Quarterly Global Outlook Q4 2019 - Slower growth, lower rates and a stubbornly strong US Dollar - UOB
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Quarterly Global Outlook Q4 2019 Slower growth, lower rates and a stubbornly strong US Dollar
CONTENT
04
EXECUTIVE SUMMARY CHINA � 38
Slower Growth, Lower Rates And
A Stubbornly Strong US Dollar HONG KONG � 39
10 INDIA � 40
FX, INTEREST RATE & COMMODITIES FORECASTS
INDONESIA � 41
11 JAPAN � 42
VIETNAM FOCUS
Asia’s Bright Spot Amid Trade Tensions MALAYSIA � 43
MYANMAR � 44
14
SINGAPORE FOCUS PHILIPPINES � 45
A Global Slowdown, An Easing MAS?
SINGAPORE � 46
17 SOUTH KOREA � 47
INDONESIA FOCUS
East Kalimantan To Host TAIWAN � 48
New Capital City Of Indonesia By 2024
THAILAND � 49
19 VIETNAM � 50
ASEAN FOCUS
Real Estate Outlook
AUSTRALIA � 51
24
EUROZONE � 52
CHINA FOCUS
Understanding PBoC’s Revamped Loan Prime Rate
NEW ZEALAND � 53
26 UNITED KINGDOM � 54
FX STRATEGY
Will The USD Stay Strong? UNITED STATES OF AMERICA � 55
30 FX TECHNICALS � 56
RATES STRATEGY
Singapore Rates Behaviour Around MAS Events COMMODITIES TECHNICALS � 61
34 Information as of 13 September 2019
COMMODITIES STRATEGY
Never Underestimate The Supply And Demand
Driven Volatility In Commodities GlobalEcoMktResearch@UOBgroup.com
www.uob.com.sg/research
Bloomberg: UOBR
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EXECUTIVE SUMMARY
Slower Growth, Lower Rates And A Stubbornly Strong US Dollar
Fuelled By Widespread Asian And EM FX Weakness, FED's Broad Dollar Index Has Now Made A New High Above 130
Source: Bloomberg, UOB Global Economics & Markets Research
140
130
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110
100
90
80
70
60
Sep 89 Nov 91 Jan 94 Feb 96 Apr 98 Jun 00 Jul 02 Sep 04 Nov 06 Dec 08 Feb 11 Apr 13 May 15 Jul 17 Sep 19
FED's Broad USD Index DXY Index
As 2019 progressed, the prognosis China’s growth outlook could slump further Philippines, Indonesia and Thailand. All
of global macroeconomic health has towards our Worst Case Scenario. Indeed, these benchmark rate easing will drive the
deteriorated in line with the escalation of with the latest tariff escalation after August, respective money market rates lower in
US-China trade tensions. By now, most we now see China’s GDP falling below 6% the months ahead.
major economies in the world have either to 5.9% in 2020. Similarly, the CNY has now
downgraded their growth forecasts for next fallen past 7.00 and is likely to target 7.30 Global bond yields are of course way
year, or sounded their recession alarm. by early 2020. ahead of the curve and have literally
Most prominently, Germany and Japan collapsed over the past quarter leading to
are at risk of slumping into a technical What is comforting is that amidst this instances of yield curve inversion across
recession. The US has fared much better, challenging macroeconomic and trade key economies globally. If the upcoming
but growth is still seen slowing from 2.5% backdrop, the PBoC has intensified its synchronized easing lead by the FED is
this year to 1.3% in 2020. push for interest rate reform by reinforcing effective, it may well help stabilize yield
the Loan Prime Rate (LPR). Going curves and rejuvenate longer dated bond
Overall, from last year’s 3.7% global forward, the transmission of monetary yields should the front loading of rate
growth rate, the IMF has downgraded policy is expected to be more efficient and cuts restore global growth and inflation
this year’s global growth rate repeatedly market driven, now that new loan rates expectations.
to a low of 3.2%. Most recently, in line and mortgage rates are referenced to the
with rising concerns over global trade LPR, which is in turn linked to the Medium- What remains at odds to this dovish
slowdown, on 9th September, the IMF term Lending Facilities (MLF). As of this narrative of slower growth and lower rates
launched a new World Trade Uncertainty latest quarterly report, we start forecasting is that of a stubbornly strong US Dollar.
Index. This index tracks the trade outlook the 1Y LPR and expect it to drop to 3.9% Since the US-China trade conflict started,
for 143 economies from 1996. Needless by end of this year and 3.65% by 1Q20. the USD has climbed from strength to
to say, the IMF warned that “Globally, the strength. In fact, the FED’s trade weighted
trade policy uncertainty index is rising Similarly, we can expect the FED to lead Broad Dollar Index has now shot above 130
sharply, having been stable at low levels global central banks into synchronized to a new high, above the previous peak last
for about 20 years". rounds of monetary policy easing. With seen in 2002. And from the narrower US
the FED now expected to front load its 3 Dollar Index (DXY) perspective, the recent
The epicenter of the global growth slowdown cuts for the remaining 3 FOMC meetings climb in DXY towards 100 is at further
is of course China. In our previous quarterly, of the year, we can also expect varying odds against expectations of upcoming
we warned that should US-China trade intensities of rate cuts forthcoming next FED rate cuts as well as the deteriorating
tensions escalate further, there is a risk that year across Asia, particularly in Malaysia, 10 year weighted yield spread.
