QUARTERLY GLOBAL OUTLOOK - 1Q 2016 TPPA FOCUS - UOB
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QUARTERLY GLOBAL OUTLOOK 1Q 2016 TPPA FOCUS What We Need To Know About The Trans-Pacific Partnership Agreement (TPPA) ASEAN FOCUS AEC: Trade And Investment Opportunities CHINA FOCUS To The SDR And Beyond 中国焦点:人民币成功加入SDR US FOCUS Who Matters In 2016 FOMC?
CONTENT
04 EXECUTIVE SUMMARY
In Search Of Silver Linings
Amidst A Cloudy Outlook
09 FX & INTEREST RATE OUTLOOK
10 TPPA FOCUS
What We Need To Know About The
Trans-Pacific Partnership Agreement (TPPA)
15 ASEAN FOCUS 32 INDONESIA
AEC: Trade And Investment Opportunities
33 MALAYSIA
20 CHINA FOCUS
To The SDR And Beyond 34 SINGAPORE
23 中国焦点 35 THAILAND
人民币成功加入SDR
36 INDIA
26 US FOCUS
Who Matters In 2016 FOMC? 37 CHINA
29 FX STRATEGY 38 HONG KONG
A Preview Of Regional Currencies In 2016
39 JAPAN
31 RATES STRATEGY
The Big Picture On 2016 SGS Auction Calendar 40 SOUTH KOREA
41 TAIWAN
42 EUROZONE
43 AUSTRALIA
44 NEW ZEALAND
45 UNITED KINGDOM
46 UNITED STATES OF AMERICA
47 FX TECHNICALS
Information as of 04 December 2015
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Executive Summary have been roiling financial markets
from time and time are largely due to
In Search Of Silver Linings Amidst A Cloudy Outlook 1) generally lack of comprehensive,
quality and timely economic data (will
be resolved over time after China
subscribed to IMF’s Special Data
Dissemination Standard – or SDDS –
Key Themes in 2016 too far ahead of themselves, asking on 7 Oct 2015); 2) poor understanding
It is hard to be optimistic for 2016’s too much of central bankers when of China’s economic/social/political
outlook. Back in late 2014, we projected there is not that much left on the table system (again, time is needed to as
that the lacklustre global growth story of to be given. China’s system opens up further);
2014 would extend into 2015. Indeed, and 3) overly concerned of existing
global growth has been consistently 2. Longevity Of The USD Strength economic/financial imbalances and
revised lower throughout 2015. Based And now with the Fed hike in sight, the doubts that these problems could
on the latest IMF forecasts, global growth the one question in investors’ mind be resolved. While there are risks
is set to come in at 3.1% in 2015, down is that whether and how far the and imbalances just like any other
from 3.4% in 2014. While IMF expects USD would continue to rally after economies, it should be noted that
the pace to improve to 3.6% globally in the first hike? Looking into the last the authorities are taking steps to
2016, we think the risk of disappointment 2 tightening cycles of the Federal address these issues and more by
remains high. A large part of the tepid Reserve (1994 and 2004), it may liberalizations and reforms, and to
environment in 2015 is attributed to the seem counter-intuitive but it turned connect with the global system, with
emerging market economies, hurt by out that the US dollar fell and Asian SDR being the latest example. Our
lower commodity prices, slower China currencies (collectively represented view is that the probability is low for
growth and domestic currency volatility. by ADXY) appreciated when Fed a China hard landing scenario and/
The continued slower global and Asian started hiking rates during the last two or large scale RMB depreciation or
economic environment looks set to cycles. In the upcoming tightening devaluation, as the implementation
remain true for 2016, driven by the key cycle, the Fed’s dot plot chart indicated of the new SDR basket will only take
themes set out below. only 100bps of rate hikes in 2016 (as place on 1 Oct 2016, among other
_________________________________ of Sep 2015 FOMC) while the more factors.
skeptical market only priced in an
even more shallow trajectory of just 4. Few Bright Spots
The continued slower global and 50bps worth of hikes. We think that For Commodity Prices
Asian economic environment this initial disparity in rate trajectory Depressed commodity prices has been
looks set to remain true for expectation may be sufficient to the bane of many emerging markets
2016. sustain the US dollar strength in the in 2015 because a huge chunk of
_________________________________ first half of 2016. But once the Fed their exports are commodity-based,
has effectively communicated its rate and contributed to the weak growth
1. Monetary Policy Divergence trajectory preference and the market outcomes in these regions. Weather
Taking Shape crystalize these expectations, we effects may work towards the favor
Central banks all over the world anticipate the dollar rally petering out of higher soft commodity prices
(except Brazil) have adopted easier by 2H2016 and the Asian currencies in 2016 but industrial metals may
monetary policies throughout 2015 ending the year on a firmer footing. continue to endure another year of
and even though the US Federal Thus, one should be prudent not weak prices as long as demand from
Reserve was expected to normalize to be overly positive on the USD or China remains lackluster. We continue
interest rates sometime in 2015, Fed overly negative on Asian currencies, to see crude oil market suffering
Chair Janet Yellen has left it to late although the abrupt move in the EUR/ from oversupply while the expected
in the game at the 15/16 December USD pair – which surged from 1.05 increase in global oil demand remains
FOMC meeting for Fed rate liftoff to nearly 1.10 – in a matter of hours unable to match the supply glut and
action. That has been a long period in reaction ECB’s Dec policy decision close up the imbalances of the market.
of anticipation and (hopefully) finally, on 3 Dec – is a clear reminder of the We continue to expect US crude oil
we will see monetary policy volatility that could erupt at the most price to hover near the US$40 per
divergence between the US and the unexpected place. barrel but the risk is to the downside
rest of the central banks getting (at US$30-35).
off the ground. That said, the clear 3. Concerns Over
emphasis on the shallow nature of China’s Outlook and Currency 5. Political And Geopolitical
the Fed’s rate trajectory, coupled with China was, and remains, to be a Factors Coming Into Play
limited further easing from ECB and crucial part of the equation about Meanwhile, if we assume a moderate
BOJ should imply a milder divide. how we see the global economy US growth outlook in 2016 holds true,
At the end of the day, it is all about and financial markets will fare. then the focus for US in 2016 will be
expectations and ECB’s December The unresolved concerns about all about year-end elections. In less
monetary policy disappointment is a China “hard landing” and CNY than 1 year, we will have a whole
good reminder that markets may get devaluation will linger on in 2016. bunch of elections taking place on
These are persistent concerns that 8 Nov 2016, the most important one
04
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets Research
Executive Summary
will of course be the US Presidential of infrastructure development in ASEAN hike). Based on the recent commentaries
elections. We will definitely be getting today remains the biggest challenge but from the FOMC voters, if Fed Chair Janet
a new US President as Obama also presents immense opportunities Yellen chooses to propose a rate hike in
(Democrat) fulfills his 2 terms and will for foreign direct investment. With better Dec 2015, she will be able to press ahead
step down but it is unclear at this stage infrastructure and facilities, higher levels with majority support but she may not get
whether the next President is going of manufacturing and services activities an unanimous agreement as there are 3
to be Republican or Democrat. One can be generated and that will bring forth clear doves: Fed Board Governor Lael
thing we are sure of is that in a US increased trade volumes in goods and Brainard, Fed Board Governor Daniel
election year, 2016 will be free of services for ASEAN members. Tarullo and Chicago Fed President,
threats of government shutdowns, Charles Evans. Our base case scenario is
debt ceiling negotiations and US CHINA IN FOCUS: 7-3 votes in favor of a 25bps hike in Dec
government default risks, and To The SDR And Beyond 2015 FOMC.
