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Singapore, Thailand are weak to U.S. recession, economists say

Southeast Asia is looking

Singapore is the most vulnerable and will be the first to be hit in Southeast Asia if the US goes into recession, says Maybank’s Chua Hak Bin.

Roslan Rahman | AFP | Getty Images

SINGAPORE — Asia won’t get off scot-free if the US falls into recession, but some countries in Southeast Asia will be hit harder than others, economists warn.

The tug-of-war between inflation and recession in the United States continues as the Federal Reserve maintains its hawkish stance on rate hikes.

The US has already reported back-to-back quarters of negative growth in the first two quarters of 2022 – in what some see as a “technical” recession. Still, there is little consensus on when a full-blown recession might strike.

Economists told CNBC that Singapore and Thailand will most likely be hit first if the US slips into recession.

Singapore

Singapore is “more vulnerable” to a US recession than its regional peers because it is “very, very dependent,” said Chua Hak Bin, a senior economist at Maybank.

“I guess [it] Singapore will be first,” he said when asked which economies in Southeast Asia will be hit first if the US falls into recession. The island nation is likely to be first because of its export dependency and its small and open economy, Chua said.

Selina Ling, chief economist at OCBC Bank, agreed with this analysis.

“At first glance, I would rather assume the more open and trade-dependent Asian economies [Singapore]Taiwan and South Korea and maybe Thailand would be the usual suspects,” she said.

1. Connected

The country’s GDP growth has “historically been more closely correlated with US business cycles” due to its export-oriented economy, Maybank said in a late August report.

Singapore does not have a large domestic market and relies heavily on trade services for economic growth, Chua said. These include shipping activities and cargo operations.

The country’s trade-to-GDP ratio for 2021 was 338%, according to the World Bank. The trade to GDP ratio is an indicator of how open an economy is to international trade.

Singapore’s “correlation and dependence on foreign demand is very high,” Chua said. If the US slips into recession, this “dependency and causality” will hit the more export-oriented economies, he added.

Singapore is strongly connected to the rest of the world and a “shockwave” in any one country will definitely have a ripple effect across the city, Irvin Seah, senior economist at DBS Group Research, told CNBC.

Still, he doesn’t expect Singapore to fall into recession this year or next.

The Maybank report states that if the US slides into recession, the downturn will be “shallow rather than deep.”

However, Chua said the US could potentially face a “prolonged” recession and whether or not Singapore is also headed for a protracted recession will depend on China’s Covid reopening as China is the city-state’s biggest trading partner.

2. Export-oriented economy

Singapore is a big exporter of electrical machinery and equipment, but output in its electronics cluster fell 6.4% yoy in July, data from the Economic Development Board showed.

Production in the semiconductor sector fell 4.1%, while other electronic module and component segments shrank 19.7% on “lower export orders from China and China.” [South] Korea,” said the EDB, a government agency of Singapore’s Ministry of Trade and Industry.

“China is the biggest export market for many ASEAN countries… But exports to China have been terrible,” Chua said, referring to the 10-member Association of Southeast Asian Nations. “Because Singapore is so dependent on exports, [it] will feel it.”

3. Tourism

Seah, the economist at DBS, said he “doesn’t rule out the possibility” that Singapore will see at least a quarter of negative quarter-on-quarter growth. However, economic conditions for the country are normalizing, he added.

“We are definitely much stronger today than we were during the global financial crisis,” he said.

Thailand

Thailand will also be among the first to be hit if the US slips into recession, economists predicted, speaking to CNBC.

1. Tourism

The country relies heavily on tourism for its economic growth. Spending on tourists accounted for about 11% of Thailand’s GDP in 2019 before the pandemic. The country welcomed nearly 40 million visitors that year and generated more than $60 billion in revenue, according to the World Bank.

Only about 428,000 foreign tourists arrived in 2021 and the economy grew by just 1.5% – one of the slowest in Southeast Asia, according to Reuters.

