, South Korea, and Taiwan have not changed substantially as these economies are seen well-placed to weather inflationary shocks. China, it said, will struggle to meet its round 5.5 per cent growth target, given the stresses of the property downturn, the war in Ukraine, and Omicron.