South­east Asia’s stronger growth may be weaker than it seems

High debt, weak ex­ports pose chal­lenge

Kuwait Times - - BUSINESS -

JAKARTA: Stronger-than-ex­pected growth in some South­east Asian economies has sparked op­ti­mism the worst of a slow­down may be over, but high debt and weak ex­ports make sus­tain­ing the mo­men­tum a chal­lenge for pol­i­cy­mak­ers as US in­ter­est rates go up.

The Philip­pines wrapped up the re­gion’s third-quar­ter GDP per­for­mance on Thurs­day with an­nual growth of 6 per­cent, up from 5.8 per­cent in the sec­ond quar­ter. An­nual growth also picked up in In­done­sia and Thai­land, the re­gion’s two largest economies, tak­ing weighted av­er­age growth in the re­gion of some 500 mil­lion peo­ple with a com­bined GDP of $2.2 tril­lion to 4.2 per­cent, ac­cord­ing to Cap­i­tal Eco­nomics.

Of­fi­cials from Bangkok to Jakarta have been quick to seize on the im­proved growth num­bers and con­sumer con­fi­dence as ev­i­dence the worst slow­down since the 2009 cri­sis is over.

“We think growth in the third quar­ter is a turn­ing point,” said In­done­sian cen­tral bank Gov­er­nor Agus Mar­to­war­dojo.

Econ­o­mists and busi­nesses hold a less san­guine view. China’s slow­down and re­ces­sion in Ja­pan, both lead­ing mar­kets for the re­gion, high con­sumer and cor­po­rate debt at home and the risk of more mar­ket ruc­tions when the US raises in­ter­est rates, are all cloud­ing prospects ahead. “It’s too early to call a trough,” said econ­o­mist Joseph In­cal­caterra at HSBC in Sin­ga­pore. “We forecast growth in the fourth quar­ter to be weaker just about every­where.”

Araya Sawaeng­wong, 48, who owns a small mu­sic shop in a Bangkok mall, said the econ­omy was in bad shape.

“I’m strug­gling to sell my stuff as there are not many buy­ers th­ese days. Buy­ers now be­come sell­ers com­pet­ing to sell things but no­body wants to buy...I don’t think things are get­ting any bet­ter.”

IM­PORTS FALL Eco­nomic growth has been deceptively un­der­pinned by a fall in im­ports rather than strength in ex­ports for some coun­tries.

In­done­sia’s ex­ports in the third quar­ter fell 0.7 per­cent from a year ear­lier, but ex­ter­nal de­mand still con­trib­uted 1.2 per­cent­age points to the econ­omy’s 4.7 per­cent growth as im­ports tum­bled by 6.1 per­cent.

Sliding prices of com­modi­ties that ac­count for around half of In­done­sia’s to­tal ex­ports have crimped in­comes and de­pressed do­mes­tic ac­tiv­ity, in turn, hit­ting im­ports.

“From an ac­count­ing per­spec­tive, this gives the ap­pear­ance that growth is stronger than it ac­tu­ally is,” In­cal­caterra said. In Thai­land, the ex­ter­nal sec­tor’s large con­tri­bu­tion to the econ­omy’s 2.9 per­cent ex­pan­sion was mostly due to a drop in im­ports, as in­vest­ment shrank for the first time since early 2014. With­out the lift from net ex­ports, South­east Asia’s sec­ond-largest econ­omy would have grown by just 0.1 per­cent.

Net ex­ports dragged on Sin­ga­pore’s per­for­mance, but it still grew 1.9 per­cent in the third quar­ter from a year ear­lier helped by spend­ing on its 50th an­niver­sary cel­e­bra­tions and a boost from in­ven­to­ries.

The data may show a growth pick-up in most of the ma­jor South­east Asian economies, but ex­porters say there was no sig­nif­i­cant change in de­mand in the third quar­ter.

“We ex­port to ASEAN coun­tries and Aus­tralia and (de­mand in the) third quar­ter was still pretty flat,” said San­coyo An­tarikso, di­rec­tor at PT Unilever In­done­sia Tbk which ex­ports con­sumer items such as sham­poo and soap.

While ad­di­tional mon­e­tary stim­u­lus could still be de­ployed to bol­ster growth, pol­i­cy­mak­ers are wary about cap­i­tal out­flows when US rates rise. There are also lim­its to what fis­cal stim­u­lus can do to counter slug­gish global trade. “Growth will re­main weak for the next two quar­ters un­til we start see­ing signs of a broader pick-up out­side ASEAN,” said HSBC’s In­cal­caterra. — Reuters

MAT­SAPHA: Work­ers of a for­eign-owned tex­tile fac­tory sew on ma­chines dur­ing their shift on Septem­ber 1, 2015 in the fac­tory on the out­skirts of Mat­sapha, Swazi­land. Un­able to ful­fill the cri­te­ria re­quired by Wash­ing­ton re­gard­ing hu­man rights, Swazi­land in Jan­uary 2015 lost the ben­e­fit of AGOA, the US pro­gram al­low­ing it to be ex­empt from taxes to ex­port its prod­ucts. — AFP

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