IMF Lowered Its Asean-5 Projection by 0.1 Percentage Points to 5%

The latest World Economic Outlook (WEO) published by the International Monetary Fund (IMF) revised its global growth forecast downward by 0.1 percentage points to 3.2% in 2019 (3.3% previously) due largely to the escalation in trade tensions between US and China, which also led to weaken investment. In addition, IMF guided that global technology supply chains were also affected by the possible US sanctions, Brexit uncertainties, as well as rising geopolitical tensions have impacted energy prices. Despite the cautious outlook for global economy in 2019, IMF expects global GDP growth to improve to 3.5% in 2020, a slight revision from 3.6% previously. However, IMF noted that this projection is “precarious” as it hinges on four key factors namely (i) supportive financial market sentiment; (ii) continued fading of temporary drags especially in the euro area; (iii) stabilisation in some stressed emerging market economies (ie. Argentina and Turkey); (iv) no sharper collapses in other market economies like Iran and Venezuela. As for Asean- 5, IMF also lowered its projection by 0.1 percentage points to 5% in 2019 and 5.1% in 2020. Overall, IMF still expect significant downside risks for global growth due to further US-China tariffs.

Separately, in Singapore, after four consecutive months of rising inflation, the headline inflation rate in June improved to a three-month low of 0.6% yoy from 0.9% in May. Similarly, core-inflation eased to its lowest level since March 2017 at 1.2% yoy (from 1.3% in May). Lower inflation was mainly due to the continued decline in cost of electricity and gas and accommodation. Going forward, we expect downward pressure to persist from the dampening effect from the Open Electricity Market (OEM) which began in November 2018 especially since housing and utilities make up the largest proportion of the CPI basket at 26.3%. The Monetary Authority of Singapore (MAS) expects core-inflation to settle near the mid-point of its forecast range of 1-2% in 2019 (1.7% in 2018) and headline inflation at 0.5-1.5% in 2019 (0.4% in 2018). Therefore, amid weaker external global environment, softer domestic GDP growth and slower inflation, we believe this further raises the possibility of MAS easing its monetary policy.

In Thailand, export growth fell for the fourth consecutive month albeit at a slower pace of 2.1% yoy in June compared to -6.2% in May. Meanwhile, imports declined by 9.4% yoy in June from -0.7% in May. As a result, the trade surplus widened to a four-month high of US$3.2bn in June from US$0.2bn in May. The Director-General of the Trade Policy and Strategy Office guided that trade tensions had impacted trade performance, especially products which are dependent on China’s supply chain. Besides that, the stronger Thai Baht which has appreciated by 5.4% against the USD in the first half of 2019 has also made Thai exports less competitive. Hence, we believe these factors will continue to negatively impact Thailand’s trade performance.

Source: Affin Hwang Research - 26 Jul 2019