Global growth has shown remarkable resilience despite mounting uncertainties, with last year's growth the strongest since the global financial crisis. Although emerging Asia economies have been doing well, the going will get tougher in the months ahead and going into 2019, said Monetary Authority of Singapore managing director Ravi Menon.
Mr Menon, speaking at the 5th Milken Institute Asia Summit last week, also highlighted the risks the region is facing. He said that it is necessary to monitor two headwinds coming from the US and affecting the rest of the world including emerging Asia--rising trade tensions and tightening global financial conditions.
Rising trade tensions
While there are growing trade disputes and the threat of further tariffs, the effects will not be ‘devastating’, though it will not be good for the global economy if prolonged and may stem investment.
He urged countries to push ahead with further trade liberalisation as the best response to unilateral trade restrictions, rather than retaliate.
“If countries do not retaliate against tariffs imposed by the US, the cost to their own economies is likely to be contained. And a mutually damaging trade war would be averted,” he said.
He noted that emerging Asia is already liberalising trade regionally, such as through platforms like the Trans-Pacific Partnership and the ASEAN+^ Regional Comprehensive Economic Partnership, the latter of which will be the world’s largest trading bloc in terms of population, covering nearly 3.5bn people and accounting for a third of the world’s GDP when signed.
Tightening global financial conditions
Mr Menon noted another risk of tightening global liquidity conditions, as the Fed continues to raise interest rates. In emerging Asia, some economies will face higher financing costs, rising external debt burdens, short-term capital outflows, and heightened currency volatility. These are expected pressures, part of the normal adjustment to the normalisation of global financial conditions.
Nonetheless, ASEAN is well placed to deal with these pressures as well as contagion effects from EMEs in other parts of the world, noted Mr Menon. This is due to the region’s strong economic fundamentals and regulators demonstrating that they are willing to adjust policies to deal with the conditions, such as through raising interest rates pre-emptively.
ASEAN growth story remains intact
Mr Menon voiced optimism for ASEAN, which he said is poised for continued healthy growth over the medium term, on the back of macroeconomic stability.
“The ASEAN-5 economies – Indonesia, Malaysia, Philippines, Thailand and Singapore– are expected to grow at close to 5% per annum over the next 5 years,” he said. This is higher compared to Latin America (2.8%) and Eastern Europe (3.3%).
“ASEAN’s resilience stems from fundamental drivers that support the region’s growth in a mutually reinforcing fashion, he said.
These are the rising middle class which boosts consumption and modern services, urbanisation, where rural-urban migration and the expansion of cities will spur sizeable demand for infrastructure, and integration.
“ASEAN’s growing integration – increasingly powered by technology and e-commerce - will allow the region to reap complementarities and synergies to sustain growth over the long term,” he said.