“We expect the challenging external conditions to continue weighing heavily on the overall growth across Southeast Asian economies, as well as on regional trade flows,” says Mark Billington, regional director for Greater China and Southeast Asia at ICAEW.
He adds that trade-dependent economies such as Singapore, Indonesia, the Philippines and Thailand have been the most vulnerable to the ongoing global economic uncertainties.
Singapore, in particular, has been the worst hit in the region. The affluent city state saw its GDP contract 3.3% q-o-q in 2Q2019, while the other three countries have been logging below potential growth.
Meanwhile, Malaysia and Vietnam have outperformed the region, with a modest deceleration in export growth and resilient domestic demand. Vietnam has been a key beneficiary of the trade diversion from the trade war, and is forecast to grow 6.7% this year.
Myanmar, too, is on an upward growth trend, with expectations that its GDP will grow 6.4%, buoyed by foreign investments in infrastructure, manufacturing and wholesale and retail services.
The trade war has now resulted in slower Chinese domestic demand and a downturn in the global electronics cycle, which is causing the strain on manufacturing activity, exports and growth.
Central banks across Southeast Asia are responding by easing their monetary policy. The economists expect Bank Indonesia and Bangko Sentral ng Pilipinas — the central banks of Indonesia and the Philippines respectively — to lower rates in 4Q2019 to 25 basis points, after having already lowered them by 50bps earlier this year. Thailand is also expected to cut rates by 25bps early next year.
Meanwhile, the Monetary Authority of Singapore is also expected to ease exchange rates by shifting to a zero-appreciation bias in the Singapore dollar nominal effective exchange rate, or S$NEER — the trade-weighted basket of currencies against the Singapore dollar, which has been a key policy tool for MAS.
