Asian EMs better off than global peers

SINGAPORE • Emerging markets (EMs) in Asia are in a stronger position than peers elsewhere because of solid economic growth prospects, low inflation and strong reserve buffers, said Singapore’s central bank chief.

While the region’s developing economies won’t be spared from the market turmoil that’s hit countries from Argentina to Turkey, once the “adjustment has run its course” investors will be better able to discern that countries like Indonesia have taken the right steps in response, Monetary Authority of Singapore MD Ravi Menon (picture) said on a panel at a Milken Institute conference yesterday.

“Asian EMs are in a better place than EMs elsewhere,” Menon said. “It goes back to fundamentals. Growth is good, inflation is low, buffers are strong.”

Indonesia has been one of the hardest hit in Asia from the global market rout, with deficits on both its current account and budget making the economy reliant on foreign investment and vulnerable to outflows. Its currency has slumped more than 8% against the dollar this year to its lowest level since the Asian financial crisis two decades ago.

Menon said Asia’s underlying growth story remains intact despite global risks from trade wars and rising interest rates. A growing middle class, urbanisation and the integration of markets to allow for more trade will continue to underpin the region’s growth prospects, he said.

If the US follows through with additional tariffs on China, that would cause a 0.5 percentage point loss to GDP growth for both countries, Menon said.

“That will sweep down the supply chains across Asia and shave off growth in many of these small open economies in Asia,” he said. “Things could get a lot worse from this point on, but that remains a tail risk for now.”

He said the correct response to a unilateral hike in tariffs was not to retaliate, but to step up trade with other countries.

“If retaliation goes on in a series of tit-for-tat moves, the impact will be bigger,” Menon said. “So, what I’m suggesting is you can actually stop it by not retaliating.” — Bloomberg