According to ICAEW’s latest Economic Update: South-East Asia report, economists are predicting that overall GDP growth of the Southeast Asian region is expected to slow from 5.1 percent in 2018 to 4.5 percent in 2019. With a potentially high-risk of re-escalation of trade tensions regional GDP growth rate is expected to remain at 4.5 percent throughout 2020.

The ongoing US-China trade war, among other things, has been the key issue that drives this slowdown in growth. The resulting trade uncertainty is dragging down manufacturing, exports, and investments and will remain a challenge unless it is resolved.

For the most part, almost every nation has felt the sting that is derived from the trade war. Export-oriented nations in particular have been badly affected. Singapore narrowly managed to avoid a recessions in Q3 2019 alone. However, there are a few exceptions that have managed to benefit in some way from the ongoing trade tensions. Vietnam has been seeing some impressive growth thanks to the trade diversion effect caused by the trade war.

Sian Fenner, ICAEW Economic Advisor and Oxford Economics Lead Asia Economist said, “Although there has been some progress in the talks between the US and China, friction between the two countries remains high and the bulk of imposed tariffs are unlikely to be lifted anytime soon. Alongside slower Chinese domestic demand, we are cautious that the outlook for regional exports and private investment will remain challenging. As such, we expect South-East Asia’s GDP growth to moderate to 4.5 percent in 2020, remaining unchanged from 2019.”

As a result of the slowing economic outlook, regional central banks have shifted to a more accommodative stance. The Philippines, Malaysia, and Indonesia are expected to reduce rates by a further 25 basis points (bp) over the coming quarters; followed by an extended pause with fiscal stimulus.

However, the ability to launch any fiscal initiatives will differ across the region. Most Southeast Asian economies such as Thailand and the Philippines are expected to roll out stronger fiscal impulses. Singapore is expected to have to most fiscal room to ease policy. Singapore’s government is likely to announce measures such as cash handouts and funding support for SMEs in next year’s budget.

In line with previous forecasts, Malaysia’s GDP growth eased back in Q3 2019 to 4.4 percent year-on-year, from 4.9 percent year-on-year in Q2 2019. Stronger gains in household spending, inventory developments, and private and public consumption helped to outweigh overall weaker investment and exports.

LEAVE A REPLY

Please enter your comment!
Please enter your name here