[SINGAPORE] Thailand and Indonesia are expected to be growth laggards within Asean, noted Euben Paracuelles, chief Asean economist at Nomura at the Nomura Investment Forum Asia press conference held at The Ritz-Carlton, Millenia Singapore on Tuesday (Jun 3).
In the case of Thailand, he pointed to the 36 per cent tariff threat it faces from the US, unless it is able to negotiate for a reduction by the end of July. “Thailand is among the countries with the highest exposure to the tariffs.”
Another reason is the tight lending policy of the banks in Thailand, Paracuelles added, citing the negative loan-growth figures in the country over the past few months.
Comparing the country’s economy against those of Singapore and Malaysia from a domestic demand perspective, he noted that Thailand has a relatively weak “starting point”.
“You also have structural issues in Thailand, such as ageing and high household debts,” he elaborated.
Currently, Thailand has one of the highest household debt levels in Asia, standing at 88.4 per cent of gross domestic product. In addition, the proportion of its population aged 65 and above is set to reach 22.8 per cent by 2035.
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“I’ll emphasise that Thailand is going to be running negative inflation. We think the risk in Thailand could become a bit more entrenched.”
In April, Moody’s Ratings changed its outlook for the country’s economy from “stable” to “negative”.
Paracuelles added: “We think it would be very difficult for Thailand to avoid an actual downgrade in the rating within the next six to 12 months again, because of the need to provide fiscal stimulus and borrow, which will result in debt levels going up even more.”
Another country singled out by Paracuelles was Indonesia.
“In the growth spectrum, Indonesia is amongst the underperformers for us,” he said, citing Nomura’s growth forecast of 4.7 per cent for the country this year.
He said that Indonesia is challenged by poor consumer sentiment, weak labour markets, and factory closures because of competition with imports from China.
“You’ve got the central bank that’s not been able to cut rates as much as it likes because of currency constraints in the past several months,” he added.
“I don’t think these things will reverse very quickly if (the economy) drags. It will require the government to step in a bit more, and we’re starting to see that.”
He noted that the Indonesian government has announced stimulus packages, as well as other initiatives such as the free meals programme.
“There are no corresponding revenues to pay for these programmes,” he said. He emphasised that unless the government finds the revenue elsewhere, it risks growing the country’s deficit.
“It is a tough balancing act.”
More resilient
On the other hand, Paracuelles was optimistic about the economic outlook for Singapore and Malaysia.
“Singapore could do well in this environment because we think it has a lot of fiscal firepower after the election.”
He elaborated that Nomura expects the city-state to provide support measures to the job markets if the external condition deteriorates. “We think unemployment rates in Singapore will not rise as sharply as you would expect in this kind of environment.”
Paracuelles also believes that central banks around Asean will decouple from the US Federal Reserve’s interest rates.
“They will keep cutting rates, either because inflation is very low or below target, or to provide their currency with some flexibility to provide some accommodation,” he said.
Paracuelles singled out Malaysia as an exception, and expects Bank Negara Malaysia to keep the policy rate stable.
“Malaysia’s domestic economy is actually quite resilient. There is a lot of investment growth that is happening, and that is providing the offset to weakness in exports.”
