Emerging Asia growth seen slowing in 2019

MANILA, Philippines — Emerging Asian countries are expected to register weaker growth next year as a slowdown in global demand is expected to hurt regional exports and prevailing high interest rates weigh on growth prospects, said London-based Capital Economics.

In a research note, the think tank said growth in the region – which excludes China and India – is expected to slow from 4.7 percent this year to just four percent in 2019, the slowest since the 2008-2009 global financial crisis.

Capital Economics said while the region stands to benefit from falling oil prices, this is likely to be offset by weaker global demand.

“The impact of lower oil prices is likely to be offset by weaker export demand. Even if the recent ceasefire in the trade war between the US and China holds, a slowdown in global growth means regional export growth is likely to weaken further,” the firm said.

Prevailing high interest rates in the region are also expected to weigh on growth prospects especially in the Philippines, which has raised policy rates aggressively this year.

On the upside, increased government spending for ambitious infrastructure projects in countries like Philippines, Thailand and Taiwan are expected to support growth. Singapore and Korea also have expansionary budgets planned.

As inflation is also set to fall back, Capital Economics expects the monetary policy tightening cycle in the region to come to an end with the possibility that some countries would start cutting rates by the middle of next year.

“Inflation across the region has started to ease in recent months and we expect it to fall further in 2019 due to a combination of falling oil price inflation and easing economic growth,” the firm said.

“With inflation set to fall back and growth likely to weaken, the region’s interest rates cycle is likely to draw to a close. Instead, interest rate cuts are likely to come on to the agenda in a few places. We are expecting rate cuts in the Philippines and Malaysia,” it added.

Capital Economics also expects another difficult year for the financial markets in the region next year.

“After a difficult 2018 for financial markets, things are unlikely to improve much in 2019. We expect further falls in Asian equities and currencies next year. That said, the size of the falls should at least be smaller than experienced this year. We are more bearish than other analysts for both equities and currencies for next year,” it said.