Avoid excessive stimulus for economic rebound

The US policy needs to remain stable and financial risks need to continue to be reined in for the predicted rebound to emerge


ASIAN economies, including Malaysia, are expected to make a comeback in 2020, as long as policymakers keep stimulus in check, policies stable and financial volatility to a minimum.

The Malaysian economy looks to be on an upward trajectory this year, driven by household spending, manufacturing activity growth and the resumption of mega infrastructure projects, Deloitte PLT said in its Voice of Asia 2020 report.

Overall, Asian nations are set for a good year as some of last year’s headwinds ease, pro-growth policies reinvigorate domestic economies and consumption stays strong.

“However, three main downside risks must be contained for this predicted rebound to emerge.

“Economies should avoid excessive stimulus that could cause a boom-bust cycle, the US policy needs to remain stable and financial risks, particularly from quantitative easing, need to continue to be reined in,” the report stated.

In South-East Asia, pro-growth policies have been encouraged by rate cuts in the US and Europe.

Economies including Indonesia, the Philippines, Malaysia and Singapore are expected to increase public expenditure.

Malaysia recently saw the revival of the East Coast Rail Link and Bandar Malaysia, which bode well for public spending and construction job awards, and subsequently GDP growth.

There are also positive signs on the trade integration front, Deloitte Asia-Pacific clients and industries leader Vivian Jiang said.

“The Comprehensive and Progressive Agreement Trans-Pacific Partnership gives its 11 members, including four Asean economies, enhanced market access.

Meanwhile, the Regional Comprehensive Economic Partnership will reduce export-import paperwork and has introduced a limited degree of service sector liberalisation,” she added.

The Malaysian economy looks to be on an upward trajectory this year, driven by household spending

The automotive and aviation sectors will be bright spots after languishing in the doldrums, alongside the electronics industry.

“The decline in the automotive sector since 2018 has been caused by factors including new emission standards in several markets and other restrictions on production. This decline is likely to reverse this year, with a further boost from continued luxury sales volume growth,” Jiang said.

Problems in the aviation sector are likely to ease as well, while signs of resurgence in semiconductor billings are showing, which should help drive regional electronics exports.

Higher demand driven by labour market stability, increased remittances and easing monetary conditions would strengthen consumption in the region.

For Malaysia, exports should continue to hold their ground — barring a sudden escalation in trade tensions.

“Malaysia has been a winner from the production relocation out of China. Investment approvals have surged and as these translate into actual investments, economic activity will perk up,” the report said.

Given inflationary pressures, there is room for Bank Negara Malaysia to “ease monetary conditions further”, though challenges to economic stability appear contained, it added.

Australia may not see a meaningful pickup until 2021, as the country continues to be weighed down by worsening drought conditions and house price declines. Tax and interest-rate cuts are unlikely to stimulate its economy.

Meanwhile, Vietnam is set to remain a regional outperformer in 2020, benefitting from the relocation of production from China, which is prompting a surge in foreign investment.

Its main challenges are manpower constraints, supply chain frictions and an infrastructure gap.

Indonesia should grow about 5% this year, underpinned by a young workforce, increasing urbanisation and monetary policy support for demand, although the country “has yet to fully take advantage of the diversion of production out of China”.

Speaking of China, the populous nation is regaining its balance despite a long-term, secular growth downtrend.

Hong Kong, despite its political — and now economic — troubles, remains a global financial centre with its pegged currency holding firm.

Singapore, which recorded its slowest GDP growth in a decade last year, is also expected to recover in 2020, supported by improving global growth and stronger electronics and precision engineering demand.

The Philippines, which bottomed out in mid-2019, should be rejuvenated by the electronics sector, firmer exports on an expected pickup in China, continued strength in remittances and policy support.

South Korea, which was hit by the US-China trade spat as well as its own trade disputes with Japan, is primed for a modest turnaround in 2020, with greater demand for its manufactured goods. Meanwhile, government measures, including a record 513.5 trillion won (RM1.8 trillion) budget for the year, should protect against downside risks.

Taiwan, also hit by the US-China trade tensions and the step-down in the global electronics cycle, should outperform this year on rising private investment and government policy to attract high-end manufacturing.

Thailand is expected to pick up in the second half of 2020 (2H20), with bottomed- out export growth, higher tourist arrivals, growing farm incomes, positive fiscal policy and a comeback in private investment.

New Zealand should return to trend levels of about 2.5% growth over the next two years, held up by a tight job market, strong population growth and decent exports.

India bottomed out in 2019, but remained subdued despite government stimulus after the Non-Bank Financial Companies crisis left companies highly leveraged.

In the east, Japan’s economy will grow about 0.5% in the next two years, amid soft business confidence on the back of slower exports and natural disasters.