Quarterly Global Outlook 4Q2019
04 UOB Global Economics & Markets Research EXECUTIVE SUMMARY
While we are certainly not fans of SORA, dated 03 Sep). We note that many towards USD 1,650 / oz. The strength in
President Trump’s trade policies, he may specific details are still pending from the gold has also rubbed on silver which is
not be wrong in his regular remonstrations authorities at the moment and will update trying to play catch up.
against US Dollar strength. Treasury as and when more announcements are
Secretary Steven Mnuchin has went available. In the energy space, despite the
further to entertain albeit briefly the depressing global macroeconomic
thought of intervention against US Dollar _________________________________ landscape, on-going supply discipline
strength. While the practical mechanics from Saudi Arabia and OPEC+ has helped
of an official US Dollar intervention is FX Strategy keep Brent Crude Oil afloat above USD 60
unlikely to be endorsed by the US Federal Will The USD Stay Strong? / bbl. In the industrial metals space, LME
Reserve, there is nothing to stop President In the currency space, we note that the Copper was deceptively stable above
Trump from making this one of his top US Dollar remains stubbornly strong and USD 5,800 / MT. On the other hand, LME
agenda next year as the 2020 Presidential this appears to be at increasing odds to Nickel rocketed by around 50%, jumping
election cycle heats up. At this stage, we deteriorating yield spreads amidst further from USD 12,000 / MT to USD 18,000 /
are uncertain when precisely the US Dollar easing from the US Federal Reserve. MT over the past quarter. This was after it
will finally succumb to slower growth and Indeed, in the FX Majors, we now expect was dealt a supply shock after Indonesia
lower rates. Indeed, our FX forecasts the gradual tapering off of USD strength brought forward its nickel ore ban by 2
appear conflicted and reflect an uncertain against the EUR and AUD. Back in 2015, it years to Jan 2020.
divide of gradual USD weakness against is worth noting that the EUR had weakened
the Majors, countered by on-going USD ahead of the ECB’s QE program. As for Hereafter is a brief synopsis of key Focus
strength against the CNY and Asian FX. Australia, the aggressive twin rate cuts by pieces as well as key FX and Rates views.
Nonetheless, risk has increased that the the RBA appear to have fired up Australia’s
currency space will be increasingly volatile exports and current accounts. After near
in the months ahead. term uncertainties pass, we can expect Vietnam Focus
EUR/USD to head back up from 1.10 to Asia’s Bright Spot
1.14 and AUD/USD to climb from 0.68 to Amid Trade Tensions
Rates Strategy 0.71. Overall, we can expect the US Dollar As the trade dispute between the US and
Interest Rates Are Index (DXY) to peak under 100 and turn China shows little signs of abating, Vietnam
Finally Heading Back Down back down to 95.8 by 3Q20. becomes one of the key Asian destinations
Amidst the broad synchronized global for foreign manufacturers relocating their
monetary policy easing led by the US As for Asian currencies, they remain production facilities. Geographic proximity
Federal Reserve, it is now clear that interest tethered to the CNY. In other words, Asian to China, a young labour pool, competitive
rates in key economies are heading back currencies are likely to stay weak alongside wages, multilateral trade privileges and
down. In line with our expectations for the the CNY. With this latest escalation of FDI incentive policies have helped position
US Federal Reserve to front load the three US-China trade conflict, USD/CNY will Vietnam as an attractive investment
rate cuts, we now expect Federal Fund likely establish a new normal above 7.00 destination in Asia, laying out a positive
Rate to drop from 2.25% to 1.50% by end- and head higher towards 7.30. Similarly, growth trajectory in the years ahead
2019. Consequently, we expect 3M US we can expect the rest of USD/Asia to for the country. Over the mid- to long-
Libor to drop below 2% to 1.45% by the follow with USD/SGD trading above 1.40. term, Vietnam is striving for sustainable
end of this year. Similarly, from their current However, least one gets carried away with development by tapping Industry 4.0 to
levels of around 1.8%, both 3M SOR and expectations of excessive USD strength, help improve growth quality and elevate
3M Sibor are expected to drift back down we note the risk that USD/Asia will have standards of living. On this front, the
to 1.45% and 1.55% respectively by end of difficulty sustaining gains in the second government has shown its resolve and
this year. With the MAS widely expected to half of 2020. determination in carrying out policies
ease monetary policy in Oct via a reduction relating to Industry 4.0, helping to underpin
in the S$NEER policy slope, we can expect _________________________________ Vietnam’s growth potential in the years
SG rates to decline one month before the ahead.
event and rise in the month later. Commodities Strategy
Never Underestimate Supply _________________________________
In the meantime, the pace of money market And Demand Driven Volatility
rate reforms has intensified globally. The In the commodities space, unique demand Singapore Focus
US Federal Reserve has pushed forth and supply dynamics injected a fair bit of A Global Slowdown,
prepare global investors for the eventual volatility into their respective commodities. An Easing MAS?
transition away from Libor into SOFR in Gold continues to be the clear winner The likely persistent negative output gap in
2021 (Rates Strategy: Interim Update on amidst the surge in safe haven demand. the second half of this year (and possibly
Money Market Rates Transition, dated The list of positive drivers for gold is beyond) could persuade MAS to ease
03 Sep). In Singapore, the MAS has also growing. These range from synchronized monetary policy at the October meeting.
recently announced initial broad strokes monetary policy easing, lower global We expect MAS to lower the S$NEER
to transit away from SOR to SORA (Rates bond yields and increased central bank policy slope by 0.5% point from a currently
Strategy: Transitioning from SOR to allocation. We expect further gold strength estimated 1.0% appreciation, while
Quarterly Global Outlook 4Q2019
EXECUTIVE SUMMARY UOB Global Economics & Markets Research 05
keeping the rest of its policy parameters China Focus underpinned by the various headwinds
(i.e. midpoint and width of bands) Loan Prime Rate: against the CNY, we believe USD/CNY
unchanged. This brings the estimated What Has Changed? will trade in the new normal of above 7.00
appreciation slope to 0.5%, reversing In this short infographic, we describe the going forth. Our new point forecasts for
one of the two steepening moves made changes to China’s Loan Prime Rate USD/CNY are 7.20 at 4Q19, 7.25 at 1Q20
in 2018. There is a growing risk that MAS (LPR) which was first introduced in Oct and 7.30 for both 2Q and 3Q20.
may flatten the appreciation slope and 2013, and was recently enhanced in Aug
ease the policy all the way to neutral. 2019. We also provide a short graphic USD/SGD: As USD/CNY rises towards
explanation on how the new LPR will 7.30 in the next few quarters, USD/SGD
_________________________________ affect banks’ loan pricing. is biased on the upside. At the prevailing
spot of 1.38, we expect USD/SGD to rise
Indonesia Focus _________________________________ towards 1.40 in 4Q19, 1.41 in 1Q20, and
East Kalimantan To Host New 1.42 in both 2Q and 3Q20.
