JCER/Nikkei Consensus Survey on Asian Economies · JCER/Nikkei Consensus Survey on Asian Economies...

JCER/Nikkei Consensus Survey on Asian Economies

JCER/Nikkei Consensus Survey

on Asian Economies

July 2016

Survey Date: June 14-30, 2016

About the Survey

This quarterly consensus survey, launched in March 2016, covers five ASEAN countries – Indonesia,

Malaysia, the Philippines, Singapore and Thailand -- and India. It is conducted by Japan Center for

Economic Research (JCER), in cooperation with Nikkei Inc., the publisher of The Nikkei and the

Nikkei Asian Review. The results are disseminated through Nikkei publications and the JCER.

It is linked with a similar consensus survey on the Chinese economy conducted by Nikkei and

Nikkei Quick News (NQN). The analyses of both surveys are reflected in this report.

The Questionnaires were sent on June 14, 2016, to experts across the region and 38 responses were

collected by the end of the month. In addition to their forecast figures, economists’ perspectives and

outlook on Asian economies are provided.

Contents

Overview Page 2

Forecasts Page 3

Risk Page 6

Comments Page 7

Country reports

Indonesia Page 9

Malaysia 1

Philippines Page 13

Singapore Page 15

Thailand Page 17

India Page 19

Survey respondents Page 21

The survey team Page 22

- 2 -

Japan Center for Economic Research July, 2016

July 2016 Issue

Survey Date: June 14-30

Overview

Growth revised down; Brexit adds uncertainty

Market risks increase, China fears persist

Philippine president: infrastructure a priority Economists revised down their forecasts on growth for several Asian countries for 2016 and beyond,

as the referendum in the U.K. on remaining in the European Union, known as Brexit, was won by

the leave camp. Financial turmoil and other market-related risks have become the major concerns for

economists, followed by the possibility of a Chinese economic slowdown. Expectations are high for

Philippine President Rodrigo Duterte, who has promised to prioritize infrastructure development

after winning a May election.

===================================

Main points of the survey

Note: Not all forecasts were revised after the Brexit vote.

Impact of Brexit

Economists expect Asia to feel the impact

of Brexit, the survey indicates. Growth

forecasts for three Association of Southeast

Asian Nations (ASEAN) countries –

Indonesia, Malaysia and Thailand – for 2016

were revised down. The average forecasts for

the ASEAN5 economies for 2017 and 2018

were also revised down.

The impact of Brexit is not fully reflected in

the survey as some respondents did not

include the impact of the Brexit result in their

forecasts for some areas of the economy.

Growth forecasts for the ASEAN5 were revised down for 2017 and 2018, when

compared with the March survey, in part due to the impact of the Brexit vote.

Forecasts for Indian growth are 7.7-7.9% for 2016/17, 17/18 and 18/19.

Financial market turmoil is conceived as the biggest economic risk in the coming 12

months in Malaysia, the Philippines, Singapore and India. Other market-related risks

are also a major concern in all six countries.

A Chinese economic slowdown continues to be seen as a big risk.

The growth forecast for the Philippines for 2016 is revised up 0.3 percentage point to

6.4%, reflecting optimism about new President Rodrigo Duterte. The top priority for

his administration is infrastructure development.

Growth rates of ASEAN5, India, China; in percent

Forecasts for 2016, onward; India’s figures for fiscal

year, which begins in April

0.0

2.0

4.0

6.0

8.0

10.0

2011 2012 2013 2014 2015 2016 2017 2018

ASEAN5 India China

- 3 -


The Brexit result, however, was considered a risk for Asia by many economists. Three months ago,

declining reform prospects and a Chinese economic slowdown were considered two of the biggest

risks in most countries. Now, “financial turmoil triggered by an unexpected event” is considered the

biggest risk in Malaysia, Philippines, Singapore and India; other market-related problems, such as a

fall in commodity prices, are among the list of major risks. (See the table on page 6)

The economists’ views are clear in their comments. Many said that the Brexit impact would first

reach financial markets; before hitting the real economy through trade and investment (see the table

of comments on Brexit in page 7). In addition, economists worry that the negative impact would

shake support for economic unification and regional integration through ASEAN, as Yose Rizal

Damuri of the Centre for Strategic and International Studies points out.

Even with the head wind of Brexit, the region’s economies are generally expected to maintain

growth. Forecasts for the ASEAN5 rise from 4.3% for 2016 to 4.9% for 2018. The growth forecasts

are nearly 8% for India from 2016/17.

For the Philippines, optimism on growth is higher than for the other four ASEAN countries.

Economists view infrastructure development as the policy priority for new President Duterte. (See

the report on the Philippines on pages 13-14)

Forecasts

1. Economic growth

2016 2017 2015 2016 2017 2018

Q1 Q2 Q3 Q4 Q1

ASEAN5 - - - - - 4.2 4.3 4.6 4.9

(4.3) (4.7) (5.1)

Indonesia 4.9 5.0 5.2 5.4 5.3 4.8 5.1 5.6 5.8

(5.2) (5.3) (5.3) (5.2) (5.6) (6.1)

Malaysia 4.2 4.2 4.4 4.5 4.6 5.0 4.3 4.5 4.9

(4.2) (4.5) (4.5) (4.4) (4.6) (4.8)

Philippines 6.9 6.6 6.2 6.2 6.3 5.9 6.4 6.2 6.7

(6.2) (5.9) (6.1) (6.1) (6.2) (6.9)

Singapore 1.8 1.8 1.8 1.8 2.1 2.0 1.8 2.0 2.7

(1.9) (1.9) (1.7) (1.8) (2.3) (3.3)

Thailand 3.2 2.6 2.6 2.5 4.0 2.8 2.9 3.3 3.3

(2.9) (3.0) (3.2) (3.0) (3.6) (3.4)

India 7.9 7.5 7.4 7.8 7.8 7.6 7.8 7.9 7.7

(7.5) (7.6) (7.8) (7.7) (7.8) (8.0)

China 6.7 6.6 - - - 6.9 6.6 6.3 6.3

- - - - (6.5) (6.2) (6.2)

Note: Year-on-year; in percent. Forecasts for 2016, onward.

