Southeast Asia growth slowdown adds pressure for rate cut

Malaysia’s gross domestic product increased 4.8 per cent in the three months through September from a year earlier, after a 4-per-cent expansion the previous quarter, according to the median of 25 estimates in a Bloomberg News survey. Thailand’s growth probably accelerated to 4.5 per cent from 2.6 per cent, according to a survey of 11 economists.

“Exports will likely soften in the coming months as Europe slides into a recession,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Both Bank Negara Malaysia and the Bank of Thailand will keep their options open and ease if growth readings turn ugly in coming months.”

Ho Woei Chen, an economist at United Overseas Bank in Singapore, expects Malaysia and Thailand to highlight the risks to growth. “It’s part of monetary easing if they let their currencies weaken,” Ho said. “Probably they are not cutting interest rates that aggressively but letting their currency depreciate.”

The Malaysian ringgit has fallen more than 5 per cent in the past three months and the baht has weakened 3.3 per cent. Neither country has cut interest rates even as Indonesia and Australia lowered borrowing costs this quarter.

Singapore, which uses the island’s dollar as its main tool to manage inflation, said in October it would reduce the pace at which the currency strengthens. The nation’s exports fell the most in more than two years in October as electronics shipments by companies such as contract manufacturer Venture Corp dropped 31.2 per cent, a report showed on Thursday.
Exports and domestic demand probably helped Thailand and Malaysia expand faster last quarter, before the deepening European sovereign-debt crisis and the worst Thai floods in almost 70 years threatened global growth and regional trade.

“Strong domestic demand continued to drive growth” in Malaysia, said Daniel Wilson, an analyst at Australia & New Zealand Banking Group Ltd in Singapore. “Looking ahead, one of the major risks to growth is a slowdown in the external sector spilling over into the domestic economy. Supply-chain disruptions stemming from Thai floods may depress industrial production in the short run.”

Investment has accelerated in Southeast Asia’s third-largest economy since Malaysian Prime Minister Najib Razak’s government last year identified US$444 billion (Bt13.8 trillion) worth of private-sector-led projects to spur growth.
International Business Machines Corp, Toshiba Corp and Agilent Technologies are among companies pledging new investments in Malaysia.

 “Most of the emerging economies like ours are still experiencing growth even though we may experience a moderation in growth because of the challenging global environment,” Bank Negara Malaysia Governor Zeti Akhtar Aziz said this week.
In Thailand, Prime Minister Yingluck Shinawatra is struggling to rescue the nation from floods that have claimed at least 567 lives, swamped thousands of factories and threatened the homes of 20 per cent of the Kingdom’s 67 million people since late July.

The flood damage could cost as much as Bt400 billion, or 4 per cent of GDP, Rahul Bajoria, a Singapore-based regional economist at Barclays, said in a research note. He revised down his forecast for Thai economic growth this year to 2.4 per cent and predicted the central bank would cut the policy rate by 50 basis points to “shore up consumer and business confidence”.
Kampon Adireksombat, an economist at Tisco Securities Co in Bangkok, said: “The strong growth we’ve seen in all GDP components in the third quarter will turn opposite this quarter. The flooding is far worse than what we had expected as the water spread through most of our capital.

“We expect the central bank to come up with a drastic move of a 50-basis-point cut at the upcoming meeting if they want to rescue the economy.”