Capital City of Indonesia by 2024 GLOBAL FX
The idea of moving the capital emerged USD/JPY: With intensifying speculation of USD/HKD: Overall, in the near term,
several times since the country gained a global recession, portfolio reallocation geopolitical pressures are likely to tether
independence in 1945. However, it has has been geared towards preparing for the HKD near the weaker end of its peg
never been discussed in a planned and one. We expect the JPY to stay strong and at 7.85/USD in 4Q19 and 1Q20 before a
matured manner, until recently the idea update our view towards further strength subsequent normalisation towards 7.80/
was brought back. Indonesia’s leader towards 103/USD by mid-2020. USD starting 2Q20.
expects the relocation of the capital will
help ease inequality and relieve some of EUR/USD: Near term, the spectre of QE USD/TWD: Although domestic growth
the burden from Jakarta, and the island is likely to pin EUR/USD at low levels near prospect is looking more optimistic, the
of Java. Java, especially Jakarta, is 1.10. Further out, with a more aggressive TWD is still weighed down by external
already overcrowded, which is home to easing profile by the Fed, we expect EUR/ developments such as the protracted US-
approx. 60% of the country’s population USD to gradually recover to 1.12 in 2Q20 China trade conflict. Overall, we expect
and represents more than half of its and 1.14 in 3Q20. USD/TWD at 31.60 at 4Q19, 31.90 at
economic activity. If approved by the 1Q20, and 32.00 for both 2Q and 3Q20.
Parliament, the new capital city will sit GBP/USD: The recent rebound of GBP/
1,400 km northeast from Jakarta on 1800 USD from 1.20 to 1.23 in early-September USD/KRW: Unless there is a breakthrough
km2 (vs. Jakarta 661.5 km2) of land; in is likely to be short-lived as long as the in either of the trade conflicts in which
the regencies of North Penajam Paser underlying Brexit issue is not resolved. South Korea is implicated, the KRW is
and part of Kutai Kertanegara in East Overall, we maintain the view that the likely to track the CNY closely for further
Kalimantan. The entire project will cost a GBP/USD would stay depressed at 1.20 losses. We maintain that the KRW should
total of IDR486tn. The first phase of the in the immediate two quarters until the fog continue to underperform within Asian
new capital development will start at the of Brexit is lifted. FX, ending the year at 1,210/USD. For
end of 2020, while the actual relocation next year, our updated USD/KRW point
will start in 2024. AUD/USD: With the RBA on a wait-and- forecasts are 1,220 in 1Q20 and 1,230 for
see approach, pressures on the AUD both 2Q and 3Q20.
_________________________________ due to aggressive rate cut expectations
may start to abate. Overall, we expect the USD/MYR: We keep the view of a
ASEAN Focus AUD/USD to stabilize at 0.69 for the next modestly higher USD/MYR and update
Real Estate Outlook two quarters before a modest recovery the point forecasts to 4.19 in 4Q19, 4.23
As concerns grow over weaknesses in towards 0.71 by 3Q20. in 1Q20, and 4.26 for both 2Q20 and
global property markets amid elevated 3Q20. A key risk event to watch out for
prices and economic slowdown, we NZD/USD: The spectre of further rate cuts is FTSE Russell’s decision whether to
assess the real estate outlook in ASEAN-4 (30bps priced in over the next six months) exclude Malaysia bonds from its World
(SG, MY, ID, TH), taking a closer look at and unconventional monetary policies Government Bond Index (WGBI) on 26
key risks & emerging opportunities. should ground the kiwi at around 0.64 for Sep.
the next two quarters at least. Further out,
Dark clouds have gathered over Kuala we forecast a gradual recovery of NZD/ USD/IDR: The worsening global economic
Lumpur (KL) and ASEAN-4 residential USD towards 0.66 in 3Q20, underpinned backdrop is unlikely to bode well for the
markets. KL residential, retail and office by a pullback of the broad USD in the IDR. Internally, Indonesia’s twin deficit in
segments are dragged by oversupply; G-10 space. fiscal and current account, together with
ASEAN-4 residential markets are facing more rate cuts by the BI next year would
a slowdown or decline due to a mixture continue to weigh on the IDR. Overall, we
of cooling measures and demand-supply ASIAN FX maintain a higher trajectory for USD/IDR.
imbalances. On balance, prospects are USD/CNY: Our weaker outlook of Our point estimates are 14,300 for 4Q19,
favourable for SG office with limited supply China’s economy also supports our view 14,400 for 1Q20 and 14,500 for both 2Q
expected to underpin growth. of a weaker CNY going forth. Overall, and 3Q20.
Quarterly Global Outlook 4Q2019
06 UOB Global Economics & Markets Research EXECUTIVE SUMMARY
USD/THB: As the trade conflict drags on it wasn’t just a return to QE, but QE in rate cut in May, and wait out for further
and together with the BoT shifting to an perpetuity. However, the ECB declined developments on the economic front.
easing mode, we keep to the view that to discuss whether it would lift the cap on Nonetheless, we see August’s bigger-than-
THB would eventually weaken alongside the proportion of a country’s bonds it is expected move as pre-emptive in nature
its Asian peers against the USD, albeit allowed to hold (a limit it is already close to and the RBNZ is likely to wait it out before
at a more measured pace. Overall, our hitting). Furthermore, the question remains considering further cuts in interest rates
updated point forecasts for USD/THB are whether what has just been unveiled will again. For now, we are keeping our year-
30.9 in 4Q19, 31.2 in 1Q20, and 31.5 in be sufficient to get Eurozone growth and end OCR forecast unchanged at 1.00%.
both 2Q and 3Q20. inflation back on track as fiscal policy But just like the RBA, developments in
remains a huge issue. The September the global backdrop will have important
USD/PHP: Weighed by significant BSP meeting will not be Draghi’s last, but we implications on the timing and extent of
rate cuts of up to 75bps for the next do not expect any major announcements further easing.
