Global headwinds to slow several Asian countries

Updated 28 March 2015

Global headwinds to slow several Asian countries

Notwithstanding the weak start for the global economy, Asian economies are expected to continue to grow rapidly in 2015. "We expect economic growth to average 5.7 percent in 2015, the same rate as in 2014. However this masks significant differences across Asian countries that mainly depend on their exposure to global headwinds. India and Myanmar stand out as bright spots for 2015, while China, Indonesia, Malaysia and Singapore are expected to slow, given that these economies are most exposed to the weakening of the global economy. Looking ahead, this divergence in growth performance is likely to continue with countries less dependent on external demand (India and Myanmar) performing better than others," QNB said in its report.
At the current juncture, the brightest spot in Asia is India. The implementation of Prime Minister Narendra Modi’s ambitious reform agenda is expected to unleash India’s growth potential. The recently announced budget proposed three key areas of reform: (i) addressing supply bottlenecks; (ii) reducing the subsidy bill; and (iii) introducing a uniform federal goods and services tax (GST). Overall, the government expects these reforms to result in a growth rate of 8.0-8.5 percent in 2015/16, compared with an estimated 7.5 percent in 2014/15. If these three key reforms are fully implemented, we expect these growth rates to be achieved, making India one of the fastest growing economies in the world.
Myanmar is opening up to the rest of the world economy after two decades of international economic sanctions and underinvestment. As a result, the IMF expects Myanmar to grow by 7.8 percent in 2014/15, compared with 8.3 percent in 2013/14. Structural reforms are attracting FDI in infrastructure and the financial and manufacturing sectors. However, Myanmar still needs to implement significant structural reforms to improve the ease of doing business. Going forward, the growth outlook remains favorable but downside risks remain.
China missed its 2014 growth target of 7.5 percent by 0.1 percent (the first outturn below target since 1998), mainly as a result of slower investment growth, a weakening of global demand for Chinese exports and lower growth in private consumption. Going forward, the government announced a growth target of around 7.0 percent for 2015 on the back of weak domestic demand and strong deflationary risks. We expect growth to be slightly lower than 7.0 percent due to domestic and foreign headwinds.
In the Philippines, the economy is performing robustly, supported by strong remittances from overseas workers and accommodative monetary and financial conditions. Going forward, lower oil prices are expected to provide a stimulus to growth while inflation is likely to slow. The IMF projects the Philippines to grow by 6.3 percent in 2015, from 6.2 percent in 2014.
In Vietnam, the economy improved in 2014 underpinned by robust exports and foreign direct investment (FDI). Domestic demand, however, remains subdued partly due to tight financial conditions and inefficient state-owned enterprises (SOEs). The IMF forecasts Vietnam to grow by 5.6 percent in 2015, compared with 5.5 percent in 2014.
Malaysia’s economy is slowing as a result of lower oil prices and weaker domestic demand. The government has responded to lower oil prices by implementing significant fiscal consolidation which will weigh on growth in 2015. As a result, the IMF expects Malaysia to grow by 4.8 percent in 2015, compared with 5.9 percent in 2014.
Indonesia continues to face significant challenges amidst lower global commodity prices and tighter financial conditions. As a result, we expect economic growth to slow to 4.5 percent in 2015 as the USD debt overhang and the stronger USD are a drag on growth, making the government’s investment program harder to implement.
In Singapore, activity is slowing, reflecting headwinds from the global economy as well as lower domestic investment and real estate prices. "We expect growth of 2.5 percent in 2015, compared with 3.0 percent in 2014, on sluggish global demand and declining domestic investment spending," QNB said.
Overall, Asian economies are expected to continue on a similar growth path this year as they experienced in 2014. However, strong global economic headwinds suggest significant downside risks to several Asian countries most exposed to global trade. The projected slowdown in US economic growth in Q1, deflation in advanced economies, the prospects of higher US interest rates and lower commodity prices are all likely to contribute to a significant slowdown in external demand for Asian exports and a cooling of domestic demand. As a result, Indonesia, Malaysia and Singapore are most at risk of a further slowdown, while India and Myanmar are the least exposed. Nevertheless, Asia is still likely to remain the fastest growing region in the world in 2015.