Thailand could be next to fall into recession after Singapore, Chua said. However, a “wild card” will be the timing of China’s reopening – which could determine whether Thailand’s economy is “back to full swing,” he added.

Thailand's lifting of Covid curbs will boost travel and service industries: hospitality businesses

Chinese tourists have not returned to the Southeast Asian country, and that has left Thailand’s economy in “an even more precarious state,” said Seah of DBS Bank.

“As long as Chinese tourists don’t return, Thailand will keep fighting. Growth was weak, inflation high, [and] The Thai baht is under pressure.”

The Thai baht is currently hovering around 36 baht per US dollar, down 20% from three years ago before the pandemic.

2. Inflationary pressures

Thailand’s inflation rate hit a 14-year high of 7.66% in June, according to Refinitiv data.

The Bank of Thailand has only hiked interest rates once since 2018.

“Headline inflation is very high in Thailand, but core inflation is not that high, correlation is not that high. Of course, growth has been much weaker, so they see no urgency to tighten that aggressively,” Maybank’s Chua said.

He pointed out that Indonesia and the Philippines would likely be less affected by a possible US recession due to their “domestically focused economies”.

“Indonesia and the Philippines were better insulated from the slowdown in foreign demand and the US recession, with both economies continuing to expand even in 2008-09 during the global financial crisis,” the Maybank report said.

According to World Bank data, GDP growth in Indonesia and the Philippines was higher than in Singapore and Thailand during the 2008-2009 global financial crisis.

– CNBC’s Abigail Ng and Weizhen Tan contributed to this report.

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World News

Friday’s jobs report is a wild card, with economists’ estimates all around the map

Friday's jobs report is a wild card, with economists' estimates all over the map

A worker works on a screed tower connection at the Calder Brothers facility in Taylors, South Carolina, USA on July 19, 2021.

Brandon Granger | Calder Brothers Corporation | Reuters

According to the Dow Jones consensus estimate, the economy is projected to add around 845,000 workers in July as the American workforce gradually recovers from its heavy pandemic job losses.

But the uncertainty of Covid – which is spreading again at a rapid pace – has become a wild card for the job market, as well as for the entire economy. The number of new infections in the US is increasing to 100,000 per day, faster than last summer, when there were no generally available vaccines.

Wall Street’s predictions for the July Employment Report, due to be released Friday at 8:30 a.m. ET, are sweeping. The Wilmington Trust economists, for example, expect only 350,000 payrolls, while the Jefferies economists forecast 1.2 million new jobs.

“The range is from 1.2 million to 350,000. That just says these numbers have very little confidence,” said Michael Schumacher, director of interest rate strategy at Wells Fargo.

Employment growth has not lived up to earlier expectations of economists, some of whom forecast several months of growth in excess of a million this spring and summer. Instead, employers are struggling with vacancies and the situation is not expected to improve significantly until schools reopen and extended unemployment benefits expire in September.

The fast-spreading delta variant of Covid may not have affected the July report. However, economists say that if individuals are afraid to move back into the economy, new restrictions are put in place, or schools should be closed again, it could slow the rate of economic growth and affect employment.

The employment data is also critical to the Fed’s decision on when to slow its bond purchases, the first step in rolling back its loose policy and a precursor to rate hikes. Fed chairman Jerome Powell said last week he would like some strong employment reports before the Fed begins slashing its $ 120 billion monthly government bond and mortgage purchases.

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“We won’t know much about the balance in the labor market until the job report comes out in October,” said Schumacher.

According to the Dow Jones, the unemployment rate is said to have fallen from 5.9% in June to 5.7%. Average hourly wages are expected to have increased 0.3% month-over-month or 3.9% year-over-year. 850,000 jobs were added in June.

