Central banks are constrained by FX volatility, only the BoT can cut rates
In this edition of ASEAN Perspectives, we map out the region's commodity exposure, see page 3
A complicated story
As the third quarter comes to a close, there are few signs of an emphatic improvement in activity across the region. High-frequency data from exports to PMIs continue to point to downside risks to our forecasts in most countries. Moreover, as we discuss in this month's feature chapter, the commodity price environment adds to the numerous headwinds.
The Philippines and Vietnam remain the two bright stars in a dim sky. In the former, imports have actually accelerated on surging capital and consumer goods imports - a reflection of the resilience of the domestic economy. We see consumer sentiment and government spending sustaining growth into the elections next May. Meanwhile, Vietnam's exports continue to buck the region-wide slump as manufacturers gain share.
Policy options vary by country. Sustained currency weakness and uncertainty surrounding lift-off by the FOMC broadly constrain monetary policy options - particularly for Indonesia, Malaysia, and Singapore (the latter due to the converse relationship between currency weakness and short-term rates). Thailand is the only country where monetary easing remains likely in the near term (we expect the BoT to cut in 4Q15).
Inflation, if anything, continues to surprise on the downside. Despite what may be the strongest El Niño on record, we have yet to see related disruptions, but policymakers need to stand guard regardless - as is the case with the BSP in the Philippines.
Governments and central banks in Malaysia and Indonesia continue to propose palliative measures, but the impacts are likely to be minimal (Su Sian Lim, No 'big bang' in government stimulus measures, 14 September). In Indonesia's case, the stated goal is to accelerate infrastructure investment and offer policy continuity. Malaysia has more limited options, and we think sentiment can turn worse as natural gas prices continue to fall and the commodity outlook remains dim. Turn to page 3 for more on ASEAN's commodity conundrum.