4 quarters coupled with Philippines’ at the October meeting. Whilst Draghi has
persistent twin deficits, we reiterate our certainly left plenty of room for maneuver BOJ: We believe as long as the Japanese
expectation for further weakness of the to his successor Christine Lagarde, her government stays on course to implement
PHP against the USD. We expect USD/ first policy meeting in December is also the next sales tax hike in Oct (which can be
PHP at 52.50 in 4Q19, 53.0 by 1Q20 unlikely to be groundbreaking. taken as a sign it is keeping its pledge to
followed by 53.5 by 2Q20 and 3Q20. fiscal discipline and restore fiscal balance
BOE: As reflected in the statement, at some point), that may be sufficient
USD/VND: Overall, we reiterate a minutes, and press conference by BoE to convince the BOJ to use this as an
modestly higher USD/VND trajectory, with Governor Mark Carney at the August opportunity to reassert its easy monetary
point forecasts at 23,400 in 4Q19, 23,600 monetary policy meeting, the BoE “is less policy position without changing the policy
in 1Q20, and 23,800 in 2Q and 3Q20. confident than usual about the outlook for targets, i.e. “allow” the Finance Ministry to
the UK economy because of Brexit”, but it issue more debt (JGBs) which the BOJ in
USD/MMK: We still expect the MMK to offered little new insights into the impact of turn will buy so as to push its JGB buying
remain under pressure from a persistent a no-deal Brexit scenario ahead of the 31 closer to the JPY80trn annual pace. This
current account deficit which is expected October deadline. Yet, the main takeaway may happen as early as 18/19 Sep MPM.
to widen from 5.3% of GDP in 2018 to continues to be the fact that “monetary
5.7% in 2019 and 5.9% in 2020. As such, policy response to Brexit, whatever form
USD/MMK is forecast to be at 1,530 in it takes, will not be automatic and could ASIAN INTEREST RATES
4Q19, 1,540 in 1Q20, and 1,550 in 2Q be in either direction”. On balance, this PBoC: The PBoC announced its third
and 3Q20. suggests that the BoE is unlikely to act cut to banks' reserve requirement ratio
until the path of Brexit becomes clearer, (RRR) this year in Sep, encompassing
USD/INR: With the downside growth risks and would be on a wait-and-see approach both broad and targeted cuts. Further out,
persisting and RBI staying dovish, USD/ for now. we believe there is room for one more
INR is still biased higher. We update our RRR cut in 4Q19. The PBoC has also
forecast, expecting USD/INR at 72.5 in RBA: As expected, the RBA kept its OCR revamped the Loan Prime Rate (LPR)
4Q19, 73.0 in 1Q20, and 73.5 in 2Q and on hold at 1.00% in September. We expect which will replace the 1Y Lending Rate to
3Q20. the RBA to monitor developments for a few price new loans going forward. The LPR
months. By November, the RBA will have which is pegged to the 1Y Medium-term
_________________________________ received more data on inflation, as well Lending Facility (MLF) is expected to fall
as further labour market information. For with PBoC potentially looking at directly
GLOBAL INTEREST RATES now, there are good reasons for the RBA lowering of borrowing costs through
FOMC: The intensification of the US-China to remain on a “wait-and-see” approach, an easing in the MLF rate. We see the
tariff fight in 3Q took us by surprise and especially since the OCR is already at a likelihood for 1Y MLF to be cut by 25 bps
the worsening trade policy development historic low of 1.00%. Our current forecast and by more should the US-China trade
will likely “push” the Fed to take on more is for a steady OCR of 1.00% for the rest tensions escalate further. From 4.25% (as
“insurance” rate cuts in 2019. We now of this year. Further easing in 2020 cannot of 20 August), we expect the LPR fixing to
expect the Fed to cut the FFTR by another be ruled out. We will, as such, keep watch move lower to 3.90% by end-4Q19 and to
25bps in the 17/18 Sep 2019 FOMC. We on global trade tensions, soft consumer 3.65% by end-1Q20.
also project two more 25bps rate cuts in spending, undershooting inflation, and
the 29/30 Oct and the 10/11 Dec FOMC, mediocre wages, which will be factors that MAS: The likely persistent negative output
bringing the upper bound of the FFTR may prompt us to revise our view further gap in the second half of this year (and
lower to 1.5%, well below the 2% inflation ahead. possibly beyond) will likely persuade
target. MAS to ease monetary policy at the
RBNZ: The RBNZ delivered a more- October meeting. We expect MAS to
ECB: In his penultimate meeting as ECB aggressive interest rate cut in August, lower the S$NEER policy slope by 0.5%
President, Mario Draghi unveiled a fresh slashing its OCR by 50bps to 1.00%. We point from a currently estimated 1.0%
package of stimulus measures. This was had thought the RBNZ would prefer more appreciation, while keeping the rest of
Draghi’s final “whatever it takes”, whereby time to evaluate the impact of the first its policy parameters (i.e. midpoint and
Quarterly Global Outlook 4Q2019
EXECUTIVE SUMMARY UOB Global Economics & Markets Research 07
width of bands) unchanged. This brings BOK: Given the race to lower interest BOT: For the rest of 2019, we now expect
the estimated appreciation slope to 0.5%, rates amongst central banks, the BOK the BoT to maintain the policy rate at
reversing one of the two steepening has tried to manage market’s expectation 1.50% in order to gauge the transmission
moves made in 2018. Moreover, there is of its monetary policy easing by flagging mechanism of monetary policy first before
a growing risk that MAS may flatten the out the limitations of further rate cuts. Still, considering the next move. Additionally,
appreciation slope and ease the policy all with the trade uncertainties and downside the real policy rate is already at a low level
the way to neutral, a signal that a looser growth risk as well as the weaker-than- compared with those of other ASEAN
monetary policy is needed to cushion both expected domestic inflation, we continue countries. However, if incoming economic
inflation and growth risks into 2020. to see the possibility of a second rate cut data remain sluggish over the coming
by the BOK this year (after the 25 bps cut months, we would likely see another cut
RBI: We downgraded our full-year growth in July) to bring the base rate to 1.25% by by the BoT to take the policy rate to 1.25%,
outlook to 6.0%, down from an initial end-2019, matching the record low during given that the BoT has already signaled
outlook of 6.8%, below RBI’s growth June 2016-October 2017. We think the that it still has policy space left.
forecast of 6.9%. We view inflation to rate cut could be delivered on the 17th
average 3.4% in H2 2019/20, at the October meeting which will be the second BSP: Despite expectations of further Fed
lower bound of RBI’s H2 outlook range last BOK meeting for the year. rate cuts, we do not expect BSP to follow in
of 3.4 – 3.7%. Should this come to pass, lock step but to adjust its overnight reverse
India’s inflation rate will average 3.2% in BNM: Although the US Fed is expected to repurchase rate according to domestic
FY2019/20, the lowest since FY 1978/79. embark on further rate cuts, we think BNM inflation and domestic growth prospects
RBI has cut rates by a cumulative 110bps is likely to be more cautious and gradual in as well as the movement of the local
since the year started. On the back of their monetary approach to avoid setting currency. We maintain our call for another
softer growth and inflation environment rates “too low and too fast”. This will be 25bps rate cut in 4Q19 to 4.00%, followed
seen to-date, we pencil another 25bps accompanied by necessary fiscal support by another 50bps cuts in 1H20. This will
rate cut in 4Q19. as the government is expected to step up bring the overnight reverse repurchase
spending, and adopt a more pragmatic and rate to 3.50% by end-2020.