that’s a relief. And in terms of global As widely expected, IMF Executive
geo-politics, the threat posed by Board approved China’s RMB inclusion Prior to 2008, both Fed Reserve Bank
the Islamic State in Iraq and Syria into the SDR basket of currencies at Presidents and Fed Reserve Board
(ISIS) will continue to weigh upon its decision on 30 Nov, with a weight of Governors dissented. But since 2008,
the security issues for all parts of the 10.92%, effective from 1 Oct 2016. IMF only Fed Reserve Bank Presidents
world. And in 2016, we have two big also implements a new weighting formula dissented. That said, we may have come
sporting events, the UEFA EURO for the SDR, which means that China is to an interesting juncture of Fed monetary
football tournament in France (10 likely to stay on its market reform track to policy-making especially into 2016 where
Jun-11 Jul) and the 2016 Summer improve its weightage, as it eyes capital we may see more Fed Reserve Bank
Olympics in Brazil (5-21 Aug). Expect account and currency convertibility by Presidents dissenting because they want
to see heightened security concerns 2020. With the implementation of the to see tighter monetary policy but at the
as the games begin. SDR basket extending to Oct 2016 and same time, we may also see the first Fed
also the 5-year review cycle of the SDR, Reserve Governor dissent since 2008 in
We wish all our readers happy it is unlikely that China would pursue a the upcoming December 2015 FOMC
holidays and a good year in 2016! weak currency or “currency war” to boost because at least two Governors favor
exports or domestic growth, knowing full easier policy for longer.
well the futility of such strategy. Measures
FOCUS I: taken by the central bank since the 11 FX STRATEGY:
What We Need To Know About the Trans- Aug central parity reform suggests that A Preview Of Regional Currencies In 2016
Pacific Partnership Agreement (TPPA) it is in fact concerned about excessive Now, as we head into December where
The Trans-Pacific Partnership Agreement expectations of RMB depreciation. While the US Federal Reserve is expected to
concluded in late 2015 is one of the biggest we see a low probability of large scale or deliver the first rate hike since the Global
trade deals in the last two decades. The sharp depreciation of the RMB in the next Financial Crisis in 08/09, the one question
countries involved represent US$9.6tn or 1-2 years, the more important point which in investors’ mind now is that whether
25% of total trade and close to 40% of is often overlooked is that ongoing reforms the USD would continue to rally after the
global GDP. The pact has the potential and uncertainty in the global markets, as first hike. To answer that, we did a study
to yield annual global income gains of well as the end of one-way appreciation of how Asian currencies collectively
US$295bn (including US$78bn for the trend for the RMB would result in further (ADXY) has fared in the last 2 tightening
US), and enhanced free trade flows in the two-way moves and flexibility of the RMB cycle of the Federal Reserve, namely in
Asia-Pacific to yield gains of US$1.9tn. exchange rate. This means that risk 1994 and 2004. Counter-intuitively, the
The TPPA is as much about geopolitics management/control and hedging is an US dollar declined and Asian currencies
as it is about trade and economy, and with increasingly important part of business (represented by ADXY) appreciated when
the giant powers exert their influences, operations. the US Fed started hiking rates in 1994
ASEAN will be well placed to benefit in and 2004. In the upcoming tightening
trade and investment. US IN FOCUS: cycle, the Fed’s “Dot Plot” only inked in
Who Matters In 2016 FOMC? one percent (100bps) of rate hikes in
ASEAN IN FOCUS II: Expectations are high that the US Fed 2016 while the more skeptical market
Trade And Investment Opportunities Reserve will finally normalize its ultra-low only priced in 50bps worth of hikes. With
In the first part of this series (published in policy rates this December 2015, and thus, the past history as reference and the
2015 Q4 Quarterly Report), we discussed there will be a sharper intensity in market’s gradual nature of the upcoming hikes,
the economic potential of ASEAN in view Fed watching, not just the FOMC decisions one should be prudent not to be overly
of the implementation of the ASEAN and the minutes, but also Fed officials’ positive on the USD or overly negative on
Economic Community (AEC) at end-2015. public commentary. The hawkish tone Asian currencies, and volatility could be
We had also highlighted the favourable in Fed Chair Janet Yellen’s testimony to pronounced as both sides tussle it out.
demographic and income trends that Congressional Joint Economic Committee
will promote ASEAN economies as one on 3 December reaffirmed the December RATES STRATEGY:
of the top regions to invest as a key Fed liftoff expectations. The Big Picture
production base and as a large consumer On 2016 SGS Auction Calendar
market of 630mn population with a rising In the 2015 FOMC so far, Jeffrey Lacker The shift into a FED rate hike cycle
middle income/consumer class. In this was the only dissenter in the September externally and absence of positive growth
second part, we point out that the lack and October FOMC (asking for 25bps catalysts domestically will create an
05
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets Research
Executive Summary
environment that is tilted in favour of higher Chinese outlook, which could persist into SGD NEER unchanged at our estimated
short term interest rates in Singapore. 2016 as economic growth is likely to slow. 0.5% pa pace until their next April 2016
Thus, it is reasonable to expect that price Pressure on the AUD could also grow as meeting. We also rule out any possibility
appreciation for shorter maturity SGS the tightening cycle of the Fed takes hold, of another one-off policy action ala Jan
may face persistent headwinds in 2016. although we think the appreciation in the 2015 surprise, and maintain our USD/
However, with sizeable maturities on tap, USD could be limited. SGD forecast of 1.43/USD by end of 2015
we should be mindful that there remains and onto 1.46/USD by mid-2016, where
potential for significant counter trend NZD/USD: NZD/USD returned to a the catalyst will come from the divergence
episodes in shorter maturity SGS prices. depreciating trend in November following in the monetary policies between the US
October’s appreciation following two Federal Reserve (where we hold on to our
Global FX consecutive Global Dairy Trade auctions ‘rate hike in Dec’ view) and the MAS.