“The reason I have such a high forecast for July is because we’ve lost additional unemployment benefits in 25 states and claims have fallen sharply in those states,” said Jefferies finance economist Aneta Markowska. She added that there is usually a large seasonal decline in July that may not show up this year.

More than 22.3 million Americans were laid off in March and April 2020 when the economy abruptly shut down. In June total employment was 7.13 million below the level of February 2020.

“I was looking for a pretty healthy number, around 850,000 to 900,000, and a drop in the unemployment rate to around 5.7%,” said Kathy Jones, chief fixed income strategist for Charles Schwab. “The main reason we expect a pretty large number is that we expect some of the education jobs to come back. July is a little early, but we’ll see some of those numbers. That could add about 400,000. The seasonal adjustment is likely to make that worse too. “

Jones said she expected the mindset to be strong for the next couple of months.

“We expected the July, August and September period between reopening, schools reopening … job restoration to be quite strong as a result of the American bailout. All of that should make for a pretty strong July, August, September series of numbers, “she said.” Of course the Delta variant is the wild card.

According to Johns Hopkins University, the US reports a seven-day average of nearly 94,000 new cases on Aug. 4, a 48% increase from a week.

Wilmington Trust chief economist Luke Tilley said his low forecast was based on signs of slower growth he is seeing in high-frequency data. “We believe the execution rate is around 500,000 right now. The last month seems a bit over cooked, ”said Tilley.

Other recently released data show a mixed picture for employment.

BMO bond strategist Ben Jeffery said the half-dozen actions he watches tend to be a strong number and the others suggest otherwise. For example, ADP’s monthly payroll report for June was weak with 330,000 jobs versus an expected 683,000. But employment in the ISM service sector rebounded from 49.3 to 53.8. Anything over 50 indicates expansion.

“That [nonfarm payrolls] was always one of the hardest numbers to predict before the pandemic, and you add up all the nuances of the current hiring landscape. That makes it even more difficult, “he said.

Jeffery said the government poll week for the July report, which covers July 12, may not reflect the impact of the Delta variant concerns. “Whatever the number, it is greatly constrained by the fact that concerns about the Delta option weren’t as high during survey week as they are now or during the August survey period,” he said.

Because of this, he doesn’t expect big moves in the bond market unless the report is closer to one end of the forecast range or the other.

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Business

Warfare footing wanted to appropriate economists local weather change failings

War footing needed to correct economists climate change failings

Economic projections that predict the potential impacts of climate change have grossly underestimated reality and delayed global recovery efforts by decades, according to a senior professor.

Mainstream economists “purposely and completely” ignored scientific data and instead “compiled their own numbers” to fit their market models, Steve Keen, a fellow at University College’s London Institute for Strategy, Resilience and Security, told CNBC on Friday .

Now a “state of war” is required to repair the damage, he said.

“Basically, economists have completely misrepresented and ignored science, where it contradicts their tendency that climate change is not a big deal because they think capitalism can handle anything,” Keen told Street Signs Asia.

We play with forces that go far beyond what we can actually tackle.

Steve Keen

Fellow at University College London

Keen said the effects of climate change were predicted in the 1972 publication “The Limits to Growth” – a divisive account of the devastating effects of global expansion – but economists ignored their warnings then and since, preferring to rely on market mechanisms .

“If their warnings had been taken seriously and we had done what they suggested and changed our trajectory from 1975 onwards, we could have done so gradually, using things like the carbon tax, etc.,” he said. “Because economists have delayed it by another half a century, we as a species put three to four times the pressure on the biosphere.”

Icebergs near Ilulissat, Greenland. Climate change is having profound effects in Greenland as the glaciers and the Greenland ice cap retreat.

NurPhoto | Getty Images

As a result, he said, “The only way to reverse this is effectively to mobilize a war-induced foundation to reverse the amount of carbon we put into the atmosphere in order to drastically reduce our consumption.”

