Bank of America-Merrill Lynch has tempered its growth outlook for Southeast Asia, including the Philippines, noting that the region was “resilient but not immune” to a US slowdown or recession.
In an August 19 economic commentary titled “Asean: Recession Guide,” the investment banking unit of Bank of America projected a 35-percent risk of the United States falling into another recession in the next 12 months. Nevertheless, it said slower US growth, the European sovereign debt crisis and fiscal austerity measures in developed markets would likely hurt growth in Southeast Asia to varying degrees.
“We have reduced the (Association of Southeast Asian Nation) growth outlook and forecasts, given the weaker global growth prospects. For 2011, growth will likely be strongest for Indonesia, at 6.3 percent, followed by Philippines, at 4.7 percent, Singapore [4.5 percent], Malaysia [4.3 percent] and Thailand [4.1 percent],” it said.
This year’s gross domestic product growth forecast for the Philippines was lowered by 110 basis points from the earlier projection of 5.8 percent. The respective forecasts for Malaysia and Singapore were likewise reduced by 80 and 30 basis points, respectively.
This developed as BofA-Merrill Lynch slashed its growth outlook for the US to 1.7 percent this year and 2.3 percent in 2012, 60 basis points down from its earlier expectations for both years. It also scaled down forecasts for Europe and Japan.
“We examine the behavior of GDP growth, inflation and policy rates in past recessions. Recession cycles vary considerably across Asean, with Singapore and Malaysia more sensitive to global downturns, and the Philippines and Indonesia less so,” the research said.
Every 1 percentage fall in US GDP growth reduces GDP growth in Singapore (-1.7 percent) the most, followed by Malaysia (-0.8 percent), Thailand (-0.4 percent), the Philippines (-0.3 percent) and Indonesia (-0.3 percent), the investment bank estimated.
A deeper US recession could worsen the severity and duration of any downturn in the region, the research said. But it added that a recession would likely be of the milder rather than the more severe form.
“Peak-to-trough falls in inflation are generally the highest for Indonesia, followed by the Philippines, Thailand, Malaysia and then Singapore,” it said.
The duration of growth slowdown from the peak tended to last longer in Malaysia (15 months), the Philippines (12.8 months) and Singapore (11.3 months), the investment bank noted. Excluding the Asian crisis, however, it added that the duration of downturns or recessions tended to be shorter for Indonesia (6 months) and Thailand (6 months).
BofA-Merrill Lynch added that central banks in the region were likely to cut policy rates during recessions, noting that Indonesia and the Philippines have historically been the more aggressive in the past monetary-easing cycles, followed by Thailand and Malaysia.
“A double-dip US recession is not our base case [to which our US team is assigning a 35-percent probability]. Risks of a global slowdown or US recession are, however, sufficient to tilt some Asean central banks to stay on hold for the rest of the year,” it said.
The investment bank expected Asean central banks to resume normalizing policy rates in 2012.
BofA-Merrill Lynch was originally projecting the Bangko Sentral ng Pilipinas to raise its key overnight borrowing rates by 50 basis points for the remainder of 2011 from the current 4.5 percent. –Doris C. Dumlao, Philippine Daily Inquirer
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