BI: In line with our expectations, BI 7-day expansionary approach in the upcoming
Reverse Repo Rate was lowered by total budget to support the economy. As such SBV: The State Bank of Vietnam (SBV)
of 50 bps to 5.50% across July and August we project OPR to stay at 3.00% for the unexpectedly announced a 25bps cut to
2019 monetary policy meetings (MPC), rest of the year, followed by a potential its policy refinancing rate to 6.0% on 13
as a pre-emptive measure to safeguard 25bps cut to 2.75% in 1Q20. Sep. The cut will take effect on 16 Sep
economic growth momentum against the (Mon). The cut was a surprise, but it will
impact of global economic moderation. be viewed as helpful to better anchor
Going forward, we view that BI will growth. Thereafter, we expect SBV to
maintain an accommodative monetary maintain refinancing rate at 6.00% for
stance and utilize various policy tools such the rest of 2019. At the latest policy rate,
as macroprudential intermediation ratio the monetary policy stance is clearly
(RIM), reserve requirement, strengthening conducive to the continuation of economic
payment system policy and financial growth, while preserving financial stability.
market deepening, as well as expanding
economic financing through green finance.
This is in line with the low inflation forecast
as well as ensuring an attractive yield
differential. With that, we are forecasting
the BI rate to remain unchanged at 5.50%
until the end of 2019.
Quarterly Global Outlook 4Q2019
08 UOB Global Economics & Markets Research EXECUTIVE SUMMARY
Real GDP Growth Trajectory
y/y% change 2018 2019F 2020F 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19F 4Q19F
China 6.6 6.1 5.9 6.8 6.7 6.5 6.4 6.4 6.2 6.0 6.0
Eurozone 1.9 1.1 1.1 2.4 2.1 1.7 1.2 1.3 1.2 1.1 1.1
Hong Kong 3.0 0.5 1.2 4.6 3.6 2.8 1.2 0.6 0.5 0.1 1.0
Indonesia 5.2 5.1 5.2 5.1 5.3 5.2 5.2 5.1 5.1 5.1 5.1
Japan 0.8 0.5 -0.8 1.3 1.5 0.1 0.3 1.0 1.0 1.0 -1.0
Malaysia 4.7 4.6 4.4 5.3 4.5 4.4 4.7 4.5 4.9 4.6 4.5
Philippines 6.2 5.8 6.2 6.5 6.2 6.0 6.3 5.6 5.5 6.0 6.0
India 6.8 6.0 7.0 8.0 7.0 6.6 5.8 5.0 5.7 7.6 5.6
Singapore 3.1 0.6 1.5 4.6 4.2 2.6 1.3 1.1 0.1 0.9 0.1
South Korea 2.7 2.2 2.1 2.8 2.9 2.1 2.9 1.7 2.0 2.5 2.5
Taiwan 2.6 2.4 2.4 3.2 3.3 2.4 1.8 1.8 2.4 2.6 2.7
Thailand 4.1 2.8 3.2 5.0 4.7 3.2 3.6 2.8 2.3 3.1 3.1
US (q/q SAAR) 2.9 2.5 1.3 2.5 3.5 2.9 1.1 3.1 2.0 2.0 1.8
Note that India’s annual growth refers to its fiscal year print
Source: CEIC, UOB Global Economics & Markets Research
Heat Map Of Key Macro Indicators In The Region
Latest Indicators
Indonesia Malaysia Philippines Thailand Vietnam Singapore China India
Real GDP Growth (%) 5.1 4.9 5.5 2.3 6.7 0.1 6.2 5.0
Manufacturing PMI (Index) 49.0 47.4 51.9 50.0 51.4 49.9 50.4 51.4
Foreign Direct Investment (Annual, USD bn) 20.2 1.1 9.8 0.6 14.1 82.0 6.9 7.0
Merchandise Trade Balance (USD bn) -7.4 3.4 -42.6 1.7 1.7 31.9 34.8 -13.4
Current Account (Annual, % Of GDP) -3.1 3.1 -2.6 5.6 3.0 17.3 0.4 -2.1
Fiscal Balance (Annual, % Of GDP) -2.9 -3.7 -2.3 -2.4 -1.8 -0.6 -4.2 -3.4
Unemployment Rate (%) 5.0 3.3 5.1 1.0 2.0 2.2 3.6 8.5
Inflation (%) 3.1 0.6 3.0 1.1 2.3 0.8 2.6 3.1
Color Code
Source: Bloomberg, UOB Global Economics & Markets Research
Quarterly Global Outlook 4Q2019
EXECUTIVE SUMMARY UOB Global Economics & Markets Research 09
FX, INTEREST RATE & COMMODITIES FORECASTS
FX 13 Sep 19 4Q19F 1Q20F 2Q20F 3Q20F RATES 13 Sep 19 4Q19F 1Q20F 2Q20F 3Q20F
USD/JPY 108 106 105 103 103 US Fed Funds Rate 2.25 1.50 1.50 1.50 1.50
EUR/USD 1.11 1.10 1.10 1.12 1.14 USD 3M LIBOR 2.13 1.45 1.45 1.45 1.45
GBP/USD 1.23 1.20 1.20 1.21 1.22 US 10Y Treasuries Yield 1.77 1.70 1.70 1.70 1.80
JPY Policy Rate -0.10 -0.10 -0.10 -0.10 -0.10
AUD/USD 0.69 0.69 0.69 0.70 0.71
EUR Refinancing Rate 0.00 0.00 0.00 0.00 0.00
NZD/USD 0.64 0.64 0.64 0.65 0.66
GBP Repo Rate 0.75 0.75 0.75 0.75 0.75
DXY 98.4 98.7 98.4 96.8 95.8
AUD Official Cash Rate 1.00 1.00 1.00 1.00 1.00
USD/CNY 7.08 7.20 7.25 7.30 7.30 NZD Official Cash Rate 1.00 1.00 1.00 1.00 1.00
USD/HKD 7.83 7.85 7.85 7.80 7.80
CNY 1Y Loan Prime Rate 4.25 3.90 3.65 3.65 3.65
USD/TWD 31.04 31.60 31.90 32.00 32.00 HKD Base Rate 2.50 1.75 1.75 1.75 1.75
USD/KRW 1,191 1,210 1,220 1,230 1,230 TWD Official Discount Rate 1.38 1.38 1.38 1.38 1.38
USD/PHP 51.95 52.50 53.00 53.50 53.50 KRW Base Rate 1.50 1.25 1.25 1.25 1.25
PHP O/N Reverse Repo 4.25 4.00 3.75 3.50 3.50
USD/MYR 4.16 4.19 4.23 4.26 4.26
SGD 3M SIBOR 1.88 1.55 1.45 1.35 1.35
USD/IDR 13,994 14,300 14,400 14,500 14,500
SGD 3M SOR 1.77 1.45 1.45 1.35 1.35
USD/THB 30.45 30.90 31.20 31.50 31.50
SGD 10Y SGS 1.72 1.80 1.70 1.70 1.70
USD/MMK 1,532 1,530 1,540 1,550 1,550
MYR O/N Policy Rate 3.00 3.00 2.75 2.75 2.75
USD/VND 23,208 23,400 23,600 23,800 23,800
IDR 7D Reverse Repo 5.50 5.50 5.25 5.00 4.75
USD/INR 71.14 72.50 73.00 73.50 73.50
THB 1D Repo 1.50 1.50 1.50 1.25 1.25
USD/SGD 1.38 1.40 1.41 1.42 1.42 VND Refinancing Rate 6.25 6.00 6.00 6.00 6.00
