The U.S. Federal Reserve:
The U.S. Federal Reserve’s intention to raise interest rates to curb inflation has significant implications for Asian economies, particularly concerning the depreciation of Asian currencies. In response, central banks across the region are expected to follow suit and increase their own interest rates.
How does raising interest rates affect the U.S. economy?
Higher interest rates are a tool to combat inflation by making borrowing more expensive, encouraging both individuals and businesses to borrow less and spend less.
This decrease in consumer demand is expected to help bring down prices for goods and services, which have seen significant increases. However, the full impact of these rate hikes may take some time to be realized.
When the Federal Reserve raised interest rates by 75 basis points, central banks in Thailand, Malaysia, Indonesia, and the Philippines took similar actions.
The Monetary Authority of Singapore also tightened its monetary policy. These moves reflect concerns about the U.S. economy potentially heading towards a recession, which would have ripple effects on global demand.
Here’s an illustrative economic growth forecast for the ASEAN 5, India, and China, comparing the change from a year earlier in percentage terms:
Economists suggest that the U.S. economic slowdown and a decrease in consumption could lead to weaker exports from Asia, impacting regional growth in the coming year.
Chinese Economy Slowdown:
The Chinese economy slowdown is a crucial factor to watch, as China is a significant trade partner and source of tourism for many Asian countries. Moreover, uncertainty surrounding China’s economic policies, especially the strict zero-COVID approach, is affecting Southeast Asian nations despite concerns over real estate market crises.
Some Talking Points from Different Countries in the Region:
Singapore: “China’s risks are the biggest swing factor in the global economy given the difficulty in ascertaining the impact of interacting negatives such as the lockdown, real estate deflation, rising financial stresses and the tech crackdown,” warned Manu Bhaskaran, CEO of Centennial Asia Advisors in Singapore.
Malaysia: “A slowdown there has repercussions for certain local sectors and companies,” said Mohd Sedek Jantan, Head of Wealth Research and Advisory at UOB Kay Hian Wealth Advisors in Malaysia.”
Thailand: “A decline in China’s economic outlook could lower the outlook for tourism in 2023 in anticipation of China’s reopening,” said Amonthep at CIMB Thai Bank.
Philippines: “The Taiwan Strait crisis is a geopolitical risk event that we are majorly taking note of,” said Ruben Carlo O. Asuncion, Chief Economist at Union Bank of Philippines.
The interconnectedness of global economies makes it vital for these countries to navigate the changing dynamics in Asia while keeping a watchful eye on external factors, such as the U.S. monetary policy and China’s economic landscape.
(Source: IMAHASHI RURIKA, “ASEAN Economies Seen Hit by U.S. Rate Hikes in 2023: JCER / NIKKEI, Nikkei Asia, 2022)