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Business

Emerging Asia growth to remain weaker this year, says think tank

Czeriza Valencia - The Philippine Star

MANILA, Philippines — Growth in Emerging Asia is expected to remain weak of the rest of the year as looser fiscal and monetary policy are unlikely to offset the drag from weaker global demand, Capital Economics said.

The London-based think tank noted that most of the economies in the region reported slower first quarter growth rates with the sharpest slowdown seen in Korea, Thailand and the Philippines.

Slowdown in growth across the region was caused primarily by a decline in exports and slower domestic demand. In the Philippines, first quarter slowdown was caused mainly by diminished government spending because of the delayed passage of the national budget.

“We think that a rebound in growth is unlikely over the coming quarters. On the plus side, fiscal policy should remain supportive throughout most of the region. The Philippines, Thailand and Taiwan all have ambitious infrastructure projects in the pipeline while Singapore and Korea have expansionary budget planned for next year,” the firm said in a research note.

The Bangko Sentral ng Pilipinas has so far partly reversed the policy tightening last year by cutting policy rates by 25 basis points in May.

It has also brought down the reserve requirement ratio (RRR) for universal and commercial banks by 200 basis points to be implemented in three stages starting with 100 basis points effective May 31, followed by 50 basis points on June 28, and another 50 basis points on July 26.

Medium and small banks also got RRR cuts to six percent from the current level of eight percent in three tranches similar to the schedule for universal and commercial or big banks.

Economic managers have also laid down a so-called catch-up plan for spending on infrastructure and government programs to support the economy.

“However, looser fiscal and monetary policy is likely to be offset by weaker external demand. Our forecasts are for global growth to slow further, which will weigh on exports. A slump in demand for electronics products, which has been caused by a shift in the inventory cycle, will also drag on growth,” said Capital Economics.

“A further escalation of the trade war between China and the US is likely to act as a further headwind, although the impact is unlikely to be severe as in commonly assumed. Indeed, there is evidence that parts of the region are actually benefiting from the trade war as US demand has shifted away from China towards alternative suppliers,” it added.

While it expects growth in the region to be subdued for the remainder of the year, Capital Economics still expects the Philippines to do better than some of the countries in the region.

“Overall, we expect growth to remain fairly subdues over the coming quarters,” it said. “In terms of countries to look out for, we are anticipating a sharp slowdown in 2019 in Hong Kong, Singapore, Taiwan, Korea and Thailand, but for growth to hold up much better in Indonesia and the Philippines,” it said.

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