ASEAN losing steam from global slowdown: says Moody's unit

The research unit of Moody’s Investors Service said in a report that the deteriorating external situation would cap overall Asean growth below trend at about 4.8 per cent this year, and slightly weaker in 2012.
“Thai industry is growing at two speeds, with producers selling to the domestic market faring better than their export-dependent counterparts – textiles, clothing and electronics are feeling the pinch from a weaker global economy.
“The floods in Thailand, set to last another four to six weeks according to government estimates, are expected to shave up to 1 percentage point from 2011 GDP [gross domestic product] growth, pushing the forecast [currently 3.7 per cent] below 3 per cent year on year,” the report said. Except for Indonesia, the economies of the founding members of Asean – the others being Singapore, Thailand, Malaysia and the Philippines – are reliant on external demand to drive growth. Following Japan’s natural disaster in March, all suffered dearly in the second quarter due to weaker global demand and supply-chain disruptions.
For example, in the quarter, Singapore was hardest hit, growing 0.9 per cent year on year, after expanding 8.3 per cent in the first quarter, the research unit said.
With the bleak outlook, Moody’s Analytics’ view is that monetary tightening is now off the cards.
Inflationary pressure in Asean is moderating as global energy and food prices come off the boil. Meanwhile, moderating global conditions will flow through to slower production, employment and wages, reducing upward pricing pressure through next year, it said.
However, an upside risk to inflation is higher prices for rice, a staple food in Asia.
Flooding in Thailand, the world’s largest rice exporter, has damaged around 20 per cent of the country’s crops. The export price for Thai rice – the benchmark price in Asia –has increased 26 per cent since the end of May and is likely to rise further in the coming months as alternate supplies in India and Pakistan are unlikely to absorb the shortfall.
With most Asean currencies depreciating since August amid heightened risk aversion, imported inflation could add to price pressures, the report said.
Further deterioration in the US or Europe would severely hamper growth in Southeast Asia. Moody’s Analytics has modelled the impact of a US and Europe growth shock, finding that a 1-per-cent quarter-on-quarter contraction in those economies immediately reduces Asean growth by 1.5 per cent, quarter on quarter.
In such an environment, capital flight is likely, the research unit said.