EUR/USD: Expectations of a big package that resulted in dairy prices falling in
by the ECB have been running high ahead the last weeks. This partially offset the USD/IDR: We expect Indonesia’s current
of the December meeting. Instead, the recovery that began in August. Still, the account deficit to widen again in 2016
ECB disappointed. EUR/USD has spiked NZD has been one of the strongest G10 with the export outlook clouded by global
sharply higher since. We think the latest performers over the last quarter. Going uncertainties and the persistent weakness
measures by the ECB were designed to forward, the Kiwi remains highly attuned to in commodities as well as an expected
strike a balance between the hawks and central bank policies. Selling pressure will increase in imports due to stronger
doves within the ECB governing council. likely continue to swell as a dovish RBNZ domestic demand and infrastructure
Whilst Draghi said there was a ‘clear monetary policy announcement fuels rate needs. The current account deficits, high
majority’ in favour of the latest decision, he cut speculation even as bets on near-term foreign holdings of the government bonds
admitted that they were not unanimous. Fed tightening grow more confident. As (37.1% of total outstanding in Oct) and
We continue to believe that the hurdle such, the risk profile for the NZD/USD is relatively thin reserve coverage to external
for further ECB stimulus is high, and still soft for now. debt (0.4 in Jun) will expose Indonesia
following the December meeting, expect to greater risks from any liquidity jitters.
the ECB to maintain a status quo policy USD/JPY: The yen endured a year of While IDR has been surprisingly resilient
for some time. As such, although we may significant volatility even as the BOJ in October and November despite stronger
see some choppy moves into December refrained from any new easing so far in market conviction of a rate lift-off in the US
and early-2016, EUR/USD, in our view, 2015 with the USD/JPY pair trading from this December, we think USD/IDR could
is unlikely to reverse significantly at this the low of 115.86 (16 Jan) to the high of head back above 14,000 by the early
point. We also think that the gradual path 125.86 (5 Jun) and is currently at the 122- part of 2016. Our USD/IDR forecast is at
of monetary tightening by the Fed is likely 123 range (as of 26 Nov). We keep our 14,100 end-1Q16 and 14,300 end-2Q16.
to see any appreciation of the USD limited. view for USD/JPY to push fresh multi-year
highs and to break conclusively above 125 USD/KRW: USD/KRW has pulled
GBP/USD: Our confidence in the timing when the Fed finally delivers the first rate back after the pair rose above 1,200 in
of the first rate increase by the BoE has action in Dec 2015. For 2016, the JPY September. Despite the recovery, KRW
weakened, and until we see a greater is likely to stay on weakening trend with is still down by 5.1% YTD (as at 30-Nov).
dissent within the MPC, GBP could remain more BOJ easing likely in 2H, driving the While we expect USD strength to prevail in
at a risk of further downside on the back USD/JPY to 129 by end-2016.. 1H16, an earlier top is possible if US Fed
of a delayed monetary policy tightening. is able to communicate a more gradual
Besides, political risk can be significant Asian FX rate normalization process. For now, we
for the sterling as the Scottish referendum USD/CNY: The inclusion into SDR are expecting USD/KRW to rise towards
and UK general election earlier this year (announced 30 Nov) could mean less 1,190 by end-1Q16 and top out at around
showed, with events like these holding the intervention from PBoC but we do not 1,220 by end-2Q16.
potential to create market volatility. In this see much convincing evidence for large
regard, the risk of an earlier referendum scale or prolonged RMB depreciation/ USD/MYR: The Ringgit strengthened
on UK membership of the European devaluation in the next 1-2 years, whether 4.5% against the dollar since end-
Union continues to hang over the medium it is from the angle of underlying domestic September, marking the second best
term outlook for the GBP. That said, with economic data, political stability, financial performing currency in the region after
a good portion of advanced economies market developments, or debt or capital the Rupiah. We think higher US interest
looking to cut rates, the BoE stands apart flows dynamics. Politically and from rates as a driver of Ringgit weakness
with the next move on rates to be higher. IMF’s standpoint, it is difficult for China has largely played out. We have also
This creates a yield advantage that should to return to the one way appreciation (or ruled out another sharp bout of Renminbi
support the currency. depreciation) trend as it did in the past. As devaluation. While markets continue to
such, we are keeping our RMB forecasts watch domestic political developments,
AUD/USD: We do not see a strong for now, with end-2015 USD/CNY at 6.40, there is growing consensus that the
recovery in the AUD from here, yet at the end-2016 projection of 6.45, and to 6.36 current government administration is likely
same time, do not look for the currency to at end-2017. to remain until the next General Election
tumble significantly. We are thus looking in 2018. In any case, rating agencies do
for an end-1Q16 target of 0.7400, just USD/SGD: We maintain our view that the not expect politics to interfere with prudent
a tad above current levels; bearing in Monetary Authority of Singapore (MAS) economic policy-making. Meanwhile plans
mind though that downside risks remain, will keep the current policy stance of a to resolve 1MDB’s debt via asset sales
including uncertainty regarding the “modest and gradual appreciation” of the is underway and we expect a conclusion
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Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets Research
Executive Summary
to the 1MDB chapter by early next year. continued emphasis that their monetary Reserve Bank of New Zealand: The
This leaves oil prices as the wild card policy formulation is data-dependent. RBNZ decided to keep the official cash
given its high correlation with USD/MYR. And as there is a clear emphasis on the rate at 2.75% at the October Interim
We continue to expect the USD/MYR to shallow nature of the FFTR trajectory, we Review. The central bank retained an
trend lower towards 3.96 by end-2016 with may see further downside to the 2016 rate explicit easing bias though. Whilst inflation
bouts of volatility through the year. forecast via the Dec 2015 dot-plot chart. remains low, the RBNZ seems to be
confident that there will be some pickup
USD/THB: Volatility in the global financial European Central Bank: Although the in non-tradeables inflation from current
market is likely to persist in 2016. Despite ECB eased at its final policy review for low levels given continued economic
recent positive developments in the US, the 2015, the modest deposit rate cut and expansion. We also believe the central
Fed is likely to raise the policy rates slowly. lack of expansion in the pace of Asset bank probably wants more time to observe
We maintain our view that there would be Purchase Program (APP) undershot the domestic housing market. That said,
downward pressure on THB going forward expectations. What was surprising was we are still expecting another cut at some
with Thailand’s interest rates expected to also the fact that Draghi did not deliver point, most likely at the 10 December
remain low going into 2016. For now, we with his usual emphasis that there will be meeting, although the fact that the RBNZ’s
expect THB to depreciate against USD more measures to come. He did reiterate announcement is scheduled before the
towards 36.2 at end-1Q16 from around that the ECB remains willing to act with Fed’s December announcement could
the 35.80 level currently. all its tools if needed, but he described complicate matters.
