Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Fri, 8 Nov 2019, 8:45 AM


ASEAN Weekly Wrap - IMF Projects Slightly Stronger GDP Growth for Asean-5 in 2020

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Monetary Authority of Singapore Eased Its Monetary Policy in October

In the latest World Economic Outlook (WEO), International Monetary Fund (IMF) revised lower its global real GDP projection by 0.2 percentage points and 0.1 percentage points to 3% and 3.4% for 2019 and 2020, respectively. In 2019, real GDP growth is expected to slow to its lowest level since 2008- 09 due to reignited trade tensions, which has negatively impacted business sentiment and confidence. However, in 2020, economic growth is expected to recover slightly due to a projected improvement in economic performance in a few emerging market in Latin America, the Middle East, and emerging and developing Europe. However, downside risks on GDP growth remain.

As for Asean-5 which comprises of Indonesia, Malaysia, Philippines, Thailand and Vietnam, IMF also lowered its growth forecast by 0.2 percentage points for both 2019 and 2020 forecasts to 4.8% and 4.9%, respectively. IMF noted that emerging and developing Asia will remain as the engine of the global economy but slower growth is expected especially with the structural slowdown in China. We believe that despite the slight pickup in growth expected in the region in 2020, there are also downside risks especially if trade tensions failed to reach a compromise and are prolonged. Furthermore, we also anticipate the projected slowdown of China’s economy to 5.8% in 2020 from 6.1% in 2019 to also hamper on faster growth for Asean countries.

Separately, Monetary Authority of Singapore (MAS) in the October monetary policy meeting reduced the rate of appreciation of the S$NEER policy band slightly with no change to the width of the policy band and the level at which it is centred. This was its first easing since April 2016 when the S$NEER was lowered to 0%. This move also reverses one of the two previous increases to the slope of the S$NEER policy band which occurred in April and October 2018. MAS noted that its change to its policy stance is consistent with medium-term price stability given the current economic outlook. MAS guided that although growth in 2020 is expected to expand modestly, the level of output will remain below potential. As a result, inflationary pressures will be muted. We believe that MAS’ move is warranted especially following the release of advance estimates of Singapore’s 3Q19 GDP growth which showed growth remaining at a ten-year low of 0.1% yoy (0.1% in 2Q19). Growth was weighed down mainly by the manufacturing sector (-3.5%) amid the ongoing decline in the global electronics cycle and the pullback in investment spending. MAS is projecting GDP growth to settle around the midpoint of its forecast range of 0-1% in 2019. In September, the non-oil domestic export (NODX) contracted for the seventh consecutive month by 8.1% yoy from 9% in August. We believe that if Singapore’s economy slows further, this could lead to further easing by MAS in its next meeting in April 2020.

Source: Affin Hwang Research - 18 Oct 2019

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