The global economic slowdown, marked by unsolved debt problems in the US and Europe, has prompted a downgrade of GDP in key Asean economies, with Thailand and Singapore facing the biggest cuts.
According to an international bank’s research, Thailand’s GDP for 2011 is revised downwards to 3.5 per cent from the 4.5 per cent projected earlier, while Singapore’s GDP is down to 4.5 per cent from 5.5 per cent.
Malaysia saw a downgrade to 4 per cent from 4.5 per cent, while the Philippines’ GDP was cut to 4.3 per cent from 4.4 per cent.
The GDP estimate for Indonesia, the region’s biggest economy, remains unchanged at 6 per cent.
The research says manufacturing and trade-related survey data has weakened globally, while financial market conditions in both local and global markets are also worse.
Lower demand growth in China and Europe, plus an earlier cut in the US growth estimate, have dampened the prospects for most Asean economies.
The global GDP estimate is now around 3.3 per cent, down from 3.8 per cent.
On inflation, the fears seem to have diminished as far as Asean economies are concerned, largely due to the global economic slowdown and lower crude oil prices.
As a result, there is a growing potential for an easier monetary policy in Asean countries, even though the Bank of Thailand’s Monetary Policy Committee just raised the benchmark rate by 25 basis points to 3.5 per cent last Wednesday.
At 3.5 per cent, Thailand’s rate is higher than Malaysia (3 per cent), but lower than the Philippines (4.5 per cent) and Indonesia (6.75 per cent).
The research also mentioned the possibility that Thailand’s rate policy might be reversed based on the new government’s preference for a lower rate.
Deputy premier and commerce minister Kittirat na Ranong has favoured a rate cut. However, the Bank of Thailand remains cautious and appears to have continued with its rate normalisation policy.
The new government also plans to cut the corporate income tax rate to 23 per cent next year from the current 30 per cent.
Beyond Thailand, there is also the possibility of an easier monetary policy in Asean nations, while the fiscal conditions of most Asean economies remain healthy.
These factors will support a quick recovery of economic growth in the region, while an expected rebound in the global inventory cycle and the improved state of the financial sector will be the other positive factors.
However, the recovery will likely be less vigorous than that in the 2009/2010 period following the US-led global financial crisis.
Regarding exchange rates, most Asean currencies tend to soften with slower economic growth, while the region’s current account surpluses and large holdings of foreign exchange reserves will help reduce the risk of exchange rate volatility.
After all, there is still a risk of another global recession. If that happens, there will be further GDP downgrades.
On the plus side, the financial market conditions are now better, while lower oil prices are a favourable condition for economic recovery.
In fact, the Yingluck government will quickly take advantage of this by cutting retail oil prices for both gasoline and diesel for a temporary period. –Nophakhun Limsamarnphun
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