the current level of the deposit rate as
USD/INR: The Reserve Bank of India ‘adequate’, and refused to answer the Bank of Japan: For 2016, the BOJ will
(RBI) had kept the policy rate unchanged question of whether the new deposit rate adopt a new monetary policy meeting
during the 1 Dec 2015 meeting, after a represents a lower bound. As far as the framework which reduces the number
four rate cuts (total of 125 bps) this year APP is concerned, Draghi mentioned that of meetings to 8 per year (from 14),
to stimulate investment. Although India’s the size, composition and duration could introduce quarterly outlook report (to
inflation rate had remained quite benign be changed but mentioned that ‘if there replace the current semi-annual outlook
for most part of 2015, the latest October is ever any need to extend’. Given the report known as The Bank’s View) and
inflation (5% y/y) showed that prices downside risks to the near-term inflation doing away with the monthly economic
could start moving higher due to higher forecast (since November’s lower-than- report. While all these look much like the
food prices. Going forward, the RBI will expected inflation print was not factored current FOMC framework (and also the
probably keep the current repurchase into its December projection), speculation ECB’s), the BOJ is going a step further
rates unchanged at least until 3Q 2016. could rise again for further ECB easing by releasing a document that contains
The INR had fallen 5.6% against the USD next year. summary of opinions presented at each
year-to-date, and should the US start their MPM in about a week after the meeting.
interest rate normalization in December, Bank of England: The BoE gave no sign It will also release each MPM member’s
the INR may weaken further and result that it was in any hurry to raise interest forecasts and risk assessments in addition
in higher capital outflows. We recall the rates at its November Monetary Policy to the publication of the forecasts for the
period of capital outflow and the quick Committee (MPC) meeting, predicting economy and prices of the majority of
depreciation of the INR during May 2013 near-zero inflation would pick up only Policy Board members so as to increase
when the US Fed started the ‘taper talk’. slowly even if borrowing costs stay on hold transparency of BOJ’s MPM policy making
Any further RBI rate cuts will only worsen all of next year. Indeed, the BoE had been process. The important 2016 MPM
the outflow of capital. Even without any expected to start raising borrowing costs meetings will be 28/29 Jan, 27/28 Apr,
further rate cuts in our forecasts, our in early 2016, but since the BoE published 28/29 Jul and 31 Oct/1 Nov which include
expectations of a stronger USD from the its last outlook on the economy, markets outlook reports.
US interest rates normalization will likely have pushed back bets on the timing of
see the USD/INR trading at 69.5/USD by a rate hike to late 2016, largely reflecting In 1Q 2016, the key event that Kuroda will
the middle of 2016. British inflation falling back below zero. We monitor closely that have a direct impact
have thus pushed back our expectations on domestic inflation developments &
Global Interest Rates for the first rate hike to 3Q16 from 1Q16 BOJ policy direction will be Shuntō (the
Federal Reserve: We expect the first Fed previously. annual spring wage negotiations) which
rate hike to take place in the 15-16 Dec typically starts at the beginning of March.
2015 FOMC bringing the FFTR to 0.5% Reserve Bank of Australia: As was In addition, Japan PM Abe wants Japan to
by end-2015. The Oct FOMC minutes widely expected, the RBA refrained from increase the minimum wage by 3% each
reinforced the notion that Dec FOMC slashing the 2.00% cash rate at its final year starting in FY2016 and eventually to
meeting is very live for policy action and meeting of 2015, extending its interest- JPY1000 per hour (from JPY780 in 2015).
the mostly hawkish comments by senior rate pause for a seventh month now. The Thus, we continue to expect the BOJ to
Fed officials recently. accompanying statement offered little keep monetary policy in the current status
new. However, the RBA left the potential quo mode for the last meeting of 2015 (18
In 2016, we expect the Fed to hike at a for further easing intact. We continue to Dec) and probably in 1H 2016 pending the
slow, gradual pace, likely with another see the OCR remaining at 2.00% for now, outcome of the 2016 Shuntō.
four 25bps hike in each quarter to bring although we acknowledge that the risk
the FFTR to 1.5% by end-2016. That said, of lower inflation, coupled with the weak Going into 2H, the key consideration for
the Fed has provided many false dawns investment outlook, could eventually force BOJ may be the 2nd sales tax hike. In
on the rate normalization timeline and its the hands of the RBA. late 2014, PM Abe deferred it to April 2017
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Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets Research
Executive Summary
as private consumption looked crippled Bank Indonesia: As the monthly inflation Bank Negara Malaysia: The central
by the first hike in 2014. A further delay rate is set to drop further to around 3.5% bank has maintained a neutral stance
in the 2nd sales tax hike may keep BOJ y/y in December from peak of 7.3% on interest rates albeit cautioned against
from doing more in 2H 2016 because the earlier this year, markets are watching high downside risks to growth at its final
government will be seen as not fulfilling its out for potential rate cuts in Indonesia. monetary policy meeting for the year.
promise of working towards fiscal balance. Bank Indonesia’s (BI) move to reduce the We see inflation edging higher next year
But conversely, an Abe promise to fulfill primary reserve requirement for banks to due to low base effects and cost related
the sales tax hike to 8% in Apr 2017 may 7.50% from 8.00%, effective 1 December, adjustments. However modest demand
be enough for BOJ to add more easing shows the immense pressure to boost pressures are likely to keep inflation in
in late 2016, the question is what kind of growth while remaining wary of the check. As such we continue to expect
stimulus? risks of a policy divergence with the US. the policy rate to remain on hold for
Indonesia’s December monetary policy most of next year. The risk is tilted on the
Asian Interest Rates decision is scheduled a day after the US downside but only if growth heads further
People’s Bank of China: PBoC last FOMC decision and failure to lift-off will south. We think BNM is unlikely to hike
changed policy on 23 Oct, the sixth likely increase the probability of a rate cut rates to defend the currency.
interest-rate cut in a year (depo rate in Indonesia this December. However, we
1.50%; lending 4.35%), and the fourth are maintaining our view that BI will be on Bank of Thailand: The Bank of Thailand
reserve requirement ratio (RRR) cut this hold at 7.50% in the next few months to (BoT) is likely to keep the policy rates
year (to 17.5%). We still see further room avoid risks for the domestic economy as unchanged at 1.50% in 2016. Looking
for interest rate and RRR reductions ahead US starts to normalize interest rates. forward, monetary policy stance should
into mid-2016, and are still expecting one continue to be sufficiently accommodative
final 25bps reduction in RRR before end- Bank of Korea: As the economy continues to support Thailand’s economic recovery,
2015. to recover, albeit at a slow pace, the Bank while maintaining long-term economic and
of Korea (BoK) will find less need, if any, financial stability. Moreover, the limited
Monetary Authority of Singapore: to loosen its monetary policy further. In policy space should be preserved for
We maintain our view that the Monetary fact, there is limited room to cut interest future utilization as there remain downside
Authority of Singapore (MAS) will keep rates as the base rate is already at record risks to economic growth from both
the current policy stance of a “modest low of 1.50% after the last 25 bps cut in external and internal sources.