India’s figures for fiscal year, which starts April.

Figures in parentheses: average forecasts in March survey.

Source: JCER/Nikkei Consensus Survey, Nikkei/NQN Survey, Haver Analytics.

- 4 -


Growth strong in India, Philippines

Uncertainty remains about the impact of Brexit, but the survey indicates that a gradual increase in

growth is likely to continue for the next three years in the ASEAN5 economies. Growth optimism is

especially strong in the Philippines. It is forecast for 2016 at 6.4%, 0.5 percentage point higher than

was logged in 2015. The Philippine economy has been helped in part by the increase of consumption

stimulated by events related to the presidential election. It is expected that growth of 6% or more

will continue for 2017 and 2018. Increased investment in infrastructure and other fields as well as

private consumption is expected to help drive growth.

Indonesia is expected to maintain growth of 5% or more through 2018. The driving forces for the

Indonesian economy are investment and consumption.

Growth forecasts for India are more than 7.7% for the coming three fiscal years, which begin April 1

annually. Good weather conditions are expected for fiscal 2016/17, which will help drive growth in

the agricultural sector.

The negative impact of Brexit may be larger in countries whose economies depend heavily on

exports. Forecasts for Singapore, Malaysia and Thailand have been revised downward for two or

three years between 2016 and 2018.

2. Inflation rates

2016 2017 2015 2016 2017 2018

Q1 Q2 Q3 Q4 Q1

India 5.3 5.5 5.3 5.1 5.6 4.9 5.2 5.4 4.8

Indonesia 4.3 3.6 3.7 3.9 3.6 6.4 4.0 4.4 4.2

Malaysia 3.4 2.1 1.9 2.4 3.3 2.1 2.5 2.6 2.9

Philippines 1.1 1.5 2.3 2.6 2.0 1.4 1.9 3.0 3.1

Singapore -0.8 -0.6 -0.1 0.1 0.3 -0.5 -0.4 0.8 1.3

Thailand -0.5 0.1 0.7 1.3 1.0 -0.9 0.4 1.6 1.8

Year-on-year; in percent. Forecasts for 2016, onward.

India’s figures for fiscal year, which starts April.

Source: JCER/Nikkei Consensus Survey, Haver Analytics.

Highs and lows

Inflation rates for the countries surveyed are divergent. Rates were at around 5% or higher in

India and Indonesia in 2015. Preventing higher inflation is a policy challenge. Inflation rates were

negative in Thailand and Singapore in 2015. Avoiding deflation is a priority in these countries.

The rate is decreasing significantly in Indonesia. It was 4.3% in Q1. Forecasts are for less than

4% inflation after Q2. Low oil and commodity prices helped push down inflation. The rate is

expected to stay at more than 5% in India for fiscal 2016/17 and 2017/18.

Inflation in the Philippines is expected to rise through 2018 because of stronger economic

growth. Thailand’s rate is expected to return positive while Singapore’s is forecast to remain

negative in 2016.

- 5 -


3. Unemployment rates

2016 2017 2015 2016 2017 2018

Q1 Q2 Q3 Q4 Q1

Indonesia 5.5 5.8 5.8 5.8 5.8 6.2 6.0 5.9 5.7

Malaysia 3.4 3.5 3.5 3.4 3.5 3.2 3.4 3.4 3.2

Philippines 5.7 5.8 5.8 5.7 5.5 6.3 6.0 5.9 5.9

Singapore 1.9 2.1 2.1 2.2 2.3 1.9 2.1 2.1 2.1

Thailand 0.9 1.0 1.1 1.0 0.9 0.9 1.0 1.0 0.9

Year-on-year; in percent. Forecasts for 2016, onward.

Source: JCER/Nikkei Consensus Survey, Haver Analytics.

Slight improvement expected in Indonesia, Philippines

Securing employment is a policy priority in many countries. Indonesia, for example, set its

GDP growth target at 5.5% for 2016 to fully absorb new labor entering the market. Forecasters see

unemployment rates for Indonesia and the Philippines holding steady or dropping through 2018.

Labor shortages were a central issue in Thailand and Singapore, but that is changing as their

economies slow down. Setting foreign labor policies has therefore become important to these

countries. Flexible labor transfers between the manufacturing and agriculture sectors have kept the

unemployment rate low and stable in Thailand. Statistics are unavailable for India.

4. Exchange rates

(Domestic currency to U.S. dollar)

2016 2017 2015 2016 2017 2018

Q1 Q2 Q3 Q4 Q1

India 66.3 67.6 69.2 69.9 70.0 66.3 69.1 69.5 71.0

Indonesia 13276 13180 13610 13610 13775 13800 13663 13383 13533

Malaysia 3.92 4.02 4.18 4.13 4.12 4.29 4.14 3.95 3.81

Philippines 46.0 47.0 47.6 48.0 48.7 46.9 48.3 47.7 47.6

Singapore 1.35 1.35 1.42 1.43 1.46 1.41 1.45 1.45 1.38

Thailand 35.13 35.12 36.57 36.88 36.97 36.06 36.88 37.50 37.75

Forecast for end of periods for 2016, onward. India’s figures for endo of fiscal years

Source: JCER/Nikkei Consensus Survey, Haver Analytics, Bloomberg

Uncertainty in financial markets, U.S. monetary policy major factors

The financial markets have become unstable after the Brexit referendum, meaning a U.S.

interest rate hike has become less likely in the near term. Market uncertainty and U.S. monetary

policy are considered the main driving factors for Asian currency exchange rate changes.

The differences between the maximum and minimum forecasts are generally larger than those

seen in the March survey, reflecting increasing volatility.

