Brexit risks, BoE pull sterling off highs

THE Association of Southeast Asian Nations (ASEAN) is celebrating its 50th anniversary this year, under the theme “Partnering for Change, Engaging the World.” The anniversary of this important economic bloc comes two years after the launch of the ASEAN Economic Community (AEC), amid high hopes to establish a global economic powerhouse.

ASEAN was founded in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand to promote political and economic cooperation, and regional stability. It expanded to comprise 10 countries by 1999, including Brunei, Cambodia, Laos, Myanmar and Vietnam. These countries differ in terms of population, area, economic size, stages of development and challenges, but they share immense economic growth potential.

Today, ASEAN countries, with a total land area of 4.5 million square kilometers, is home to nearly 640 million people — around 10 percent of the world’s population, and double that of the US. If ASEAN was a single entity, it would be the fifth-largest economy in the world by gross domestic product (GDP), behind the US, EU, China and Japan.

ASEAN is emerging as a global economic powerhouse, with an aggregate economic size of almost $2.6 trillion. It is one of the fastest-growing economies in Asia, with annual GDP growth averaging more than 5.5 percent between 2005 and 2015, a rate the bloc is expected to sustain over the next decade, according to the latest International Monetary Fund (IMF) data.

The World Trade Organization (WTO) says ASEAN is rapidly becoming a global trading powerhouse, with total merchandise trade of nearly $2.3 trillion in 2015 (almost 6.8 percent of world trade), making it the fourth-largest trade group behind the EU, China and US.

The IMF forecasts that by the end of 2022, ASEAN’s economy may grow by a third of its current size to nearly $4 trillion, maintaining its position as the fifth-largest economy in the world behind the US, EU, China and Japan.

In the long run, US-based global information company IHS Inc. is even more optimistic about ASEAN’s trajectory, projecting the combined GDP of its members reaching $8 trillion by 2030 to become the fourth-largest economy behind China, the US and EU.

Indonesia, the Philippines, Thailand and Malaysia may witness their economic status grow steadily in the coming years. Indonesia’s economy could emerge as one of the world’s top 10 by the end of the next decade.

The Philippines is likely to emerge as one of the top 20 economies, while Thailand and Malaysia will be among the top 30 by 2030, based on the LONDON: Sterling fell against the dollar and euro on Friday, retreating from the previous session’s one- month highs, as investors braced for Britain’s beginning the formal process of leaving the EU next week.

An interview with Bank of England ( BoE) policymaker Gertjan Vlieghe in The Times also laid out the argument for the BoE looking through further rises in inflation over the next few months in aid of supporting the economy.

Strong inflation and retail sales data have added to expectations the BoE might lean toward supporting sterling with higher interest rates over the next year, pushing the pound 1 percent higher against the dollar this week.

But investors worry that Prime World Economic League Table 2017, published by the Centre for Economics and Business Research (CEBR). IHS Inc. expects Malaysia, the Philippines and Thailand to join the trillion-dollar GDP club within the next decade.

ASEAN has become a magnet for foreign direct investment (FDI). A recent report by the Singapore-based United Overseas Bank (UOB) showed that ASEAN markets have been a far better bet than China for portfolio investors. The bank foresees FDI inflows into ASEAN surpassing China for the first time this year.

The stock of FDI accumulation in ASEAN has been rising at a steady annual rate of 15 percent since 1980, and the UOB expects the stock of investment in the region to nearly triple to $5.2 trillion in 2030, from $1.8 trillion in 2015.

Meanwhile, ASEAN countries are undertaking an aggressive tourism marketing campaign to mark the bloc’s 50th anniversary this year. It is called “Visit ASEAN@50: Golden Celebration,” and aims to increase the number of tourists by 10 percent to 121 million, from 109 million in 2015.

Despite this optimistic background, several issues could pose a challenge. Increasing economic dependence on the Chinese market could have a negative impact on ASEAN countries should China’s economy experience an acute slowdown.

The prospect of growing disputes with Beijing over maritime borders in the South China Sea may affect economic relations between the two sides, and could lead to sharp divisions within ASEAN over how to deal with Beijing.

Another major challenge is to provide the required investment for infrastructure. According to Asian Development Bank (ADP) estimates, ASEAN will need to spend up to $184-$210 billion a year, or $2.76-$3.15 trillion through 2030, to meet infrastructure needs and maintain growth momentum.

Religious and ethnic divisions may also contribute to rising tensions within ASEAN. Violence against Muslim minorities in Myanmar and Thailand are prime examples. More importantly, uncertainty over the future of US policy under President Donald Trump overshadows relations with ASEAN countries. Dr. Naser Al-Tamimi is a UK-based Middle East researcher, political analyst and commentator with interests in energy politics and Gulf-Asia relations. Al-Tamimi is author of the book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He can be reached on Twitter @nasertamimi and e-mail: nasertamimi@hotmail.co.uk. Minister Theresa May’s invoking Article 50 next Wednesday may trigger a period of political jousting with its EU partners that will lay bare the scale of the risks to the economy from 18 months of talks.

Sterling dipped 0.3 percent to $1.2484 in morning trade in London and was 0.4 percent lower at 86.47 pence per euro.

“Uncertainty ( surrounding Brexit) remains intact,” said Credit Agricole currency strategist Manuel Oliveri.

“Rate expectations are unlikely to rise because the BoE is linking its monetary policy stance to this uncertainty, and that is why we do not believe sterling has more upside from current levels.”

Since minutes from the BoE’s meeting last week showed a number of monetary committee members close to voting for a rise in rates, signals from official have been mixed.

Asked about Tuesday’s inflation data, BoE Gov. Mark Carney said it was important not to overreact to a single data point.

Deputy Gov. Ben Broadbent on Thursday said it was possible interest rates would rise, but also highlighted a strong sense of caution among investors about the outlook for Britain after Brexit.

Policymaker Gertjan Vlieghe believes a rise in inflation to more than 3 percent might not prompt him to consider raising interest rates because the increase would probably be temporary, The Times newspaper reported on Friday.