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Sunday, November 15, 2009

UBS Southeast Asian Focus - ASEAN: 2011 Forecasts

Summary

We extend our economic forecasts to 2011 and adjust our 2010 forecasts.
Full detail projections will be provided in the upcoming 'Asia by the
Numbers', but in this note we the highlight important themes that drive
our ASEAN-5 forecast.

Supported by pent-up demand, the inventory cycle, fiscal and monetary
policy, growth across the region should continue to record healthy
outcomes in the immediate future. The ongoing momentum in the data flow
leads us to upgrade our Thailand, Indonesia and Philippines forecasts
for 2010 in the wake of prior upgrades to Singapore and Malaysia.

However, during H2 2010 and into 2011, we see growth momentum slowing
towards more sustainable rates. Indonesia should show signs of
outperformance at this stage, as there should be less inventory cycle
and policy boost to fade in that economy. To the extent that we forecast
healthy global growth in 2011, this relative performance may be
reflected in risk market performance to a greater extent than when
Indonesian growth outperformed in 2008.

In this context, inflation should gradually normalise with that
normalisation occurring faster in Indonesia than elsewhere - due to a
likely tighter supply-demand balance. Likewise, policy settings should
see a gradual withdrawal of stimulus as policy makers keep a watchful
eye on activity growth. In terms of monetary policy rate increases,
Malaysia may lag while Indonesia should reach more normal nominal policy
settings sooner than most.

Our currency forecasts incorporate US dollar weakness through end-2011,
but also reflect national inflation and policy proclivities. We expect
the Singapore dollar to outperform, largely due to policy settings.
Separately, while we forecast the Indonesian rupiah and peso to
appreciate in real terms; their nominal performance should be held back
by domestic inflation. As to the Thai baht and ringgit, we suspect
policy makers will continue to resist appreciation pressure.


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