- 6 -


5. Interest Rates

2016 2017 2015 2016 2017 2018

Q1 Q2 Q3 Q4 Q1

India 6.75 6.50 6.50 6.38 6.31 6.75 6.30 6.00 6.00

Indonesia 6.75 6.55 6.45 6.35 6.38 7.50 6.44 6.19 5.83

Malaysia 3.25 3.25 3.25 3.27 3.27 3.25 3.27 3.29 3.42

Philippines 4.00 3.40 3.40 3.40 3.33 4.00 3.29 3.35 3.50

Singapore 1.06 1.03 1.12 1.19 1.50 1.19 1.19 2.05 2.75

Thailand 1.50 1.46 1.42 1.38 1.38 1.50 1.38 1.50 2.25

Three-month Sibor for Singapore; BI rate for Indonesia; policy interest rates for other countries

Philippines’ monetary policy operations system changed in June, 2016

Estimates for end of periods; forecasts for 2016, onward. India’s figures for end of fiscal years

Source: JCER/Nikkei Consensus Survey, Haver Analytics, Bloomberg

Regional rates diverge

Forecasters expect a decrease in interest rates through 2018 in India and Indonesia. Rising rates

are expected for Thailand and Singapore, due to the prospect of a U.S. hike.

Risk

Changes in anticipated risks for Asian economies in the coming 12 months

June 2016 March 2016

Indonesia

1. Chinese economic slowdown

2. ★Fall in commodity prices

3. Fiscal austerity drags on growth

3. Economic reform prospects decline

1 Reform expectations decline

1 ★Fall in commodity prices

3 Chinese economic slowdown

Malaysia

1. ★★Financial turmoil triggered by unanticipated event

2. U.S. economic slowdown


1 ★Fall in commodity prices

2 U.S. economic slowdown

3 ★★Financial market turmoil

Philippines



2. Infrastructure issues hinder economic activity




Singapore



3. ★U.S. monetary policy



3 Asian economies slowdown

Thailand

1. Political instability



3. Rising household or corporate debt


2 Political instability


India


1. ★Capital outflows/foreign investments slowdown

3. Political instability


2 ★Rise in commodity prices

3 ★Capital outflows

★★ market turmoil, ★ market-related risks “Unanticipated event” includes Brexit

Source: JCER/Nikkei Consensus Survey on Asian Economies

- 7 -


Market risks increase

The survey asked respondents to name three big risks for their country’s economies in the coming

12 months. The answers were tallied and rankings were made for each country; the results are shown

in the above table.

Three major risks emerged in the March survey: A decline in expectations for economic reform, a

slowdown in the Chinese economy and market turbulence. Now, market-related risks are seen to

have increased significantly.

Financial turmoil triggered by an unexpected event, such as the result of the Brexit referendum, is

seen as the biggest risk in Malaysia, the Philippines, Singapore and India. It is the third-largest risk

in Thailand, according to the economists surveyed.

Among other market-related risks, capital outflows and/or a foreign investment slowdown is the

biggest risk in India, a fall in commodity prices is the second-biggest risk in Indonesia and

repercussions of U.S. monetary policy is the third-biggest risk in Singapore.

A Chinese economic slowdown is the biggest risk in Indonesia and Thailand, the second-biggest

risk in Philippines and Singapore and the third-biggest risk in Malaysia.

In Thailand, political instability is seen as the biggest risk. Declining economic reform prospects

is the third biggest risk in India.

Views and Comments

On the impact of Brexit

“In the short term the impact on Indonesia and other ASEAN countries will be minimal. …

In the longer term … the negative impact on the U.K. and the rest of the EU would affect

ASEAN countries in a more substantial way, perhaps through investment and trade.”

“More worrying is the message that it sends to developing countries. … If even these [EU]

countries with a long history of integration are not favorable to open economies, how can

you expect ASEAN countries to look for regional integration?”

(Yose Rizal Damuri, head of department of economics, Centre for Strategic and

International Studies, Indonesia)

“Brexit’s short-term impact on Indonesia will mostly be seen in the financial market.”

“The medium-term impact will be downside risks to economic growth and the current

account balance.”

“A large concern is the indirect impact from Europe [on the economy].”

(Dendi Ramdani, department head of industry and regional research, Bank Mandiri of

Indonesia)

“Financial market turmoil has the highest potential of dragging down the U.S. economy

and global economic growth at this stage”

“Malaysia cannot avoid a recession if external trade contracts significantly.”

(Lim Chee Sing, chief economist, RHB Research Institute, Malaysia)

“The indirect impact of Brexit could mean volatile financial markets in the Philippines.”

(Ildemarc Bautista, head of research, Metropolitan Bank & Trust, Philippines)

- 8 -


“The negative impact from Brexit on the economy is likely to be limited at this moment. …

For the long- and medium-term, productivity improvements and deep integration with

surrounding ASEAN economies will be key factors for sustainable economic growth in

Singapore.”

(Hayato Nakamura, Bank of Tokyo-Mitsubishi UFJ, Singapore)

“Brexit will have a large negative impact on Thailand given that it is an open economy.”

(Euben Paracuelles, senior economist, Nomura Singapore)

“Greater uncertainty after the U.K. vote to leave EU and slower global growth prompted us

to revise down our forecast for India GDP by 10bp.”

(David Fernandez, head of FICC Research, Barclays, Singapore)

“Continued uncertainty around Brexit, the Fed interest rate cycle and low global growth

will keep the pressure on the rupee.”

(Dharmakirti Joshi, chief economist, CRISIL, India)

Various views

Country Comment

Indonesia

“Economic growth was supported by a moderate rise in private consumption,

government spending and investment.”

(Juniman, chief economist, Maybank Indonesia)

“Tax revenue cannot achieve the target cut on capital expenditure. Reform

cannot be implemented optimally because of internal conflict inside the cabinet

and between national and local administrations.”

(Umar Juoro, chairman of Center for Information and Development Studies)

Malaysia

“BNM may cut the OPR/SRR in response to the possible adverse impact from

Brexit.”

(Suhaimi Ilias, group chief economist, Maybank)

Philippines

“GDP growth is expected to be driven by high government spending,

especially in the second quarter, due to election-related expenditures.”