and gradual appreciation” of the SGD June. With the improvement in growth and
NEER unchanged at our estimated higher inflation, we think that the BoK is Reserve Bank of India: RBI had kept
0.5% pa pace until their next April 2016 likely more inclined to stay on hold at least the policy rate unchanged during the 1
meeting. Although Singapore’s headline in 1H16 given additional consideration of Dec 2015 meeting, after a four rate cuts
inflation had contracted for the past 12 the high household debt which is expected (total of 125 bps) this year to stimulate
months, core inflation remained steady to increase as the real estate market investment. Although India’s inflation rate
and we think that there could be upside recovers further. This can potentially had remained quite benign for most part
surprises in core inflation in 2016 from become destabilizing when global interest of 2015, the latest October inflation (5%
the low base effects of oil/commodity rates rise. BIS data showed that South y/y) showed that prices could start moving
prices, the dissipation of base effects Korea’s household debt at 84% of GDP in higher due to higher food prices. Going
from government’s healthcare subsidies, 2014, was well above the average of 73% forward, the RBI will probably keep the
as well as higher food inflation from the for 26 developed countries. current repurchase rates unchanged at
El Nino impact on food supplies. We thus least until 3Q 2016, as any further RBI rate
rule out any possibility of another one-off cuts will only worsen the outflow of capital.
policy action ala Jan 2015 surprise, and
maintain our 3-month SIBOR forecast to Real GDP Growth Trajectory
trend higher towards 1.50% by the end of
2016, on the back of the upward move in y/y % change 2014 2015F 2016F 3Q15F 4Q15F 1Q16F 2Q16F 3Q16F 4Q16F
the USD LIBOR. China 7.3 6.9 6.8 6.9 6.9 6.8 6.9 6.8 6.7
Eurozone 0.9 1.5 1.7 1.6 1.7 1.5 1.6 1.7 1.8
Hong Kong 2.5 2.6 2.3 2.3 2.9 2.1 2.3 2.1 2.8
Indonesia 5.0 4.8 5.4 4.7 4.9 5.4 5.5 5.5 5.3
Japan -0.1 0.5 1.0 1.0 1.0 1.5 1.0 0.8 0.7
Malaysia 6.0 4.9 4.8 4.7 4.3 4.5 4.6 4.9 5.1
Philippines 6.1 5.7 6.2 6.0 5.8 6.5 5.7 6.3 6.2
India 6.9 7.4 7.7 7.3 7.5 7.8 7.9 7.7 7.8
Singapore 2.9 2.0 2.7 1.9 2.0 2.6 2.6 2.9 2.7
South Korea 3.3 2.6 2.9 2.6 2.9 2.9 3.1 2.8 2.8
Taiwan 3.9 1.2 1.8 -0.6 0.7 0.2 2.2 2.6 2.5
Thailand 0.9 2.7 3.2 2.9 2.1 3.0 3.1 3.3 3.2
US (q/q SAAR) 2.4 2.5 2.5 2.5 2.8 0.8 3.5 3.0 2.8
Source: CEIC, UOB Global Economics & Markets Research Estimates
08
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets Research
FX & Interest Rate Outlook
FX OUTLOOK As at 04 Dec End 1Q16F End 2Q16F End 3Q16F End 4Q16F
USD/JPY 122.7 126 127 128 129
EUR/USD 1.09 1.12 1.13 1.13 1.14
GBP/USD 1.51 1.50 1.51 1.54 1.56
AUD/USD 0.73 0.74 0.74 0.75 0.76
NZD/USD 0.67 0.65 0.65 0.66 0.67
USD/SGD 1.40 1.45 1.46 1.44 1.42
USD/MYR 4.22 4.18 4.15 4.06 3.96
USD/IDR 13,833 14,100 14,300 14,000 13,900
USD/THB 35.8 36.2 36.5 36.8 37.0
USD/PHP 47.1 47.5 48.0 47.0 46.0
USD/INR 66.9 68.0 69.5 68.0 66.0
USD/TWD 32.7 33.9 34.1 33.9 33.6
USD/KRW 1,157 1,190 1,220 1,180 1,160
USD/HKD 7.75 7.80 7.80 7.80 7.80
USD/CNY 6.40 6.45 6.51 6.47 6.45
Source: Bloomberg, UOB Global Economics & Markets Research
INTEREST RATE TRENDS As at 04 Dec 1Q16F 2Q16F 3Q16F 4Q16F
US (Fed Funds Rate) 0-0.25 0.75 1.00 1.25 1.50
EUR (Refinancing Rate) 0.05 0.05 0.05 0.05 0.05
GBP (Repo Rate) 0.50 0.50 0.50 0.75 1.00
AUD (Official Cash Rate) 2.00 2.00 2.00 2.00 2.25
NZD (OCR) 2.75 2.50 2.50 2.50 2.50
JPY (OCR) 0.10 0.10 0.10 0.10 0.10
SGD (3-Mth SIBOR) 1.07 1.20 1.25 1.35 1.50
IDR (BI Rate) 7.50 7.50 7.50 7.50 8.00
MYR (Overnight Policy Rate) 3.25 3.25 3.25 3.25 3.25
THB (1-Day Repo) 1.50 1.50 1.50 1.50 1.50
PHP (Overnight Reverse Repo) 4.00 4.00 4.00 4.00 4.00
INR (Repo Rate) 6.75 6.75 6.75 6.75 7.00
TWD (Official Discount Rate) 1.75 1.50 1.50 1.50 1.50
KRW (Base Rate) 1.50 1.50 1.50 1.50 1.75
HKD (Base Rate) 0.50 1.50 1.50 1.50 1.50
CNY (1-Yr Working Capital) 4.35 4.10 3.85 3.85 3.85
Source: Bloomberg, UOB Global Economics & Markets Research
09
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets ResearchTPPA Focus the agreement is likely to be implemented
gradually in order for countries to adjust
What We Need To Know About The to the new rules. However the benefits
Trans-Pacific Partnership Agreement (TPPA) should progressively rise over the longer
term. Trade and investment liberalization
that accompanies these agreements
would help to shift resources, capital and
It is one of the biggest trade deals signed Latin American ones like Colombia. China labour towards more productive firms and
in the last two decades. The countries has said it will watch the development industries as well as lift incomes. Ideally
involved include two of the world’s three of the TPPA and is currently engaged lowering of trade barriers (both tariff and
largest economies (US and Japan) and in its own trade negotiations with Asia non-tariff) and entry of new players will
10 Pacific Rim countries which together including the Regional Comprehensive inject competition in the local business
represent US$9.6tr or 25% of total trade Economic Partnership (RCEP). Indonesia environment and provide more options
and close to 40% of global GDP. Studies has endorsed the TPPA and holds for consumers. This effectively raises the
show the TPPA has the potential to yield intentions to join. Thailand is keen to bar on product quality and lowers the cost
annual global income gains of US$295bn enter the agreement amid concerns that of goods and services. This means real
(including US$78bn for the Unites States) it will lose out in the automotive sector. wage gains and increased purchasing
and enhanced free trade flows in the Asia- However countries that join later (not in power which in turn elevates the quality of
Pacific to yield gains of US$1.9tr. the original pact) will not have the flexibility life.
of negotiating the terms of the agreement.