EUR/SGD 1.52 1.54 1.55 1.59 1.62 INR Repo Rate 5.40 5.15 5.15 5.15 5.15
GBP/SGD 1.70 1.68 1.69 1.72 1.73
COMMODITIES 13 Sep 19 4Q19F 1Q20F 2Q20F 3Q20F
AUD/SGD 0.94 0.97 0.97 0.99 1.01
Gold (USD/oz) 1,501 1,550 1,600 1,650 1,650
SGD/MYR 3.03 2.99 3.00 3.00 3.00
Brent Crude Oil (USD/bbl) 60 60-70 60-70 60-70 60-70
SGD/CNY 5.15 5.14 5.14 5.14 5.14
JPY/SGDx100 1.27 1.32 1.34 1.38 1.38 LME Copper (USD/mt) 5,833 5,600 5,400 5,200 5,200
Quarterly Global Outlook 4Q2019
10 UOB Global Economics & Markets Research
VIETNAM FOCUS
Asia’s Bright Spot Amid Trade Tensions
Thanks to robust domestic Geographic proximity to China,
demand and increasing FDI, a young labour pool, competitive
Vietnam’s economy is expected wages, multilateral trade privileges
to expand 6.7% in 2019 as and foreign direct investment (FDI)
one of the fastest growing incentive policies have helped
economies in the world. position Vietnam as an attractive
investment destination in Asia, laying
out a positive growth trajectory in the
We expect the central bank, State Bank years ahead for the country.
of Vietnam (SBV), to keep the policy rate
steady at 6.25% for the rest of this year,
thus ensuring a conducive environment for
economic activities.
Over the mid to long term, a key
As the trade dispute between
driver underpinning Vietnam’s growth
the US and China shows little
potential will be the Fourth Industrial
signs of abating, Vietnam
Revolution (Industry 4.0). This
becomes one of the key
could potentially increase the size
Asian destinations for foreign
of Vietnam’s economy by between
manufacturers relocating their
US$28.5bn and US$62.1bn,
production facilities.
equivalent to economic growth
rate of 7-16% annually, until 2030,
according to the Central Institute for
Economic Management (CIEM).
Vietnam Is Expected To Continue To Grow Asia - Annual Real GDP Growth (Forecasts to 2020)
Amid The US-China Trade Tensions ASEAN Is One Of The World’s Fastest Growth Engines
Source: Bloomberg, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research
8 30
7
25
6
20
5
4 15
3
10
2
5
1
0 0
Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
2014 2015 2016 2017 2018 2019
GDP Growth (%) Export Growth (%, RHS)
Quarterly Global Outlook 4Q2019
VIETNAM FOCUS UOB Global Economics & Markets Research 11SBV Is Expected To Maintain Its Key Rate Vietnam’s Transport Infrastructure Development
For The Rest Of 2019 To Improve Competitiveness
Source: Bloomberg, UOB Global Economics & Markets Research Source: World Bank, UOB Global Economics & Markets Research
12 128 130
120
10 107
100
8
6
55
4
2
0
1
-2
2012 2013 2014 2015 2016 2017 2018 2019F US Thailand Cambodia Vietnam Indonesia Malaysia Laos
Output Gap (%) Refinancing Rate (%) Inflation (%) Rank Road Connectivity Index (2018)
Despite Raising Minimum Wages,
Half Vietnam’s Population Are Under The Age Of 35
Vietnam’s Labor Costs Are Still Cheaper Than That Of Thailand
Source: Trading Economics, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research
274
180
170
128
91
Thailand Vietnam Cambodia Laos Myanmar
Minimum Wages (US$/Month)
Around 40% of Vietnam’s Labour Force FDI (Realised Capital) To Vietnam
Engaged in Agricultural Sector Rose To A New Record In 2018
Source: Macrobond, UOB Global Economics & Markets Research Source: Ministry of Planning & Investment, UOB Global Economics & Markets Research
19.1
17.5
16
10.6
9.1
7.3
5.7
4.12
2.58
1.55
Jul
201605 Jul
201705 Jul
201805 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19
FDI To Vietnam (US$ Billion, YTD)
Quarterly Global Outlook 4Q2019
12 UOB Global Economics & Markets Research VIETNAM FOCUSVietnam Foreign Direct Investment, New Projects China Is The Biggest Investor In Vietnam
Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research
FDI Inflows To ASEAN Surged Stronger FDI Into VN & MY Since Onset Of US-China Trade Tensions
Amid Escalating US-China Trade Tensions ASEAN FDI Inflows (BOP basis): Comparison of quarterly averages
Source: Macrobond, UOB Global Economics & Markets Research Source: Macrobond, UOB Global Economics & Markets Research
Nearly 75% of FDI Into Vietnam
Table 1: FDI Incentives In Vietnam
Has Been Concentrated In Manufacturing
Incentives Economic Zones (EZs) Industrial Parks Outside EZs Source: Macrobond, UOB Global Economics & Markets Research
Exemption 4 years after 2 years after commercial
period commercial operation operation
50%
Corporate reduction 9 years 4 years
Income period
Tax
Tax rate
after 10% for first 2 years
20%
holiday 20% after that
period
50% reduction for
Normal rate 5-35%
Personal Income Tax both foreign and local
(progressive rate)
workers
Source: TDRI, UOB Global Economics & Markets Research
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Quarterly Global Outlook 4Q2019
VIETNAM FOCUS UOB Global Economics & Markets Research 13SINGAPORE FOCUS
A Global Slowdown, An Easing MAS?