(Ildenmarc Bautista, head of research, Metropolitan Bank & Trust)

Singapore “The decline has been gradual but there are few signs of an early recovery.”

(Randolph Tan, associate professor, SIM University)

Thailand

“The smoothness of political transition is crucial, including the continuation of

government investment policy and the effectiveness of fiscal budget

disbursement.”

(Thammarat Kittisiripat, senior economist, KT ZMICO Securities)

India “The departure of Dr. Rajan will have a negative impact on the currency”

(Kentaro Konishi, president & CEO, Daiwa Capital Market India)

Note: See the list of survey respondents on page 21 for official names and titles.

- 9 -


Highlights

Growth cut, but kept above 5%

The forecast figures for 2016 and beyond

were revised downward from the March

survey in the aftermath of the Brexit vote.

Growth of 5.1%, however, is expected for

2016, 0.3 percentage point higher than 2015’s

4.8%. Dendi Ramdani of Bank Mandiri

expects growth to continue, helped by a

“commodity price rebound and infrastructure

development.” On the Brexit impact,

respondents worry about long-term effects

rather than a short-term shock.

1. Growth prospects

Recovery to strengthen

The Q1 growth rate was less than 5%, but

economists expect a stronger recovery for Q4.

Barclays’ David Fernandez says, “We expect

the recovery to continue, albeit at a more

gradual pace.” Maybank Indonesia’s Juniman

says a recovery in Q2 was supported by

“private consumption, government spending

and investment,” and that he expects the trend

to continue.

2. Inflation

Energy, food prices to bring down inflation

The CPI inflation rate declined to 4.3% in

Q1 from an average of 6.4% in 2015, brought

down by weak oil and commodity prices. The

average forecast for 2016 CPI is 4.0%, within

the central bank’s target range of 3-5%. CIDES

Chairman Umar Juoro expects low inflation as

“the price of energy is low and food prices are

manageable.” Bank Mandiri’s Ramdani also

sees a gradual improvement in distribution and

supply-side issues leading to lower inflation.

3. Unemployment

More work available, but not enough

The unemployment rate is expected to

decrease due to economic growth. “The

acceleration of infrastructure projects will also

absorb a lot of labor,” says Maybank’s

Juniman. But the growth rate is not sufficient

“to offset fully [supply from] the new labor

force,” says Bank Mandiri’s Ramdani.

4.8 5.1

5.6 5.8

4.0

4.5

5.0

5.5

6.0

6.5

2011 12 13 14 15 16 17 18

yoy, %

June 2016 Ave.March 2016 Ave.

Note: Shadow shows range between max. and min.

forecasts; same applies hereafter.

Indonesia

- 10 -


4. Exchange rate (end of the period)

Overseas influences to effect value

Forecasts spread between 13,150 and 14,800

rupiah in this survey, wider than the 12,500

and 14,000 rupiah in March. All economists

see a possible U.S. interest rate hike and other

influences from overseas markets affecting the

rupiah rate. Barclays’ Fernandez also said

domestic factors such as a constructive policy

backdrop, stable external balance, reserve

adequacy levels and high carry bode well for

the currency.

5. Interest Rate (BI Rate) (end of the period)

Lower interest rates anticipated

The Bank of Indonesia will from August

change its policy interest rate from the current

BI rate to a 7-day reverse repo rate. The BI rate

was cut four times this year from 7.5% at the

end of 2015 to 6.5% at the end of June. Most

respondents see further cuts. The Bank of

Indonesia is trying “to stimulate the economy

by lowering policy rates,” says Umar Juoro of

CIDES. Yose Rizal Damuri of CSIS says, “A

relatively low inflation rate would give space

for the Bank [of Indonesia] to relax its interest

rate policy.”

6. Stock (IHSG Index) (end of the period)

Small improvements expected

Analyst views remain effectively unchanged

from March. A gradual increase is expected in

the IHSG index in the coming years.

Maybank’s Juniman says that the upward

expectation is “due to the improving outlook

for the Indonesian economy.” However,

CIDES’s Umar Juoro says, “Capital markets

are very vulnerable to capital inflows and

outflows.”

7. Risks

China, market risks a worry

A Chinese economic slowdown and financial

turmoil were seen as major risks in the June

survey. In March, people were more concerned

about economic reform prospects. Bank

Mandiri’s Ramdani said that a government

revenue shortfall was also a big risk after

analyzing the budget.

- 11 -


Highlight (Real GDP growth)

Outlook revised down slightly

Forecasters expect GDP growth will moderate

in 2016 compared to last year. Growth for 2016 is

expected to be 4.3%, down 0.1 percentage point

from three months ago. RHB Research Institute’s

Lim Chee Sing expects a “continued slowdown in

2Q 2016 given the weak export outlook and

private investment.” Most expect growth to

recover modestly in 2017 and 2018.

1. Growth prospects

Growth seen rebounding after first half

Many forecasters expect growth to bottom out

in the first half of the year, before rebounding.

Nomura Securities’ Euven Paracuelles says,

“Growth is likely to pick up slightly in H2,

especially as palm oil production recovers from

bad weather” and “ongoing projects under the

Economic Transformation Program are also

supporting private sector investment.”

2. Inflation

Prices rises to be tempered by crude oil

While the effect of a goods and services tax rise

abates in 2Q16, factors such as a “toll road hike”

(Maybank’s Suhaimi Ilias) and the “removal of

more subsidies by the government” (Lim Chee

Sing) are expected to push up prices. Meanwhile,

AmInvestment Bank’s Patricia Oh Swee Ling and

others note “the upside pressure for 2016 is

mitigated by the lackluster global crude oil

prices.”

3. Unemployment

Situation expected to worsen slightly

The unemployment rate is creeping up given

“rising labor retrenchment in the oil and gas,

financial and manufacturing industries,” says Lim

Chee Sing. But it is not expected to worsen much

further “given sustained growth in the economy,

albeit on a moderating trend,” Lim said.

