Dollar struggles, stocks up on dovish Fed but trade fears persist

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ICAEW: Malaysia’s GDP growth to moderate in 2019, forecast at 4.4%

KUALA LUMPUR: Malaysia’s gross domestic product (GDP) is expected to grow at 4.4% in 2019 on the back of domestic demand, amidst a difficult export environment, according to the Institute of Chartered Accountants in England and Wales’ (ICAEW) latest Economic Insight: South-East Asia report.

It said Malaysia’s domestic demand is expected to cushion against challenges of moderate export growth amid increased trade protectionism and slower Chinese import demand. Exports are expected to remain under pressure, with the increase in trade protectionism over the past year unlikely to change any time soon.

Economies in the South-East Asian region started the year on a soft note, as a result of the weakness in global economic activity late 2018. Malaysia was the only country to record positive annual growth for exports, as regional figures tumbled in December 2018; contracting 2.3% on the year following a weak outcome (2.2%) in November. Data indicates further weakness ahead in the manufacturing and export sectors as Malaysia’s aggregate Purchasing Managers’ Index slipped into contractionary territory.

Domestic demand will likely provide some relief, however there are pockets of concern, with regards to investment growth. Private capital expenditure especially in machinery and equipment investment, has been on a downward trend in Malaysia in light of notably slower export growth.

Residential investment will also expected to be held back by demand and supply imbalances but construction, particularly infrastructure investment, is expected to limit the downside to overall investment. Benign inflation conditions and rising real income growth will also continue to support household spending.

ICAEW economic advisor & Oxford Economics lead Asia economist Sian Fenner said looking ahead, it expects the risks to the economic outlook of Malaysia to be primarily to the downside.

“A sharper slowdown in Chinese economic growth, triggered by worsening confidence or a renewed escalation in US-China trade tensions, both affect global trade and growth across the region. That said, we do not expect the external environment to be as worrisome as it was in 2015/16, as China’s growth is also expected to stabilise in Q2,” Fenner said in a statement.

Looking at economies in South-East Asia, domestic demand will likely provide some relief, together with accommodative macro policies. Most central banks are likely to keep policy rates unchanged well into the second half of 2019 amid muted inflationary pressures. Expansionary fiscal policy will also help, with fiscal spending expected to be strong in Indonesia, Thailand and the Philippines ahead of upcoming elections in the first half of 2019.

ICAEW regional director of South-East Asia Mark Billington said although it expects domestic demand to remain resilient, the impact of increased trade tensions in the past year and slower Chinese import demand is likely to act as a drag on the region’s growth as a whole.

“The outlook for Asia trade may continue to face a challenging export environment,” said Billington.

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Asian business sentiment lingers near three-year low in Q1

SEOUL: Confidence among Asian companies held near three-year lows in the first quarter as a US-China trade dispute dragged on, pulling down a global economy that is already on a downward path, a Thomson Reuters/INSEAD survey found.

The Thomson Reuters/INSEAD Asian Business Sentiment Index tracking firms’ six-month outlook was flat in the March quarter from the previous quarter’s 63, compared with a near three-year low of 58 set in the September quarter.

A reading above 50 means optimistic respondents outnumbered pessimists, but the latest index still marks one of the five worst since the world started its recovery from the 2008-2009 global financial crisis.

“Things have not gotten worse but a lot of uncertainty is putting companies in wait-and-see mode,” Antonio Fatas, a Singapore-based economics professor at global business school INSEAD, said of US-China talks on trade relations.

“In one week, it looks like they are promising and the week after it looks like they are going nowhere, and so there’s a lot of wait-and-see attitude,” he added, saying the uncertainty is forcing companies to put off investment decisions.

A global trade war was cited as the chief business risk by respondents for the third quarter in a row, though by a smaller margin. Higher interest rates emerged as the second-biggest risk, outpacing a slowing Chinese economy.

A total of 100 companies from a range of sectors responded to the survey, conducted from March 1-15 in 11 Asia-Pacific countries where 45 percent of the world’s population live and 32% of global gross domestic product is generated.

The United States and China have put on hold a planned escalation of their trade war pending negotiations, but the much-awaited conclusion of the latest round of talks has also been delayed even though remarks from the two sides have been optimistic.

Global agencies including the International Monetary Fund and the Organisation for Economic Cooperation and Development have said failure to resolve trade tension could further slow a downward-trending global economy.

Regional powerhouses China, Japan and South Korea all saw exports fall last month, with China and South Korea suffering their worst annual declines in overseas sales in around three years.

The index staying above the neutral point of 50 suggests companies in Asia are not expecting an imminent global recession, but languishing near multi-year lows indicates companies are exerting caution.

“We don’t see a global hard landing as a likely scenario when we look at economic factors such as inflation and credit conditions,” said Young Sun Kwon, economist at Nomura in Hong Kong. “But there are big uncertainties in politics.”

Lessons from the 2008-2009 global financial meltdown have forced countries to strengthen economic defences, but factors such as Britain’s planned exit from the European Union and the US Federal Reserve’s uncertain path are posing threats.

With less than two weeks before the March 29 divorce date, British Prime Minister Theresa May’s government is still struggling to push a departure deal with the EU through the British parliament.

In the US, the Fed has declared a pause in its tightening campaign, but economists foresee at least one more increase later this year despite increasing signs of slowdown in major economies.

Respondents to the survey included Canon Inc, Suzuki Motor Corp, Thai Beverage PCL, Metropolitan Bank and Trust Co and Delta Electronics Thailand PCL. Companies surveyed can change from quarter to quarter.