ASEAN economic fundamentals remained soft since our last update on the trade tensions and its impact to ASEAN. Manufacturing
and trade momentum in Singapore and the region continued to stay lackluster to-date.
Singapore, being an export-oriented economy and a price-taker, remains vulnerable to the ongoing US-China trade tensions.
Singapore’s output gap has turned negative since 4Q18 and is at risk of remaining so for the rest of 2019.
We expect MAS to ease monetary policy at the October meeting by lowering the policy slope by 0.5% point from a currently
estimated 1.0% appreciation. This would reverse one of the two steepening moves made in 2018. There is also a risk that MAS may
ease the policy slope all the way to neutral, a signal that a looser monetary policy is needed to cushion both inflation and growth
risks into 2020.
Coupled with the relatively poorer economic backdrop, the weakening of the S$NEER would likely come to pass, as seen during
the early 2000s recession and the Global Financial Crisis of 2008/9. In the run up to October’s MAS policy meeting, a weaker SGD
could be in place that would naturally guide the S$NEER lower in anticipation of a looser monetary policy.
The Global Picture Tainted With Trade Tensions
As both the US and China threatened to slap tariffs on each other’s goods since relations deteriorated in early Aug, hope for a quick and
firm resolution of the US-China trade woes is rapidly fading away.
Industrial Production Growth Is Tapering Across Key Asian Economies
Source: Macrobond, UOB Global Economics & Markets Research
With the escalation of trade tensions, ASEAN economic fundamentals remained soft since our last update on the trade tensions and its
impact to ASEAN. Manufacturing and trade momentum in the region continued to stay lackluster to-date, seen especially in Thailand,
Singapore and the Philippines, and Indonesia. While there may be some signs of stabilization in Singapore’s industrial production numbers
recently, manufacturing sector has nonetheless contracted 1.7% in the first seven months of 2019. Beyond ASEAN, China’s industrial
production growth had also slowed to 4.8% y/y in July, the slowest since February 2002. Japan also saw 5 months of manufacturing
contraction in the past 7 months, while South Korea clocked 5 straight months of negative growth into June 2019. Even production
momentum in the U.S. slowed considerably to 0.5% y/y in July 2019, the softest since November 2016.
Quarterly Global Outlook 4Q2019
14 UOB Global Economics & Markets Research SINGAPORE FOCUSSimilarly on the trade front, export momentum has slowed considerably since the start of the year. Anemic export growth continued to
persist in many Asian economies including Singapore, Thailand, Indonesia, South Korea, Hong Kong and Japan. Singapore’s key non-oil
domestic exports (NODX) contracted in eight out of the past nine months, led by declines in both electronic and non-electronic exports.
Export Momentum Across Key Economies
Source: Bloomberg, UOB Global Economics & Markets Research
Singapore’s Negative Output Gap Likely to Persist
As such, the abysmal global economic environment has sent Singapore’s output gap, defined as the difference between the actual GDP
growth and potential GDP growth, into negative territory since 4Q18. Note that the Monetary Authority of Singapore (MAS) has projected
Singapore’s economic growth pace will be below potential this year, in line with our output gap estimates. This is in sharp contrast to the
October 2018 policy statement where it reported that economic output was slightly above potential back then. Looking back, we note that
MAS has generally eased monetary policy at times when the output gap has fallen into negative territory (except for 14th October 2011,
although output gap turned lower in the subsequent quarter). A negative output gap also indicates the presence of growth slack in the
economy and that inflation will likely be kept in check.
Singapore Output Gap (%)1 Has Worsened Into 2019
Source: Macrobond, UOB Global Economics & Markets Research
1 We estimate Singapore’s output gap via the Hodrick and Prescott (1997) filter, using a smoothing parameter of 1,600 for quarterly data and estimate the cycle for the period between
2000 and 2019.
Quarterly Global Outlook 4Q2019
SINGAPORE FOCUS UOB Global Economics & Markets Research 15With the objective to “maintain price stability conducive to sustained growth of the economy”1, the likely persistent negative output gap
in the second half of this year (and possibly beyond) will likely persuade MAS to ease monetary policy at the October meeting. We
expect MAS to lower the S$NEER policy slope by 0.5% point from a currently estimated 1.0% appreciation, while keeping the rest
of its policy parameters (i.e. midpoint and width of bands) unchanged. This brings the estimated appreciation slope to 0.5%, reversing
one of the two steepening moves made in 2018. Moreover, there is a growing risk that MAS may flatten the appreciation slope and ease
the policy all the way to neutral, a signal that a looser monetary policy is needed to cushion both inflation and growth risks into 2020.
As such, in the run up to October, the expectation for MAS to ease monetary policy should weigh on the S$NEER: The S$NEER has
already declined from as high as +1.8% above mid-point in the first quarter of this year, to +0.8% above mid-point by end-August.
As such, we expect the S$NEER to soften into October for the following reasons:
Firstly, the past five easing moves in October 2008, October 2011, January 2015, October 2015, and April 2016, were done when the
S$NEER was below the estimated mid-point. In the weeks before the eventual monetary easing move, market participants had guided
the S$NEER lower in anticipation of such a move.