4. Exchange rate

Risk-sensitive currency may be undervalued

Many expect the ringgit to strengthen over time,

but it is also considered “highly sensitive to risk

gyrations,” says Barclays’ David Fernandez. He

expects “a significant degree of pressure,

especially if oil prices move lower again, given

the expectation of a renewed downturn in

commodity prices in the event of a leave outcome

[in the U.K. referendum].”

Max. Min.

Jan.-Mar.

Apr.-Jun. 4.2 (▲0.1) 4.7 3.6

Jul.-Sep. 4.4 (▲0.1) 4.7 3.9

Oct.-Dec. 4.5 (▲0.0) 5.2 4.0

4.3 (▲0.1) 4.5 3.9

4.5 (▲0.1) 5.0 4.0

4.9 (＋0.1) 5.3 4.5

Note: Figures in parentheses show change from three months ago.

Average

2016 4.2

2015 5.0

2016

2017

2018

5.0

4.34.5

4.9

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2011 12 13 14 15 16 17 18

yoy, %

June 2016 Ave.March 2016 Ave.


forecasts; same applies hereafter.

2.1

2.52.6

2.9

1.0

1.5

2.0

2.5

3.0

3.5

2011 12 13 14 15 16 17 18

yoy, %

3.2

3.4 3.4

3.2

2.6

2.8

3.0

3.2

3.4

3.6

3.8

2011 12 13 14 15 16 17 18

%

4.29

4.143.95

3.81

3.0

3.5

4.0

4.5

2011 12 13 14 15 16 17 18

MYR/US$

depreciation

Malaysia

- 12 -


5. Policy interest rate

No change likely

Many expect the OPR to be maintained this

year as inflation is kept in check and growth is

expected to pick up at a gradual pace. Suhaimi

Ilias, Euven Paracuelles and others point out

BNM may cut the statutory reserve requirement

(SRR) ratio if domestic liquidity conditions

tighten.

6. Stock price

Flat market expected

A rebound in stock prices from last year is

expected to be moderate at most. As Kenanga IB’s

Wan Suhaimie puts it, “Global economic

uncertainty has definitely affected forward

earnings guidance, and with the absence of a

rerating catalyst it puts a limit to the upside on the

KLCI.”

7. Risks

Concerns of market turmoil grow

Financial turmoil was picked by many as one of

the most significant risks, followed by a

slowdown in overseas economies and

repercussions from U.S. monetary policy changes.

Lim Chee Sing says financial turmoil “has the

highest potential of dragging down … global

economic growth at this stage.” Wan Suhaimie

thinks U.S. monetary policy and a Chinese

economic slowdown “are the main source of the

current imbalance in the global economy.”

8. Probabilities of oil prices and growth

Oil prices seen rising slightly

The most likely price band for oil prices has

shifted a little upward to $40-50 a barrel at the end

of 2016, which implies a limited increase from the

$48 seen at the end of June. Expectations for next

year also creeped up. Lim Chee Sing points out

“persistent disruption to supplies is providing a

very good support to oil prices currently.”

The GDP growth outlook has been revised

downward slightly for both 2016 and 2017. Wan

Suhaimie says his rule of thumb is “that for every

$10/barrel rise/drop in crude oil real GDP growth

for Malaysia would be up/down by about 0.3 to

0.5 percentage points.”

3.25 3.27 3.293.42

2.5

3.0

3.5

4.0

2011 12 13 14 15 16 17 18

%

1693 1731

1200

1400

1600

1800

2000

2010 2011 12 13 14 15 16

Jan.1 1977 = 100

Rank Risks

1Financial turmoil triggered by unanticipatedevent

2 Slowdown of U.S. economy3 Slowdown of Chinese economy4 Repercussions from U.S. monetary policy5 Increase of unemployment6 Economic reform prospects decline

010203040506070

10 -20

20 -30

30 -40

40 -50

50 -60

60 -70

70 -80

80 -90

%

Oil prices ($/barrel)

2016(Previous) 2017(Previous)2016(Current) 2017(Current)

010203040506070

<3.0%

3.0-3.5

3.5-4.0

4.0-4.5

4.5-5.0

5.0-5.5

5.5-6.0

6.0-6.5

6.5-7.0

%

GDP growth (%)

2016(Previous)2017(Previous)2016(Current)2017(Current)

- 13 -


➢Highlight

Improvements expected toward 2018

Most respondents foresee rising growth

toward 2018 even if the Brexit has a negative

effect. The average expected GDP growth rate

is 6.7% in 2018, up from 6.4% in 2016. In the

near term, David Fernandez of Barclays says,

“We expect strong momentum from the

government, as well as election-related and

investment spending to spill over into Q2

growth.”

1. Growth prospects

Spending, service demand to boost growth

Some respondents upwardly revised quarterly

growth rates for the coming two quarters. The

average expected growth rate 3Q 2016 is 6.2%,

compared with an anticipated 6.0% in the

March survey. Ildemarc Bautista of Metrobank

points out, “Growth may have been supported

by robust spending and high service demand.”

2. Inflation

Prices to rise alongside growth

Most respondents expect CPI will rise. The

average CPI forecast is 1.9% for 2016, 3.0%

for 2017, and 3.1% for 2018. Almost all the

forecast numbers in 2017-18 are within the

central bank’s target range of 2-4%. Some

economists expect the CPI rises to be based on

the oil price recovery and domestic demand

expansion.

3. Unemployment

Jobless rate to head below 6% in 2017-18

Alongside an expansion in GDP, the number

of jobs is expected to increase, pushing the

unemployment rate below 6% in 2017-18.

Jonathan Ravelas of BDO Unibank says the

growth of the middle class, as well as a

government “focus on agriculture, tourism and

manufacturing” will bring more jobs to the

country.

1.41.9

3.0 3.1

0.0

1.0

2.0

3.0

4.0

5.0

2011 12 13 14 15 16 17 18

yoy, %

6.3

6.0 5.9 5.9

5.0

5.5

6.0

6.5

7.0

7.5

2011 12 13 14 15 16 17 18

%

Philippines

- 14 -


4. Exchange rate

Possible appreciation toward 2018

The Philippine peso is expected to be worth

48.3 against the dollar in 2016. After that, it

will go up slightly to 47.7 in 2017 and 47.6 at

2018, analysts say. Ildemarc Bautista of

Metrobank says, “a possible appreciation may

occur in the event of fewer Fed rate hikes and a

rebound in exports.”

