Almost All Regions to Experience Negative Growth, Including Asean

The International Monetary Fund (IMF) lowered its global GDP growth projection by a sharp 1.9ppt to -4.9%, from an earlier forecast of -3%, citing greater global recession than it projected two months ago. IMF cautioned that consumption growth globally was downgraded significantly due to largerthan-anticipated disruption to domestic activity, as a result of social distancing and lockdowns, as well as a rise in precautionary savings. For 2021, the IMF is projecting a rebound in the global GDP growth, with a growth of 5.4%, but lower than its previous forecast of 5.8%. IMF cautioned that downside risks remain, citing possible second wave of Covid-19, with outbreaks could recur in places that appear to have gone past peak infection. The concern remains renewed closing down of economy, with reimposition of some containment measures. For the Asean region, IMF is projecting growth to contract by 2.0% in 2020 (+4.9% in 2019), a downward revision by 1.4ppt from -0.6 in April’s estimate. The IMF revised downwards the GDP growth projection for all Asean countries. Thailand’s GDP growth is expected to decline the most by -7.7% relative to Malaysia (-3.8%), Indonesia (-0.3%) and Philippines (-3.6%). However, in 2021, IMF expects the region’s growth to recover strongly by 6.2%, where Philippines’s GDP growth is projected to register the highest growth of 6.8%, followed by Malaysia (6.3%), Indonesia (6.1%) and Thailand (5%).

Separately, on the monetary policy front in the region, Bangko Sentral ng Pilipinas (BSP) decided to cut its benchmark policy rate by 50bps in its June monetary policy meeting to a record-low of 2.25% from 2.75%. This was BSP’s fourth consecutive rate cut totalling 175bps since the start of the year. According to the Finance Secretary, the government can only spend another PHP180bn on additional stimulus measures due to its commitment to maintain the fiscal deficit at 9% or lower of GDP in 2020. So far, fiscal measures have only amounted to about 3.1% of GDP. We believe that the limited room for further fiscal stimulus measures may suggests that more policy rate cuts by BSP, if economic growth slows further in the coming quarters. Hence, the possibility of a second wave reaching other parts of the country will also affect the recovery going forward.

However, Bank of Thailand (BOT) maintained its policy rate at record low of 0.5% in its latest monetary policy meeting. BOT also guided that it expects the Thai economy to contract more than previously expected in 2020. As a result, BOT lowered its 2020 GDP growth forecast to -8.1% from -5.3% previously, due to slow recovery in tourism and export growth, even as the economy reopens. We believe the possibility of another rate cut by BOT will depend on the recovery in domestic demand going forward, as Thailand and other economies in the region gradually ease containment measures.

Source: Affin Hwang Research - 26 Jun 2020