In a nutshell, the competitive appeal of Nevertheless the benefits of the TPPA will ASEAN Benefits Especially
participating in these trade agreements grow with more partners joining. Studies Vietnam, Malaysia And Singapore
(TPPA or Asia-centric RCEP) are seen to show that a larger participation of Asian Export products that have high tariffs
generate large overall gains from trade economies in the TPPA could triple the levied by the US include garments and
and investment creation as opposed to benefits. clothes, tuna, electrical appliances,
diversion of flows that would imply a zero- vegetables and fruits, textiles, food
sum game. As more countries join in, the The TPPA includes 30 chapters covering preparations, footwear, and rubber
benefits are further enhanced. The gains (1) initial provisions and general gloves. As such these sectors will benefit
appear to be largest for small, developing definitions, (2) trade in goods, (3) textiles once the TPPA is enforced. Vietnam will
economies like Vietnam and Malaysia. & apparel, (4) rules of origin, (5) customs gain significantly in the export sector
Ultimately the goal is for China and the US administration and trade facilitation, (6) particularly for agricultural goods, textiles
to consolidate the agreements that could sanitary and phytosanitary measures, and garments, footwear, and automotive
see income gains of more than US$2tr. (7) technical barriers to entry, (8) trade parts. Malaysia is expected to benefit in
remedies, (9) investment, (10) cross- exports of palm oil and rubber, plywood,
The TPPA is as much about geopolitics as border trade in services, (11) financial electronics, textile, automotive parts and
it is about trade. For the United States, it services, (12) temporary entry for business components. Singapore’s standing as a
means balancing out China’s increasing persons, (13) telecommunications, regional hub will be further enhanced as
dominance in the region in light of the (14) e-commerce, (15) government more MNCs and foreign investors enter
“One-Belt-One-Road”, Asian Infrastructure procurement, (16) competition policy, the region. Singapore is already leading
Investment Bank (AIIB), and Regional (17) state-owned enterprises (SOEs) and the pack in terms of technology offerings
Comprehensive Economic Partnership designated monopolies, (18) intellectual that cuts across manufacturing, banking,
(RCEP). property, (19) labour, (20) environment, transportation, logistics, healthcare,
(21) cooperation and capacity building, education, pharmaceuticals, and
5 October 2015: TPPA Talks Concluded (22) competitiveness and business biotechnology. Given its small domestic
After Seven Years Negotiation facilitation, (23) development, (24) small- market size, the TPPA becomes a platform
The TPPA talks were concluded on 5 and-medium sized enterprises, (25) for locals to venture abroad and inbound
October 2015 whereby the trade ministers regulatory coherence, (26) transparency FDIs to grow.
from each member country reached an and anti-corruption, (27) administrative
in-principle agreement but each country’s and institutional provisions, (28) dispute Hot Areas But Something’s Gotta Give:
legislature must now ratify the agreement settlement, (29) exceptions, and (30) final Intellectual Property, Pharmaceuticals,
before the TPPA can be implemented. provisions (including procedures in which Government Procurement, And State-
Optimistically the TPPA could come into a party can withdraw from TPP). owned Enterprises (SOEs)
effect by 2018. This is also dependent on Other hotly debated areas include
whether the TPPA vote would be taken by TPPA To Benefit Three Areas: Intellectual Property (IP) covering patents,
the US Congress by mid-2016. Exports, Imports And Investments trademarks, copyrights, industrial designs,
As tariffs are reduced and the domestic geographical indications, trade secrets,
The current 12 TPPA members are regulatory environment reformed under other forms of IP, and enforcement of
Australia, Brunei, Canada, Chile, Japan, the new agreements, this would impact intellectual property rights that would
Malaysia, Mexico, New Zealand, Peru, foreign investment and on domestic allow foreign corporations to challenge
Singapore, the US and Vietnam. But in industries. It is possible that costs decisions by governments before
the line up to potentially join the TPPA are outweigh benefits in the early stages amid international arbitration panels. The IP
Asian economies such as South Korea, the diversion of trade flows and FDI. Gains chapter is supposed to make it easier
Taiwan, Thailand and the Philippines, and in the early stages may also be small as for businesses to search, register, and
10
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets ResearchTPPA Focus
protect IP rights in new markets, which is practices that result in forced labour. of no more than 10 years to eliminate the
particularly important for small businesses. tariffs. Sensitive products like tobacco,
The chapter also covers pharmaceutical- The deal does not include measures alcohol, arms, steel and ammunition will
related provisions, protection for creative that punish currency manipulation with have a staging period of more than 10
works, performances, and phonograms trade sanctions. However all parties have years. Generally export-oriented firms (e.g.
such as songs, movies, books, and pledged not to deliberately weaken their textiles, automotive components, E&E)
software. currencies in a declaration accompanying will benefit from increased market access.
the deal. Capital control measures Firms in more liberalized sectors post-
Contrary to the original proposal for are allowed under certain conditions TPPA that will face increased competition
pharmaceuticals and biologic drugs to get including a balance of payments crisis or include oil & gas (O&G), construction, and
12 years of protection, the TPPA finally exceptional circumstances of disruptive retail. Meanwhile existing pharmaceutical
settled on at least five to eight years of capital flows. However such measures manufacturers will be minimally impacted
protection. Parties have agreed to strong can only be for duration of 18 months with by stronger intellectual property protection
enforcement systems and penalties for one year extensions permitted and cannot for drugs.
counterfeiting and copyright or related be imposed on foreign direct investments.