5. Interest rate

Rise expected before year-end

The Philippine central bank in June

introduced a new monetary policy operations

system, the “Interest Rate Corridor.” The policy

rate (overnight reverse repurchase rate)

changed from 4% to 3% when the system

changed in June. The different systems do not

warrant direct comparison. The central bank,

however, did not change its monetary policy

stance. Economists expect the average interest

rate to be 3.5% in 2018

6. Risks

Financial turmoil the biggest risk

Financial market turmoil triggered by

unanticipated event was considered the biggest

risk in the latest survey, followed by

infrastructure problems and a Chinese

economic slowdown. Declining economic

reform prospects topped the March survey.

Metoropolitan Bank’s Bautista says Brexit will

lead to weak external trade and a weaker peso.

7. New president’s jobs

Infrastructure top priority

The new administration of President Rodorigo

Duterte should prioritize the development of

infrastructure, according to economists. He

should also increase fiscal expenditure, they

said. Duterte promised June 20 to “accelerate

annual infrastructure spending to account for

5% of GDP,” from 2.7% in 2014.” An

economist at one Philippine bank says, “if

traffic congestion is solved by building roads

and bridges, the annual GDP growth rate could

be 8-10% in the near future.” Narrowing the

income gap, developing human resources and

improving government spending efficiency are

also seen as required policies.

47.1748.3147.7047.58

40

42

44

46

48

50

52

2011 12 13 14 15 16 17 18

PHP/US$

depreciation

4.00

3.29 3.353.50

3.0

3.5

4.0

4.5

5.0

5.5

2011 12 13 14 15 16 17 18

%

- 15 -


Highlight

Brexit darkens forecast

The forecasts for 2016-18 were revised

downward from March after the Brexit

referendum. Additional downward revisions are

also being considered by some economists.

Barclays’ Fernandez says, “An expected

slowdown in Europe and financial market

volatility would likely to lead to a prolonged

period of subdued activity in Singapore.”

1. Growth prospects

External, internal headwinds persist

The Q1 growth rate was 1.8%, lower than the

2.0% logged in 2015. Respondents do not

expect a recovery this year from the Q1 level.

The forecast of 1.8% growth for 2016 is the

lowest in seven years. The negative effects of

the Brexit situation as well as a Chinese

economic slowdown are expected to hit

Singapore. In addition, “domestic structural

weaknesses persist,” says Manu Bhaskaran of

Centennial Asia.

2. Inflation

Negative inflation set to continue

All six respondents see Singapore’s CPI

remaining negative in 2016. Core inflation,

which excludes costs of accommodation and

private road transport, is positive. SIM

University’s Randolph Tan says “I do not

expect a deflationary grip to take hold,” but the

weak economy will weigh on the inflation.

Centennial’s Bhaskaran says the core inflation

will be weak “given the large output gap”

3. Unemployment

Rate to stay flat at around 2%

All respondents see the unemployment rate

staying at around 2% for 2016 and beyond.

Hayato Nakamura of Bank of Tokyo-Mitsubishi

UFJ says that a deterioration of the

manufacturing sector will worsen the

employment situation, but its impact on total

unemployment will not rapid because of the

“controlled foreign labor supply and solid labor

demand primary in the service sector.”

Singapore

- 16 -


4. Monetary policy and exchange rate

Policy behind a weaker Singapore dollar

Singapore manages its monetary policy

through foreign exchange rates rather than

interest rates. The Monetary Authority of

Singapore (MAS) announced on April 14 that it

would ease. It will seek a policy of zero

appreciation against an undisclosed basket of

currencies, according to the statement. A

weaker Singapore dollar is expected against its

U.S. counterpart for the moment. The average

forecast sees a stronger SGD in 2018. However,

the difference in views between analysts is

large. SIM University’s Randolph Tan noted

that “increased volatility in currency markets

may mask a trend toward a weaker SGD,” but

he forecasts a stronger USD.

5. Interest rate

Rates to rise after 2017

As Singapore does not have a policy interest

rate, the survey asks the forecast of the SGD

Sibor 3-month rate. Respondents predict it will

rise after 2017. The forecast for the end of 2016

was lower than March survey because of

expectations of delays in further U.S. interest

rate hikes. forecasts after 2017 reflect “rising

U.S. rates,” Centennial’s Bhaskaran says.

6. Risks

Risks from overseas

Slowdowns in the Chinese, U.S. and Asian

economies were the three biggest risks to

Singapore cited in the March survey. Financial

turmoil, however, is seen as the biggest risk in

the June survey. BTMU’s Nakamura says “the

biggest risk for Singapore’s economy is

worsening overseas economies” and points out

that “a stagnation in the US recovery and the

EU economy triggered by financial market

turmoil related to Brexit events” are a risk.

Domestically, unemployment is seen as the

primary risk. SIM University’s Randolph says

“long-term unemployment is clearly

increasing” and “this will continue to pose a

major challenge for policymakers.”

rank risk

1Financial turmoil triggered by

unanticipated event.

2 Chinese economy slowdown

3 Repercussions of U.S. monetary policy

4 U.S. economy slowdown

5 Rising unemployment

- 17 -


Highlight

Growth around 3% amid concerns

The average 2016 growth rate is forecast at

2.9%, 0.1 percentage point above the 2.8%

recorded last year. “Recent economic indicators

signal the Thai economy is somewhat robust,” says

Siwat Luangsomboon of Kasikornbank. But it was

revised down from the 3.0% forecast in March. The

forecast for 2017 is 3.3%, which is big drop from

the 3.6% anticipated in the previous survey.

