Economic growth across the Southeast Asia (SEA) region is expected moderate to 4.5 percent in 2019, from 5.1 percent in 2018 - Photo by ASEAN Secretariat Office

JAKARTA (TheInsiderStories) – Economic growth across the Southeast Asia (SEA) region is expected moderate to 4.5 percent in 2019 and stabilize at the same level in 2020, from 5.1 percent in 2018, amid another round of tariffs and trade restrictions by the United States (US) and China, according to ICAEW’ latest reports.

Accommodative macro policies, coupled with domestic-driven activities, are expected to cushion the weaker trade outlook, although this will vary across economies. Overall economic growth across the region in the first half (1H) of 2019 slowed to 4 percent compared to 4.5 percent in 2H 2018.

This is the result of spillovers from the US-China trade war, slower Chinese domestic demand and a downturn in the global electronics cycle. Slower export momentum weighed heavily on the growth of trade dependent economies such as Singapore, Thailand and the Philippines. While, Malaysia and Vietnam have outperformed the region, reflecting a more modest deceleration in export growth and resilient domestic demand.

Sian Fenner, ICAEW Economic Advisor and Oxford Economics Lead Asia Economist said, “Amid ongoing global headwinds and uncertainty around the outcome of US-China trade talks, we expect to see a further deterioration in economic prospects across the region, particularly amongst more trade dependent economies.”

He continued, the domestic demand expected to receive boost from policy rate reductions Against an increasingly challenging external backdrop, with lower US interest rates and subdued inflationary pressures, central banks across the region are expected to reduce policy rates to support domestic demand.

Fiscal policy should also become more supportive amid higher infrastructure investment. After lowering interest rates by 50 basis points (bps) a piece this year, Bank Indonesia and the Philippines are forecast to lower rates once more in 4Q of 2019.

Likewise, Thailand and Malaysia are also expected to lower rates by at least 25 bps by early 2020. In Singapore, the Monetary Authority of Singapore is expected to ease policy in October, shifting to a zero appreciation bias in its key policy tool, SG$NEER, a trade weighted baskets of currencies against the Singapore Dollar.

Looking ahead, Singapore is forecast to dip into a manufacturing-led technical recession1 in 3Q of 2019. Vietnam is set to continue to outperform the rest of the region, albeit with a moderation in its GDP growth to 6.7 percent in 2019, followed by a further deceleration to 6.3 percent.

If the US imposes higher import tariffs on Vietnam, GDP growth in the country is likely to be cut to 5.9 percent during 2020 – 2021 compared to a baseline of 6.2 percent. Domestic demand is expected to remain healthy in 2019-2020. Household spending is expected to remain solid amid stable inflation and rising incomes, while sustained tourism should support the service sector.

As a result, the State Bank of Vietnam is expected to keep its refinancing rate unchanged at 6.25 percent over the next year. Overall, Vietnam’ GDP is forecast to grow by 6.7 percent this year, with a modest deceleration to 6.3 percent in 2020 and then about 6 percent per annum in 2021 – 2022.

Buoyed by foreign investment in key sectors Myanmar’ economy is forecast to expand to 6.4 percent in 2018 – 2019, before picking up to 6.8 percent in 2019 – 2020, as the market opens up to foreign investment, with infrastructure, manufacturing and wholesale and retail services expected to be the greatest beneficiaries.

Indeed, after a 14 percent drop in foreign direct investment (FDI) to US$5.7 billion in 2017 – 2018, FDI inflows are improving. According to the Myanmar Investment Commission, FDI inflows rose to over $3.5 billion over the 10 months to August 2019, with a sharp rise in investment channelled into the transportation and communication sector and the manufacturing sector.

This should lead to a rise in manufacturing activity and, as production comes online, support exports over 2019 – 2020 despite the backdrop of weaker Chinese import demand. However, escalating US – China trade tensions and the ongoing humanitarian crisis in the Rakhine state and slow progress in the repatriation of refugees is a key risk to the economy.

“We expect the challenging external conditions to continue weighing heavily on the overall growth across South-East Asia economies, as well as on regional trade flows,” said Mark Billington, ICAEW Regional Director, Greater China and South-East Asia.

He rated, although domestic-driven activities, aided by more accommodative macro policies, are likely to cushion the weaker trade outlook, growth is set to remain below potential in Indonesia, the Philippines and Thailand, with Singapore bracing for the hardest impact.

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