IMF lowers ASEAN-5 2019 growth outlook

The International Monetary Fund (IMF) has kept its 5.3 percent growth projection for the ASEAN-5 (Philippines, Indonesia, Malaysia, Thailand and Vietnam) for this year, but lowered next year’s outlook as it cited trade tensions could hurt global outlook.

Based on the July 2018 IMF World Economic Outlook (WEO) report, ASEAN-5 is projected to grow by 5.3 percent in 2019, a revised estimate from the April 2018 WEO projection of 5.4 percent as trade and financial conditions could moderate.

The IMF maintained however that “growth in the ASEAN-5 group of economies is expected to stabilize at around 5.3 percent as domestic demand remains healthy and exports continue to recover.”

The IMF said emerging and developing Asia is seen to sustain its “robust performance” and will grow 6.5 percent in 2018- 2019, despite that growth in China will likely slow down to 6.6 percent from 6.9 percent in 2017 as “regulatory tightening of the financial sector takes hold and external demand softens.”

For the Philippines, the IMF has a growth forecast of 6.7 percent for this year and 6.9 percent for 2019, fueled by strong demand and the government’s public investment and increased spending.

In its last IMF Philippine report, it noted that the economy continues to enjoy a favorable position in meeting socioeconomic challenges, such as maintaining solid growth, financial stability and external and fiscal buffers. “However, poverty remains high and the country needs to create jobs for its young and growing population. Sustaining the growth momentum in an uncertain and volatile external environment requires tackling the constraints to inclusive growth, while protecting policy anchors, adapting policies to changing conditions, and maintaining vigilance against risks, including from high credit growth, loan concentration, and overheating,” it added.

The IMF in the meantime maintained its global growth projections for 2018-2019 at 3.9 percent, same as the April 2018 WEO. It that its baseline forecast assumes “gradually tightening but still favorable financial conditions, with localized pressures based on differences in fundamentals.”

“Monetary policy normalization in advanced economies is assumed to proceed in a well- communicated, steady manner,” said the IMF. It added that “domestic demand growth (notably investment, which has been an important part of the global recovery) is expected to continue at a strong pace, even as overall output growth slows in some cases where it has been above trend for several quarters.”

The IMF assessed that advanced economy growth will “remain above trend at 2.4 percent in 2018 — similar to 2017 — before easing to 2.2 percent in 2019 (because of) greater-than-expected growth moderations in the euro area and Japan after several quarters of above-potential growth.”

"But the risk that current trade tensions escalate further – with adverse effects on confidence, asset prices, and investment – is the greatest near-term threat to global growth," IMF Chief Economist Maurice Obstfeld said.

The fund warns growth could be cut by a half point by 2020 if all the tariff threats are carried out.

Although the global recovery is in its second year, growth has "plateaued" and become less balanced, and "the risk of worse outcomes has increased," Obstfeld told reporters, and in fact the forecast for this year was revised downward, but was rounded up to 3.9 percent.

How the risks will play out are difficult to determine at this point.

The report comes as US President Donald Trump has imposed steep tariffs duties on $34 billion in imports from China, with another $200 billion coming as soon as September, on top of duties on steel and aluminum from around the world including key allies. He also has threatened to impose border taxes on autos.

China has matched US tariffs dollar-for-dollar and threatened to take other steps to retaliate, while US exports face retaliatory border taxes from Canada, Mexico and the European Union.