Asean to stabilise in 1Q24, external trade cycle bottoming

THE Asean economic growth is expected to stabilise in the first quarter of 2022 (1Q24) with the external trade cycle bottoming for the region but the recovery may be lacklustre due to China’s slowdown, according to a regional bank.

“We remain positive on Asean fundamentals and outlook in the medium-and long-term,” according to United Overseas Bank Ltd (UOB) in its Quarterly Global Outlook 1Q24.

Entitled “2024: A Year of ‘Easing’ Hope”, the report noted that the main theme for 2024 will be the expectations for easing of interest rates by the Federal Reserve (Fed) starting in mid-2024, set against the backdrop of slowing US growth as inflation stabilises further.

It noted that other major central banks are likely to follow suit with differing timelines. As for the Bank of Japan, UOB is expecting the long-awaited normalisation of monetary policy to take place in early 2024, without any disorderly consequences.

“We expect the US growth slowdown to be more apparent in the first half of 2024 with a technical recession (such as two consecutive quarters of quarter-on-quarter declines) but a soft landing remains possible in our base case,” it said.

Its Fed view for 2024 is a 75 basis points (bps) cut.

“It is the combination of slower growth and stabilising inflation that drives the thinking of our Fed outlook in 2024,” it said.

The report expected the Fed to keep its current Fed Funds Target Rate (FFTR) range unchanged at 5.25%-5.50% in December 2023 and maintain this terminal FFTR level till mid-2024 when we (UOB) price in 75bps of rate cuts for 2024 (for example, three 25-bps cuts in June 2024, 3Q24 and 4Q24).

“With a US soft landing remains our central scenario, we do not expect an aggressive series of Fed cuts to counteract the prior aggressive hike cycle,” it said.

While recent data points to improvement, it said China’s situation remained challenging with growth likely to stay soft in 2024 and that there would be a ramp-up of policy support measures to manage risk.

Elaborating on Asean, the report said the downturn in regional trade has likely found its bottom and is showing signs of recovery albeit at a bumpy pace with East Asia’s export recovery leading the Asean-6 countries.

It said improved import demand observed across key Asian countries further underpins domestic demand as a key driver of regional growth amid improving labour markets and domestic policy support.

“With an upturn in the global tech cycle aiding overall exports in Asia including Asean-6 countries, a sustained and robust recovery in global semiconductor sales will benefit heavy electronics and electrical exporting countries in East Asia and Asean, particularly Japan, Hong Kong, Taiwan, Vietnam, Malaysia and Philippines next year,” it said. — TMR / pic TMR FILE