Powell: No clear hint on rates but says Fed will aid economy

Updated 23 August 2019

Powell: No clear hint on rates but says Fed will aid economy

  • The outlook for the US economy, Powell said, remains favorable but continues to face risks
  • Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter

WASHINGTON: Federal Reserve Chairman Jerome Powell sent no clear signal Friday that the Fed will further cut interest rates this year but said it would “act as appropriate” to sustain the expansion — phrasing that analysts see as suggesting rate cuts.
Powell said President Donald Trump’s trade wars have complicated the Fed’s ability to set interest rates and have contributed to a global economic slowdown.
Speaking to a gathering of central bankers in Jackson Hole, Wyoming, Powell didn’t give financial markets explicit guidance on whether or how many rate cuts might be coming the rest of the year. The Fed cut rates last month for the first time in a decade, and financial markets have baked in the likelihood of more rate cuts this year.
The outlook for the US economy, Powell said, remains favorable but continues to face risks. He pointed to increasing evidence of a global economic slowdown and suggested that uncertainty from Trump’s trade wars has contributed to it.
Reacting to the speech Friday, Trump, who has relentlessly attacked Powell and the Fed over its rate policies, kept up his verbal assaults on Twitter:
“As usual, the Fed did NOTHING!” Trump tweeted. “It is incredible that they can ‘speak’without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the US will do great.”
Trump added:
“My only question is, who is our bigger enemy, Jay Powel (sic) or Chairman Xi?“
Powell’s speech comes against the backdrop of a vulnerable economy, with the financial world seeking clarity on whether last month’s rate decision likely marked the start of a period of easier credit.
The confusion only heightened in the days leading to the Jackson Hole conference, at which Powell gave the keynote address. Minutes of the Fed’s July meeting released Wednesday showed that although officials voted 8-2 to cut their benchmark rate by a quarter-point, there was a wider divergence of opinion on the committee than the two dissenting votes against the rate cut had indicated.
The minutes showed that two Fed officials favored a more aggressive half-point rate cut, while some others adopted the polar opposite view: They felt the Fed shouldn’t cut rates at all.
The minutes depicted the rate cut as a “mid-cycle adjustment,” the phrase Powell had used at his news conference after the rate cut. That wording upset traders who interpreted the remark as suggesting that the Fed might not be preparing for a series of rate cuts to support an economy that’s struggling with a global slowdown and escalating uncertainty from President Donald Trump’s trade war with China.
There was even a difference of opinion among the Fed members who favored a rate cut, the minutes showed, with some concerned most about subpar inflation and others worried more about the threats to economic growth.
Comments Thursday from Fed officials gathering in Jackson Hole reflected the committee’s sharp divisions, including some reluctance to cut rates at least until the economic picture changes.
“I think we should stay here for a while and see how things play out,” said Patrick Harker, the president of the Fed’s Philadelphia regional bank.
Esther George, president of the Fed’s Kansas City regional bank and one of the dissenting votes in July, said, “While I see downside risk, I wasn’t ready to act on that relative to the performance of the economy.”
George said she saw some areas of strength, including very low unemployment and inflation now closer to the Fed’s target level. She said her decision on a possible future rate cut would depend on forthcoming data releases.
Robert Kaplan, president of the Fed’s Dallas branch indicated that he might be prepared to support further rate cuts.
If “we are seeing some weakness in manufacturing and global growth, then it may be good to take some action,” Kaplan said.
George was interviewed on Fox Business Network; Harker and Kaplan spoke on CNBC.
The CME Group, which tracks investor bets on central bank policy, is projecting the likelihood that the Fed will cut rates at least twice more before year’s end.
Adding to the pressures on the Fed, Trump has kept up his attacks on the central bank and on Powell personally, arguing that Fed officials have kept rates too high and should be cutting them aggressively.
Trump has argued that a full percentage-point rate reduction in coming months would be appropriate — a suggestion that most economists consider extravagantly excessive as well as an improper intrusion on the Fed’s political independence.
The president contends that lower rates in other countries have caused the dollar to rise in value and thereby hurt US export sales.
“Our Federal Reserve does not allow us to do what we must do,” Trump tweeted Thursday. “They put us at a disadvantage against our competition.”
Earlier in the week, he had told reporters, “If the Fed would do its job, you would see a burst of growth like you have never seen before.”
Powell has insisted that the White House criticism has had no effect on the Fed’s deliberations over interest rate policy.