• Asean’s Manufacturing PMI picks up modestly from 48.3 in September to 48.6 in October.
• Philippines’ headline inflation rate rose to a three month high of 2.5% yoy in October from 2.3% in September.
• In Thailand, the headline inflation rate declined for the eighth consecutive month by 0.5% yoy in October from -0.7% in September.

BI Expects Economy to Expand by 4.8% to 5.8% in 2021

Indonesia’s real GDP growth contracted for the second consecutive quarter by 3.5% yoy in 3Q20, albeit smaller negative growth compared to a decline of 5.3% in 2Q20. This was the first recession since the 1998 Asian Financial crisis. The contraction in real GDP growth was due mainly to the declines in trade and tourism sectors. In the first three quarters of 2020, real GDP growth contracted by -1.9% yoy, but the authority maintained its GDP growth target range of between -1.7% to -0.6% in 2020 (5% in 2019). Due to coronavirus pandemic, the authorities also predicted close to 3.5 million people could lose their jobs in the country. Even though Bank of Indonesia (BOT) had reduced its policy rate by a total of 100bps to 4.0% since early 2020, we believe there is more room to cut rates further in the near term. Going into 2021, the central bank expects the economy to expand by 4.8% to 5.8% next year, supported by accommodative monetary policy and fiscal stimulus measures.

On the manufacturing front, countries in the region are benefiting from the recovery in China’s economy. After hitting a low of 30.7 in April, Asean’s manufacturing PMI rose modestly from 48.3 in September to 48.6 in October. However, Asean PMI remained below the 50 level for the eighth consecutive month. The recovery in the Asean PMI was not across the board, where only three out of seven countries registered improvement i.e. Thailand (50.8), Vietnam (51.8) and Singapore (52.0), as these countries exceeded the expansion 50 level. Meanwhile, manufacturing PMI in Malaysia slowed to 48.5 in October, Philippines (48.5), Indonesia (47.8) and Myanmar (30.6), where these countries continued to register a reading below 50.

Separately, Philippines’ headline inflation rate rose to a three month high of 2.5% yoy in October from 2.3% in September. The country’s inflation increased for a second straight month due to higher prices of food and non-alcoholic beverages. Core inflation slowed to 3.0% yoy from 3.2% in September. Headline inflation rate averaged 2.5% yoy in the first ten months of 2020, but remains within the official target of between 2% to 4%. With food prices remaining stable, we expect inflationary pressure to remain under control in 4Q20, supported also by expectations of slower consumer demand amid softening labour market conditions.

In Thailand, the headline inflation rate declined for the eighth consecutive month by 0.5% yoy in October from -0.7% in September. We believe inflationary pressure in Thailand will be low in the months ahead, with weak country’s economy, contracting by -12.2% yoy in 2Q20, while unemployment rate also increased to 1.95% in 2Q20. Thailand’s authority already guided that unemployment rate in the country may increase from 1% to between 3% to 4% this year

Source: Affin Hwang Research - 9 Nov 2020