1. Growth Prospects

Growth expected to slow from second quarter

The growth rate of 2Q 2016 is expected to be

2.6% on average, slower than the 3.2% logged in

the first quarter. “The upbeat GDP number in Q1

may not translate to better business conditions on

account of a lackluster private investment

environment, indebted households, and a gloomy

export outlook,” says Phacharaphot Nuntramas of

Siam Commercial Bank. The forecast for 3Q abd

4Q are 2.6% and 2.5%, respectively.

2. Inflation

Positive inflation expected to return

The CPI rate is expected on average to return

positive at 0.4% in 2016, from negative 0.9% in

2015, according to economists. Phacharaphot says,

“Negative pressure from subdued oil prices will

begin to diminish.” The rate to rise to 1.6% in 2017

and 1.8% in 2018. But “slow domestic demand plus

low commodity prices will leave consumer

inflation at a very low level,” says Thammarat

Kittisiripat of KT ZMICO Securities.

3. Unemployment

Jobless rate to remain at around 1%

The unemployment rate in 2016 is expected to be

1.0%, according to the economists’ average

prediction. Thammarat says, “Thailand’s economy

has a shock absorber in labor market between

agriculture and non-agriculture sectors. As a result,

it has a low jobless rate.” Moreover, Siwat notes,

“We do not expect any large-scale business closures

in the near future.”

2.8 2.9 3.3 3.3

0.0

2.0

4.0

6.0

8.0

2011 12 13 14 15 16 17 18

yoy, %June 2016 Ave.March 2016 Ave.


forecasts, same applies hereafter.

Max. Min.

Jan.-Mar.

Apr.-Jun. 2.6 (▲0.3) 2.9 2.0

Jul.-Sep. 2.6 (▲0.5) 3.2 1.6

Oct.-Dec. 2.5 (▲0.7) 3.5 1.3

2.9 (▲0.1) 3.0 2.7

3.3 (▲0.4) 3.6 2.7

3.3 (▲0.1) 3.6 3.0

Note: Figures in parentheses show change from three months ago.

Average

2016 3.2

2015 2.8

2016

2017

2018

-0.9

0.4

1.6 1.8

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2011 12 13 14 15 16 17 18

yoy, %

0.91.0 1.0

0.9

0.0

0.5

1.0

1.5

2011 12 13 14 15 16 17 18

%

Thailand

- 18 -


4. Exchange rate (end of the period)

Slight depreciation anticipated for baht

The average forecast for the THB/USD rate is

36.9 at the end of 2016, according to economists.

Phacharaphot thinks the central bank will likely

maintain its policy rate, although he expects the

U.S. will raise its benchmark rate, and that will lead

to capital outflows from Thailand and a

depreciation of the baht. Thammarat thinks the rate

will stabilize at 35 against the dollar by 2018 as the

impact of U.S. rate tightening fades.

5. Interest Rate (end of the period)

Some Expect Rate Cut in 2016

Goldman Sachs expects a 0.25 point rate cut in

2Q, and Nomura Singapore expects a 0.25 point

rate cut each in 3Q and 4Q. The average policy

interest rate at the end of 2016 is 1.38%. Four

economists expect rates will be left unchanged at

1.5%. Kasikornbank and KT ZMICO expect rate

hikes in 2017. “The Fed interest rate up-cycle will

force the Bank of Thailand to increase its policy

rate in subsequent years,” says Siwat.

6. Risks

Political Instability Emerged

Political instability and a Chinese economic

slowdown are seen as the joint-largest risks to

Thailand. In March, a Chinese slowdown alone was

seen as the biggest risk. KT ZMICO points out that

“the smoothness of political transition is crucial,

including the continuation of government

investment policies and the effectiveness of fiscal

budget disbursement.”

The Thai military government is going to hold a

referendum on the constitutional draft in August,

and a general election to hand over power to a civil

administration in June 2017 if the draft is approved.

To the question “will the new constitution be

approved and a general election be held by June

2017?” there are more “no” answers than “yes”.

Comments on this include: “There is no sign that

the referendum held in early August will be

approved by a large portion of the population,” and,

“There will be a general election in 2017 but the

head of government might not come directly from

the election.”

36.136.9 37.5 37.8

30

32

34

36

38

40

42

2011 12 13 14 15 16 17 18

THB/US$

depreciation

1.50 1.38 1.50

2.25

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2011 12 13 14 15 16 17 18

%

rank risk

1 Political instability

1 Slowdown of Chinese economy

3

Rising debt of households and/or

corporations

3

Financial market turmoil triggered by

unexpected event

5 Repercussions from U.S. monetary policy

- 19 -


Highlight

Brexit clouds otherwise bright outlook

Bad monsoon weather affected the Indian

economy in 2014 and 2015 .This year, a more

normal monsoon season is expected to help

growth. Pay rises for public servants and

expanded infrastructure spending are also

positive signs for the economy. All respondents

therefore see growth of 7.6% or higher for FY

2016/17. Concerns and uncertainty remain

about the impact of Brexit.

1. Growth prospects

Good harvest to bring growth

All economists surveyed expect economic

growth will accelerate in the Oct-Dec quarter,

the harvest season after summer planting.

David Fernandez of Barclay’s points out “great

uncertainty” looms in the aftermath of Brexit

though, and revised down his forecast. Still, he

foresees 8.0% growth in Oct-Dec 2016.

2. Inflation

Inflation to exceed 5%

Normal rainfall is expected to stabilize food

prices. Dharmakirti Joshi of CRISIL says, “We

expect lower food inflation resulting from a

normal monsoon to offset higher services

inflation.” Kentaro Konishi of Daiwa also says,

“Supply-side expansion, especially from the

manufacturing sector, will give some relief.”

Though average CPI is likely to exceed the

RBI target of 5%, most respondents do not see

a sudden rise in prices.

3. Exchange rate

End of Rajan era, Brexit to hurt

So far Indian financial markets have avoided

turmoil in the aftermath of RBI Chief

Raghuram Rajan’s departure and the Brexit.

But some economists point out the resignation

of the charismatic RBI governor is likely to

have a negative impact on the rupee currency.

