Moody’s fears for Asean exporters

Northport, Malaysia. Source: Wikimedia

The economic growth prospects of the major export-orientated Asean economies of Singapore, Malaysia and Thailand are set to remain weaker than countries where domestic demand drives trade, Moody’s Investors Service reported.

The international ratings agency said the outlook for Asean was likely to differ depending on volatile global demand.

A Moody’s senior research analyst Rahul Ghosh said growth would be weaker for Singapore, Malaysia and Thailand than the outlook for Indonesia and the Philippines. Indonesia’s GDP was expected to grow at 4.8 per cent this year and 5.4 per cent in 2017.

“Singapore, Malaysia and Thailand are susceptible to a prolonged period of subdued global demand via both the export channel and weaker investment demand,” Ghosh said.

“We forecast G20 GDP growth at 2.6 per cent in 2016, similar to last year and rising to only 2.9 per cent in 2017. And downside risks to global growth are increasing,” he added.

Vietnam (B1 stable), meanwhile, was set to remain Asean’s outperformer on the back of a strong manufacturing sector and a large influx of foreign direct investment.

“Vietnam, meanwhile, will remain a regional growth outperformer on the back of robust manufacturing activity and strong foreign direct investment flows,” Moody’s reported.

The growth of Asean’s exports was falling across the region but the overall impact on members depended on the relative significance of trade to GDP, the ratings agency reported.

Philippine GDP growth eased to 5.8 per cent last year from 6.1 per cent in 2014 due to weaker global demand.

“Economic expansion in Indonesia and the Philippines would likely strengthen in 2016 and 2017, with domestic demand providing the main engine of growth,” Ghosh said.

Moody’s reported that gross fixed capital formation growth was rising rapidly in the Philippines and developing pace in Indonesia.

“In each case, public investment contributed to the pickup as governments in both countries sought to gain further traction in developing much-needed infrastructure,” the report said.

Moody’s said total trade (the sum of exports and imports) accounted for 346 per cent, 131 per cent and 130 per cent of GDP in Singapore (Aaa stable), Malaysia (A3 stable) and Thailand (Baa1 stable) respectively. This was much higher than Indonesia’s 41 per cent (Baa3 stable) and 58 per cent for the Philippines (Baa2 stable).

Moody’s Inside Asean report has examined the introduction of major Malaysian reforms, which have reduced the impact of falling oil prices on government coffers.

Moody’s argued that external pressures, like increased capital flow volatility and consequent exchange rate depreciation, negatively affected Malaysian growth and external metrics. This had justified Moody’s earlier decision to revise the sovereign rating outlook to stable from positive.