rights piracy. However this should not be Enabling Higher Investments
something new to countries like Malaysia Malaysia Makes Way For TPPA With Safeguards In Place
and Singapore as there are existing The 11 TPPA members account for Malaysia being the third largest recipient
investor protection laws. For Vietnam that MYR557bn (US$170bn) or 38% of of FDI in the ASEAN region will benefit
lacks clear investor protection schemes, Malaysia’s trading value in 2014, and from higher investments. It is estimated
it provides an added level of assurance MYR260bn (US$79bn) or 18% of this that investments will rise by US$136bn-
for investors that there is an avenue was with three countries – the United 239bn over 2018 to 2027 with higher
for recourse. The only exception to the States, Japan, and Canada. The TPPA investment growth in textiles, construction
Investor-State dispute is if it concerns states account for MYR78bn (US$24bn) and distributive trade. Investment rules
challenging tobacco control measures of or 41% of Malaysia’s foreign direct have to be amended to make it easier for
the country. investment flows. The TPPA will provide foreign corporates and small and medium-
local businesses with first-ever Free- sized enterprises (SME) to operate in
Other contentious area pertains to opening Trade Agreements between Malaysia Malaysia. Despite the potential entry of
up government procurement and the and the US, Canada, Mexico and Peru, more foreign parties, more importantly are
status of state-owned enterprises (SOEs). in addition to enhancing access to eight that safeguards will be in place to ensure a
According to the World Trade Organisation, other markets. It is estimated that the level playing field. The SME Association of
government procurement accounts for TPPA will contribute additional US$107bn- Malaysia is proposing for the government
15% to 20% of GDP on average in TPPA 211bn (or 0.6%-1.15%) to GDP over 2018 to include a clause that Malaysian SMEs
countries. Under the agreement, parties to 2027 largely due to a reduction in non- must form part of the supply chain of
agree to open up government contracts tariff measures. As such not participating foreign companies venturing into Malaysia
by publishing relevant information on in the TPPA will carry greater costs in under the TPPA. There are currently about
a timely and non-discriminatory basis, the long run as it may chip away existing 19% or 123,000 SMEs in the country
ensure open tenders and award contracts market shares in its traditional strong hold that are involved in exports and the other
on a fair and impartial basis with proper sectors and limit Malaysia’s access to new 81% are involved in local business. A
justification. SOEs would be allowed to products and markets. separate survey showed roughly 40% of
operate within a set of rules. For Vietnam Malaysian SMEs are involved in some
that is undergoing a privatization process Lower Tariffs And form of cross-border and international
of its 432 SOEs in 2014-2015, participating Simplify Trade Procedures trade. The enhancement of trade and
in the TPPA enforces strict reform Counterparty nations will lower tariffs and investment opportunities via TPPA and
procedures on the remaining state entities simplify trade procedures that can facilitate other trade agreements will go towards
while transparency and cleanliness would exports of Malaysian manufactured helping Malaysia realise the target of 42%
be improved. Countries like Singapore products and services. Malaysia will also contribution to GDP from SMEs by 2020
and Malaysia have negotiated for specific eliminate tariffs and reduce non-tariff from 36% in 2014.
country concessions from TPPA to protect measures which enables procurement
national interests. of a broad spectrum of products and With the removal of digital customs duties
services more cheaply. The government and localisation barriers under TPPA, this
Enforcing Worker Rights, Minimum has proposed an eight-stage mechanism will help Malaysia realize its ambitions to
Wages, And Environment Protection – either eliminate duties on 10.397 become a high-tech hub in the region given
There are also rules on protecting workers’ products immediately on entry into force its strengths in technology, e-commerce
rights and the environment. On protection (EIF) or in stages ranging from three to 16 and financial services. Likewise, easing
of local jobs and hiring rules, officials years. Majority of products or 84.71% of of limitations on foreign firms’ participation
say the rules will vary by occupation, total products fall under the EIF category. in the financial sector empower Malaysian
source country and category of business Commodities like crude palm oil, crude banks in TPPA markets as they expand
person, including intra company transfers, or refined palm are categorized in the and seek opportunities in the region and
investors, professionals and technicians. EIF basket with zero import duty. Some beyond. However new licenses and up
However TPPA countries will be required completely-knocked-down (CKD) vehicles, to 100% foreign equity will be subject
to have minimum wages, occupational plastic and rubber products, wood and to the fulfillment of the “best interest of
safety and health, and enforce bans on related products have a staging period Malaysia” criteria. Meanwhile opening
11
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets ResearchTPPA Focus
of sub-branches and ATMs is subject to
distributions ratios between the market ASEAN, RCEP, & TPP Member States
center, urban and non-urban, as well as
Source: AsiaFoundation.org
reciprocity from other respective TPPA
countries.
Stronger Standards Of China
Investor Protection India Japan
Since 1963 Malaysia has signed and South Korea Australia
New Zealand
ratified 64 Investment Guarantee United States
Agreements (IGAs) with countries including Canada
Laos PDR Chile
the US, Canada and Mexico, all of which Myanmar Brunei Peru
have provisions on investor settlement Indonesia Malaysia Mexico
Philippines Singapore
disputes. As Malaysia is looking towards Vietnam
Thailand
enhancing its high-tech manufacturing Cambodia
industry, enhancing protection for patents
will help to strengthen Malaysia’s appeal ASEAN
as an investment destination for research
and innovation. Meanwhile Malaysia’s RCEP TPP 12
non-participation in the TPPA could
accelerate a loss of competitiveness
especially in the E&E segment to Vietnam Benefits Of TPPA vs. Asia Centric RCEP For Non Asia
and consequently affect the prospects (% change in baseline GDP between 2015-2025)
of Malaysia’s smaller E&E suppliers and Source: AsiaPacificTrade.org, UOB Global Economics & Markets Research
contractors.
%
Negotiated Protection For 2.0
Government Procurement And SOEs RCEP Members Non-RCEP Members
1.5
Contentious areas for Malaysia are
mainly protection of its Bumiputera 1.0
policy, government procurement, state-
0.5
owned enterprises (SOEs), and cost of
pharmaceutical products. It was mentioned 0.0
that Malaysia negotiated and received
-0.5
special exemptions from TPPA to protect
Canada
United States
New Zealand
Mexico
Australia
Chile
Peru
such national interests. The government
procurement chapter does not include
items like public-private partnerships
including build-operate-transfer (BOT) and
TPP RCEP
public works concessions. To safeguard
the Bumiputera policy the Malaysian
government reserves the right to set aside
up to 30% of the total value of construction Benefits Of TPPA vs Asia-Centric RCEP For Asia (Msia, Spore & Vietnam gain more from TPPA)
contracts and 40% of SOEs annual (% change in baseline GDP between 2015-2025)
purchases for Bumiputeras. Petronas can Source: AsiaPacificTrade.org, UOB Global Economics & Markets Research
continue to prioritise Malaysian enterprises
%
to supply goods and services up to
25
70% of its annual budget for upstream
businesses in the first year of TPPA and 20 Non-TPP Members TPP Members
thereafter progressively scaled down to 15
40% in the 6th year. For downstream and
non-O&G activities, domestic preferences 10
are capped at 40% of annual budgeted 5
spend upon entry into TPPA. Felda Global
0
Ventures (FGV) is also allowed certain
preferential treatment for goods produced -5
China
Philippines
India
Korea
Thailand
Hong Kong
Indonesia
Japan
Taiwan
Brunei
Singapore
Vietnam
Malaysia
by its members or settlers who participate
in the Felda schemes. Malaysia is also
allowed a higher threshold of entry for
foreign firm participation in Malaysian TPP RCEP
public construction. The nine countries set
the threshold at only SDR5million while
Vietnam has a threshold of SDR65million
12
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets ResearchTPPA Focus
followed by Malaysia of SDR63million Benefits Of TPPA For Primary Products By Country
(MYR377.17million). Effectively only (% change from baseline)
0.7% of annual government contracts
Source: AsiaPacificTrade.org, UOB Global Economics & Markets Research
would be affected by the TPPA threshold
of SDR63million upon entry, and 2.8% %
by SDR14million after 20 years. The 4
thresholds will be lowered at a much 2
steeper rate for goods procurement 0
compared to services procurement. -2
However when the threshold comes -4
down, a separate measure known as the
-6
margin of preference for local Bumiputera
-8
companies will rise as such a certain level
-10
of protection still remains. TPPA Members Non-Members
-12
SOEs including Permodalan Nasional -14 Japan
Singapore
Brunei
Australia
Indonesia
Malaysia
Taiwan
India
China
Philippines
US
NZ
HK
Korea
Thailand
Vietnam
Berhad (PNB), pilgrim’s fund Lembaga
Tabung Haji (LTH), and autonomous
agency MARA received exemptions from
TPPA obligations however sovereign
wealth fund Khazanah Nasional and state
energy firm Petronas are still subject Benefits Of TPPA For Manufactured Products By Country
to certain obligations. In fact Malaysia (% change from baseline)
is not unique in this as Singapore also Source: AsiaPacificTrade.org, UOB Global Economics & Markets Research
included a clause which allows Temasek
Holdings (Private) Ltd and GIC Private Ltd %
to exercise their voting rights in “any SOE 40
it owns or controls through ownership 35
TPPA Members Non-Members
interests in a manner not inconsistent with 30
the chapter.” However this would probably 25
have come at the expense of other terms 20
that were not revealed. Nevertheless 15
Malaysian companies would also have the 10
opportunity to participate in government 5
procurement in other TPPA member 0
countries with some level of appropriate
-5
discretion.