All respondents see the rupee depreciating in

the short term. While they see fresh foreign

investment inflows to India, twin deficits

remain a major concern for economists.

4.9 5.2 5.44.8

2

4

6

8

10

12

2011/12 2013/14 2015/16 2017/18

yoy, %

66.369.1 69.5

71.0

50

55

60

65

70

75

2011 12 13 14 15 16 17 18

INR/US$

depreciation

India

- 20 -


4. Interest rate

Lower rates expected

Considering the intention of the government

to prioritize economic growth, “The new RBI

governor will be more dovish [on interest

rates] than Rajan,” Konishi says. He, along

with other economists, sees an additional rate

cut by RBI after autumn. Sonal Varma of

Nomura, though, sees things differently. “We

believe CPI is on track to reach 5% after

removing the statistical impact of pay hikes

[for public servants],” she says and does not

see rates being cut. The effects of the Brexit

were, however, not included in her view.

5. Risks

Concern for capital outflows

In the previous survey, economic reform

prospects declining was seen as a major risk.

This time, capital outflows and a foreign

investment slowdown emerged as the biggest

risk, as well as financial turmoil. Economists

are concerned investors could lose confidence

in India after the departure of Rajan and that

financial turmoil could be triggered by the

Brexit referendum. Political instability was

seen as the third biggest risk in June. Some

respondents point out that religious tensions

could have a negative impact on national unity.

6. Evaluation for “Modinomics”

Challenges on big ticket reform like GST

Modinomics continues to enjoy broad

support among economists. “Expected reforms

are yet to come,” says Konishi, “but

considering longer implementation periods,

[the economic program] is still good.” But at

the same time, Konishi is concerned about

delays in big ticket reforms such as the

introduction of a Goods and Services Tax.

Joshi also views the macroeconomic

environment positively. The Bankruptcy Act,

which made debt collection easier, and the

promotion for manufacturing under the banner

of “Make in India” have improved things, he

said. “Supporting agriculture and rural India

are crucial,” he added. Varma sees

education/skill creation, labor reforms and

rationalization of food subsidies as

unsuccessful areas.

6.756.30 6.00 6.00

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2011 12 13 14 15 16 17 18

%

Good marks

・Cutting LPG subsidy

・Intorduction of Bankrupcy Act

・Improvement in macro-economy and doing business

environment

・Controling inflation

・Reducing red tape/ Intorduction of e-governance

・Promotion of manufaxturing in "Make in India"

・UDAY (Rescue package for electricity distribution

companies)

・Infrastructure development

・Liberalisation of FDI

・Financial inclusion

Challenges

・Delay in big ticket reform, like GST

・Political Intervention by Hindu nationalist bodies

・Supporting agriculture and rural India

・Healthcare, education and the labor market remain

unaddressed

・Rationalization of food subsidies

Rank Risk

1Capital outflows/foreign investmentslowdown

1Financial turmoil triggered byunanticipated event *

3 Political instability4 Economic reform prospects decline5 U.S. economy slowdown5 Rise in commodity prices5 Terrorism/other geopolitical risks

* An answer of "Brexit"is included here

- 21 -


List of survey respondents

Organization Title Name

Indonesia

Maybank Indonesia Chief Economist Juniman

Bank Mandiri Department Head, Industry and Regional Research Dendi Ramdani

CIDES (Center for Information and

Development Studies) Chairman Umar Juoro

CSIS(Centre for Strategic and

International Studies) Head of Department of Economics Yose Rizal Damuri

Malaysia

Maybank Investment Bank Group Chief Economist Suhaimi Ilias

RHB Research Institute Group Chief Economist Lim Chee Sing

Kenanga IB Head, Economic Research Wan Suhaimie Saidie

AmInvestment Bank Senior Economist Patricia Oh Swee Ling

Philippines

Ateneo de Manila University Professor Alvin Ang

BDO Unibank FVP Chief Market Strategist Jonathan L. Ravelas

Metropolitan Bank & Trust Company

(Metrobank) Head of Research Ildemarc C. Bautista

Philippine Equity Partners Inc. Head of Research Jojo Gonzales

Singapore

Centennial Asia Advisors CEO Manu Bhaskaran

SIM University Associate Professor Randolph Tan

The Bank of Tokyo-Mitsubishi UFJ Senior Economist Hayato Nakamura

Thailand

Siam Commercial Bank PCL.,

Economic Intelligence Center Head of Economic and Financial Market Research Phacharaphot Nuntramas

Kasikornbank Head of Research Group Siwat Luangsomboon

KT ZMICO Securities Company

Limited Senior Economist Thammarat Kittisiripat

India

Daiwa Capital Markets India pvt.ltd. President and CEO Kentaro Konishi

CRISIL Chief Economist Dharmakirti Joshi

Nomura India Chief India Economist Sonal Varma

For multiple countries

Nomura Singapore Senior Economist Euben Paracuelles

Barclays Head of FICC Research, Asia Pacific David Fernandez

Goldman Sachs (as an organization) - -

- 22 -


The Survey Team

Project leaders

Kiyoshi Kusaka, Principal Economist, JCER

Kenji Yuasa, Principal Economist, JCER

Country reports

Indonesia Kiyoshi Kusaka, Principal Economist, JCER

Malaysia Kengo Tahara, Senior Economist, JCER

Philippines Tsuyoshi Minami, Economist, JCER

Singapore Kiyoshi Kusaka, Principal Economist, JCER

Thailand Masashi Uehara, Principal Economist, JCER

India Go Yamada, Principal Economist, JCER

Coordinator

Yoko Kondo, Administrative section, JCER

Japan Center for Economic Research (JCER)

Nikkei Building 11F

1-3-7 Otemachi, Chiyoda-ku, Tokyo 100-8066, Japan

Tel: + 81-3-6256-7710

JCER/Nikkei Consensus Survey on Asian Economies · JCER/Nikkei Consensus Survey on Asian Economies...

Documents

Transcript of JCER/Nikkei Consensus Survey on Asian Economies · JCER/Nikkei Consensus Survey on Asian Economies...