Referring specifically to a report by economists at the Intergovernmental Panel on Climate Change (IPCC), which was instrumental in outlining global climate goals, including those presented in the Paris Agreement COP21, Keen said even their most serious estimates were a “trivial underestimation of the”. Damage we expect. “

That’s because they “completely and deliberately ignore the possibility of turning points,” a point at which climate change can cause irreversible changes in the environment.

“I think we should throw the economists completely out of this discussion and sit the politicians with the scientists and say that these are the possible outcomes of such a big change in the biosphere. We are playing with forces far beyond what we can . ” actually address, “he said.

Keen’s comments come as world leaders conclude their final day of meetings in the Arctic Council – an intergovernmental forum that addresses wide-ranging geopolitical issues from climate to trade.

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World News

China’s growing older inhabitants is greater downside than ‘one-child’ coverage: Economists

China's aging population is bigger problem than 'one-child' policy: Economists

A medical worker takes care of a newborn baby lying in an incubator at Jingzhou Maternity & Child Healthcare Hospital on the eve of Chinese New Year, the year of the ox, on February 11, 2021 in Jingzhou, Hubei Province.

Huang Zhigang | Visual China Group | Getty Images

BEIJING – China’s decade-long one-child policy attracted renewed attention in recent weeks after authorities gave mixed signals as to whether they were any closer to lifting limits on the number of children people can have.

The authorities have withdrawn the controversial one-child policy in recent years to give people the opportunity to have two children. However, economists say other changes are needed to spur growth as births decline and China’s population ages rapidly.

“There are two ways to address this. One way is to loosen birth control. Something (that) helps on the verge, but even if you loosen control completely it is likely to be difficult to reverse the trend,” said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management.

“The other way to deal with it from an economic policy perspective is to make industry more dependent on other sectors,” he said.

China’s economy has relied heavily on industries such as manufacturing, which require large amounts of cheap labor. However, rising wages make Chinese factories less attractive, while workers need higher skills to make the country more innovative.

The bigger problem for China is that an aging population feeds into an existing problem: slower labor productivity growth, said Alicia Garcia-Herrero, Natixis’ chief economist for the Asia-Pacific region. She watches whether China will grow faster in capital-intensive sectors, which can be attributed more to investments in automation.

Births will fall by 15% in 2020

China introduced its one-child policy in the late 1970s to curb population growth. According to official figures, the country had doubled in size from more than 500 million people in the 1940s to over 1 billion in the 1980s.

Over the next 40 years, the population grew by only 40% – to 1.4 billion, more than four times the US today.

I don’t think the easing of birth policies could have much economic repercussions as the slow population growth is not due to political restrictions, not in the last 20 years.

Dan Wang |

Chief Economist Hang Seng China.

Similar to other major economies, high housing and education costs in China have deterred people from having children in recent years.

Despite a change in 2016 that allowed families to have two children, births fell for the fourth year in a row in 2020, falling 15% to 10 million, according to analysis of a public safety report.

“In general, I don’t think the birth policy easing could have a big economic impact as the slow population growth is not due to political restrictions, not in the last 20 years,” said Dan Wang, Shanghai chief economist at Hang Seng China.

She said, based on the experience of other countries, the most effective policy for a country the size of China would be to accept more migrants, but that would be an unlikely change in the short term.

Other options that policymakers are already pursuing include raising the retirement age, improving the skills of the existing workforce through more education, and using more machines and artificial intelligence to replace human workers, Wang said.

Policy changes are only a matter of time

The one-child policy received renewed attention last month when the National Health Commission issued a statement authorizing research into the economic benefits of lifting restrictions on birth in a northeastern region. The three-province area known as Dongbei has economic problems and the lowest birth rates in the country.

Two days later, the commission issued another statement saying that, despite much online speculation, the news was not a test for the complete repeal of family planning policy.

However, according to economists polled by CNBC, lifting the limits is likely only a matter of time.