Brunei
Japan
Australia
Singapore
Malaysia
Taiwan
Indonesia
NZ
India
Philippines
China
US
Korea
HK
Thailand
Vietnam
On pharmaceuticals, Malaysia’s current
period of data exclusivity on biologics
is five years while existing registered
biosimilars were registered between 6 to
13 years after the first marketing approval Benefits Of TPPA For Services By Country
of their biologics counterpart. This is (% change from baseline)
already aligned with the TPPA’s settled Source: AsiaPacificTrade.org, UOB Global Economics & Markets Research
proposal of at least five to eight years of
protection and thus indicates that there %
should be minimal impact on the prospects 20
of the biopharmaceutical manufacturing 15 TPPA Members Non-Members
industry as well as the public’s access to
10
cheaper alternatives. As such the price of
medicines should remain relatively stable 5
upon implementation. 0
-5
-10
-15
Brunei
Australia
Japan
Singapore
Indonesia
Malaysia
Taiwan
NZ
Philippines
China
India
US
Korea
HK
Thailand
Vietnam
13
Quarterly Global Outlook 1Q2016
UOB Global Economics & Markets ResearchTPPA Focus
Comparison Of Various Multinational And Regional Initiatives
International Financial
- Trade Agreements Development Strategy Regional Integration
Institutions/ Multilateral Bank
Initiatives Trans Pacific Partnership Asian Infrastructure Investment One Belt, One Road (OBOR) ASEAN Economic
Agreement (TPPA) Bank (AIIB) Community (AEC)
Purpose Labeled a gold standard Supporting infrastructure Focuses on connectivity To integrate the ASEAN
agreement to forge stronger construction in the Asia-Pacific and cooperation among member states to create
trade and investment ties region and for OBOR countries primarily in the “Silk a single market and
between US & Japan and Road Economic Belt” and production base, enable
10 Pacific Rim countries oceangoing “Maritime Silk a highly competitive
Road”; economic region, create
China’s Silk Road Fund and a region of equitable
AIIB to help fund projects in economic development,
OBOR and a region fully
integrated into the global
economy
Area of Coverage Asia Pacific Rim (excludes Asia, Europe (excludes US, Asia, Europe, Oceania, East ASEAN
China, India, South Korea) Japan, and Canada) Africa
and North America
Countries 12 in total US (leading), 57 in total Similar to the AIIB 10 in total
Japan, Australia, New China (founder), Australia, Brunei, Cambodia,
Zealand, Brunei, Canada, Azerbaijan, Bangladesh, Brazil, Myanmar, Laos, Vietnam,
Chile, Malaysia, Mexico, Brunei, Cambodia, Denmark, Singapore, Malaysia,
Peru, Singapore, and Egypt, Finland, France, Georgia, Indonesia, Philippines,
Vietnam Germany, Iceland, India, and Thailand.
Indonesia, Iran, Israel, Italy,
Jordan, Kazakhstan, South
Korea, Kuwait, Kyrgyzstan,
Laos, Luxembourg, Malaysia,
Kyrgyzstan, Maldives, Malta,
Mongolia, Myanmar, Nepal,
Netherlands, New Zealand,
Norway, Oman, Pakistan,
Philippines, Poland, Portugal,
Qatar, Russia, Saudi Arabia,
Singapore, South Africa, Spain,
Sri Lanka, Sweden, Switzerland,
Tajikistan, Thailand, Turkey, UAE,
UK, Uzbekistan, and Vietnam
Status Concluded on 5 October Expected to start operations by Deployed funds totaling Deadline end-2015 but
2015; end-2015 US$100bn via Silk Road likely to spillover to 2016
Needs to be ratified by each Fund (US$40bn), AIIB
country’s legislature; (US$50bn), BRICS- led
Subject to US Congress New Development Bank
approval (by mid-2016) (US$10bn) ;
76% of China’s foreign state
lending to countries on the
OBOR route;
Loans for infrastructure
projects, including road, rail
and power schemes (52%
of loans), and trade finance
(30%)
Population 805 million (11.2%) 4,880 million (67.7%) Similar to the AIIB 620 million (8.6%)
(% of world population)
Nominal GDP US$28tr (36.4%) US$40.2tr (54.7%) Similar to the AIIB US$2.5tr (3.2%)
(% of global GDP)
Total trade US$9.58tr (25.1%) US$29.3tr (77%) Similar to the AIIB US$2.56tr (6.7%)
(% of global trade)
Parallels Regional Comprehensive IMF, World Bank, Asian China-Pakistan Economic Eurozone (euro area),
Economic Partnership Development Bank Corridor (CPEC), Common Market for
(ASEAN+6 RCEP), EU- Bangladesh-China-India- Eastern and Southern
ASEAN FTA Myanmar(BCIM) Economic Africa (Comesa)
ASEAN-China (ACFTA) Corridor
Source: Various Media, IMF, UNCTAD, UOB Global Economics & Markets Research
14
Quarterly Global Outlook 1Q2016
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