South-east Asia's economic growth 'to stay at 4.5% next year'

Singapore

SOUTH-EAST Asia's gross domestic product (GDP) growth will likely remain at 4.5 per cent in 2020, amid high risks of a re-escalation in trade tensions between the US and China, British advisory firm Oxford Economics said on Wednesday.

Even though the US and China are talking again, it is still too early to break out the champagne.

Sian Fenner, Institute of Chartered Accountants in England and Wales (ICAEW) economic advisor and Oxford Economics' lead Asia economist, said: "Friction between the two countries remains high and the bulk of imposed tariffs are unlikely to be lifted anytime soon."

Mark Billington, ICAEW regional director for Greater China and South-east Asia, said: "We expect the ongoing trade tensions to continue weighing on the overall growth outlook for South-east Asian economies. Against a weak global backdrop, supportive fiscal measures are expected to underpin an improvement in GDP growth across certain economies, albeit moderately."

The region recorded a sluggish performance in the third quarter of 2019, with its GDP growth rising only 4.5 per cent year-on-year from 4.4 per cent in Q2, Oxford Economics noted in its latest Economic Update: South-East Asia report.

Export-oriented economies have suffered the worst blow from the ongoing trade conflict, with Singapore only narrowly avoiding a technical recession in Q3.

The report highlighted trade uncertainty as a key drag on manufacturing, exports and investment.

While Vietnam has incidentally benefited from a re-routing of Chinese goods through it to avoid higher tariffs imposed on China, weaker Chinese import demand and heightened trade protectionism will pull Vietnamese GDP growth down to 6.6 per cent next year, from 7 per cent this year.

With a gloomy future ahead, coupled with a more dovish US Federal Reserve and low inflation, regional central banks have adopted more accommodative policies.

The report predicts that the Philippines, Malaysia and Indonesia will cut interest rates by a further 25 basis points over the coming quarters, followed by fiscal stimulus to complement central bank efforts in cushioning the economic slowdown.

That being said, not all countries enjoy the same flexibility in fiscal manoeuvring.

Having clocked fiscal surpluses since 2017, Singapore has the most fiscal room to ease policy. Given the high trade uncertainty, the Republic is likely to announce measures such as cash handouts and funding support for small and medium-sized enterprises (SMEs) in next year's budget.

On the other hand, both Vietnam and Malaysia are constrained by current levels of public debt.

Despite the announcement of a mildly expansionary budget for 2020, the Malaysian government's continued emphasis on fiscal consolidation and the risks of fiscal slippage due to less revenue than targeted suggest limited room for further financial support, said Ms Fenner.

Malaysia is projected to face a slowdown in GDP growth from this year's 4.4 per cent to 4 per cent next year, against a backdrop of slower export growth and moderating domestic demand.

Meanwhile, Indonesia's GDP growth will likely ease modestly from 5 per cent this year to 4.9 per cent next year.

Accommodative monetary policies and targeted fiscal measures are expected to offset decelerating private spending and investment growth on the country's economic growth, said the report.

Produced by Oxford Economics and commissioned by ICAEW, the Economic Update: South-East Asia report is a quarterly review of the region, focusing on Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Oxford Economics is ICAEW's partner and economic forecaster.