Yi Fuxian, critic of the one-child policy and author of “Big Country with an Empty Nest,” said he expected a decision by the end of the year after China released census results once in a decade in April.

Challenges posed by China’s aging population

The Chinese government has also stated that implementing a strategy to respond to an aging population will be a priority for its next five-year plan, which will be formally approved at a parliamentary session starting this week.

Meanwhile, the generations born before the one-child policy was implemented in the 1980s are becoming a significant segment. Over the next 10 years, 123.9 million more people will be entering the age bracket of 55 and over. This is the largest demographic increase among any age group, according to Morgan Stanley.

This demographic shift will create its own economic demands, said Liu Xiangdong, deputy director of the economic research department at the China Center for International Economic Exchanges in Beijing.

Liu said more workers are needed to care for the elderly, while retirement communities and other infrastructures tailored to an older population will see greater demand.

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Health

Economists lower forecasts for Malaysia’s 2021 progress on Covid lockdown

Economists cut forecasts for Malaysia’s 2021 growth on Covid lockdown

A woman can be seen in Kuala Lumpur with a Malaysia flag as a background.

SOPA pictures | Getty

SINGAPORE – Several economists have cut their growth forecasts for Malaysia for 2021 after the country announced stricter measures to contain a recent surge in Covid-19 cases.

The Malaysian government imposed a nationwide interstate travel ban and a ban on six states and territories for two weeks from Wednesday. The king of the country also declared a state of emergency which will last until August 1 or earlier if Covid cases are effectively lowered.

Here are some economists who have cut their forecasts for Malaysia:

  • Capital Economics, a consulting firm, said the Southeast Asian country will grow 7% this year, up from its previous forecast of 10%;
  • The Singaporean bank UOB downgraded its forecast from 6% to 5%;
  • The Japanese bank Mizuho lowered its forecast from 6.7% to 5.9%;
  • Fitch Solutions has lowered its forecast from 11.5% to 10%.

Malaysia was one of the worst performing economies in Asia over the past year. The International Monetary Fund announced in October that the Malaysian economy would contract 6% in 2020, up from 4.3% last year.

Alex Holmes, Asian economist with Capital Economics, said in a report Tuesday that Malaysia’s recent lockdown “is likely to hit the economy hard”. He pointed out that the six restricted states and areas – including the capital Kuala Lumper and Malaysia’s richest state, Selangor – account for 57% of the population and 65% of the gross domestic product.

The lockdown – known locally as a movement control order or MCO – includes banning all social gatherings and dine-ins, closing schools, and opening only “essential” businesses.

Most of the rest of the country has been made less stringent, with most companies allowed to operate but prohibited activities involving large gatherings.

UOB economists said in a Wednesday report that their growth forecast downgrade assumed the restrictions would be extended for another four weeks through the end of February. However, the macroeconomic impact of the latest measures is likely to be “less severe” than last year when the whole country was locked down, the economists added.

‘Blessing in disguise’

The state of emergency declared on Tuesday shook the country’s stocks and currency.

But the move will remove the short-term political uncertainty the country has struggled with over the past year – and that could be “a blessing in disguise” for the Malaysian ringgit, said Lavanya Venkateswaran, market economist at Mizuho.

The currency was down 0.5% against the US dollar in response to Tuesday’s state of emergency announcement. Since then it has strengthened against the greenback and has more than made up for these losses.

Malaysian Prime Minister Muhyiddin Yassin said that in a state of emergency there would be no curfew and that the government and judicial system would continue to function. But parliament will be suspended and elections cannot be held, he said.

Muhyiddin came to power in March last year and has been increasingly called on by his ruling coalition to resign and make way for an early election.

The emergency statement “removes unnecessary and self-inflicted political uncertainties that could jeopardize the political response to the COVID resurgence,” Venkateswaran wrote in a report on Tuesday.

“Instead a stable political platform to (the) An emergency pandemic is ultimately positive in getting the economy going again. “ She said.