Indonesia cut its policy rate and Singapore introduces special packages

Bank Indonesia (BI) lowered its policy rate by 25bps to 4.75% in its February monetary policy meeting as a pre-emptive measure to maintain domestic economic growth momentum in the face of a global economic recovery potentially restrained by the recent Covid-19 outbreak. BI lowered its economic growth projection for 2020 to 5-5.4% from 5.1-5.5% previously. Indonesia is expected to introduce fiscal stimulus next week and we expect BI to cut its policy rate further by another 25bps to 4.5% by the end of 2020. Indonesia’s exports returned to a contraction of 3.7% yoy in January after a positive growth of 1.1% in December. Imports, meanwhile, declined for the seventh consecutive month by 4.8% yoy from -5.6% in December. As a result, trade balance remained in deficit for the third straight month of US$0.86bn (deficit of US$0.1bn in December). We believe the trade performance in the near term to be weighed down by the outbreak as China is Indonesia’s largest trading partner, making up about 17% of the country’s total exports.

Singapore’s Minister of Finance (FM) presented the country’s 2020 Budget this week. With an expansionary Budget, the country is expected to register its largest budget deficit in 10 years of S$10.9bn for FY20 (2.1% of GDP) following a revised deficit of S$1.7bn in FY19 (0.3% of GDP). The Finance Minister guided that the government managed to accumulate sufficient fiscal surplus to fund the overall deficit in FY2020. In order to contain the outbreak, S$800mn will be allocated mainly to the Ministry of Health. At the same time, the FM introduced two special packages with a total allocation of S$5.6bn to stabilise the economy and support workers, enterprises and sectors which are directly affected by the outbreak. It also guided that tourism, aviation, food services, and point-to-point services which are directly affected by Covid-19 will attain additional support. However, like most Asean countries which are affected by China’s slowdown due to its significance to the global supply chain and as a trading partner, Singapore’s external demand will likely remain slow. The Ministry of Trade and Industry (MTI) lowered its 2020 GDP growth forecast to a range of -0.5% to 1.5% from its earlier forecast of 0.5 to 2.5% due to adverse impact on sectors such as tourism, manufacturing and wholesale trade.

In Thailand, real GDP growth slowed in 4Q19 to 1.6% yoy from 2.6% in 3Q19, its slowest growth since 3Q14. Slower growth was due to the decline in public consumption and exports of goods and services. On the supply side, decline in growth was registered in the agriculture, manufacturing and construction. For the full year, GDP growth eased to 2.4% compared to 4.2% in 2018, its weakest annual growth since 2014. We expect Thailand’s growth to remain weighed down possibly in the first half of the year due to the Covid-19 outbreak amid the slowdown in tourist arrivals. If growth continues to weaken, we also anticipate another cut by Bank of Thailand by 25bps to 0.75%.

Source: Affin Hwang Research - 21 Feb 2020