MAS’ Easing Policy Made In Last Five Moves Are Accompanied By The S$NEER Below Mid-Point
Source: Macrobond, UOB Global Economics & Markets Research
130
Oct 2011
Oct 2008
125
120
115
110
105
Jan 2015
Apr 2016
Oct 2015
100
95
2006 2007 2009 2011 2013 2015 2017 2019
UOB S$NEER Perceived Mid-point Upper Band Lower Band
Secondly, on a premise that the MAS monetary policy is forward looking and focused on the medium term economic outlook, a monetary
easing move into October 2019 may indicate policy-makers’ reduced optimism on Singapore’s economic outlook into the four to six
quarters ahead. The MAS noted that their econometric models suggest that the “peak impact of a change in exchange rate policy on
the economy occurs only after four to six quarters,” which is then cited as the main reason why monetary policy formulation needs to be
forward-looking. As such, further expected weakness in Singapore’s economic outlook may weaken the S$NEER, as seen during the
early 2000s recession and the Global Financial Crisis of 2008/9.
Can Singapore Avoid A Technical Recession?
While it is evident that Singapore’s growth momentum has deteriorated markedly in the first half of 2019, there are signs that growth will
likely stabilize into the third quarter of 2019. Our econometric model indicates that Singapore will likely avoid a technical recession, given
that the 1H19’s lackluster growth has been largely due to the high base in 1H18 while recent incoming manufacturing data showed some
signs of stabilisation. In other words, after recording -3.3%q/q SAAR in 2Q19, we see a low likelihood of a consecutive negative q/q figure
in 3Q19. Generally, a technical recession is defined as two consecutive quarters of negative q/q SAAR readings.
While we have recently downgraded our full-year GDP growth for 2019 to +0.6% (down from an initial 1.0% forecast, official forecast:
0-1%) and expect manufacturing to contract by 1.9% (down from the previous -1.0% forecast), a contraction for the full year appears
unlikely at this juncture. For instance, Singapore’s labour market continues to stay resilient to-date, amid pockets of silver lining including
the positive contribution from the modern services cluster and a recovering construction industry which had seen two consecutive
quarters of expansion after ten straight quarters of contraction.
With our expectation of an easing MAS policy stance in October, the S$NEER is likely to be weighed down. This development reinforces
our end-2019 USD/SGD projection of 1.40.
Quarterly Global Outlook 4Q2019
16 UOB Global Economics & Markets Research SINGAPORE FOCUSINDONESIA FOCUS
East Kalimantan To Host New Capital City Of Indonesia By 2024
The idea of moving the capital emerged several times since the country gained independence in 1945. The first was proposed by
the country's founding father Sukarno in the 1950s, then a decade ago under the current President predecessor, Susilo Bambang
Yudhoyono. However, it has never been discussed in a planned and matured manner, until recently the idea was brought back.
Why Move The Capital?
Indonesia’s leader expects the relocation of the capital will help ease inequality and relieve some of the burden from Jakarta, and the
island of Java. The economic gap between Java and outside Java has continued to widen despite the regional autonomy policy launched
in 2001. Furthermore, the rationale behind changing the capital includes:
Java, especially Jakarta, is already overcrowded. With an area of 128,297km2, Java is home to approx. 60% of the country’s
population and represents more than half of its economic activity (Figure 1).
Jakarta, in particular, is the most populous in Southeast Asia with a population density of around 15,000 people/km2, which is also
the highest population density in Indonesia (Indonesia population density: 142 people/km2). This is bound to some critical issues
such as inadequate infrastructure, lack of affordable housing, flooding, pollution, slum creation, crime, congestion and poverty.
Jakarta is sinking; two-fifths of Jakarta lies below sea level and parts are dropping at a rate 20cm a year, due to subsidence. The
city does not pipe in enough drinkable water, so the society relies largely on wells which extract water from shallow aquifers, leading
to the land above it collapsing. Modelling from researchers at the Bandung Institute of Technology has shown that 95% of northern
Jakarta could be under water by 2050.
The city's low-laying nature also makes Jakarta chronically prone to regular flooding during the annual tropical wet season — a
recurring problem which is persistent until today.
Again, due to the high population density, Jakarta is struggling with pollution and traffic congestion. Air quality in the city has plunged
over the last few months, recording worse conditions than notoriously polluted cities such as Delhi and Beijing. Meanwhile, the
gridlock costs an estimated IDR100tn (USD7bn) a year in lost productivity.
Figure 1. Indonesia Regional GDP Growth
Source: Statistics Indonesia, Bank Indonesia, UOB Global Economics & Markets Research
4.64 4.55 4.62 5.39 5.60 9.80 9.83 5.27
4.34 3.24 3.35 1.58 0.68 5.06 5.07 5.05
Q1 Q2 Q1 Q2
Q1 Q2 Q1 Q2 Q1 Q2 Q1 Q2 Q1 Q2 Q1 Q2
2018 2019
2018 2019 2018 2019 2018 2019
Sulawesi, Maluku, and
Sumatera (22%) Kalimantan (8%) Papua (9%) National (100%)
5.70 3.77 3.56 4.74 5.05
5.67 5.68
5.65
Q1 Q2 Q1 Q2
Q1 Q2 Q1 Q2
2018 2019
2018 2019
Bali and Nusa Tenggara
Jawa (58%) (3%)
Where Will The New Capital Be?
At the end of August, the incumbent has announced the national capital will move from Jakarta. If approved by the Parliament, the new
capital city will sit approx. 1,400 km northeast from Jakarta on 1800 km2 (vs. Jakarta 661.5 km2) of land already owned by the government;
in the regencies of North Penajam Paser and part of Kutai Kertanegara in East Kalimantan (Figure 2). Kalimantan is the Indonesian portion
of the island of Borneo, which is also shared with Malaysia and Brunei. Kalimantan is deemed more central in Indonesia’s archipelago of
17,000 islands. Currently, Kutai Kertanegara’s economy is heavily dependent on the mining sector which the goods are exported to the
Quarterly Global Outlook 4Q2019
INDONESIA FOCUS UOB Global Economics & Markets Research 17global market. Meanwhile, North Penajam
Paser’s main economy is centered on Figure 2. The Location of The New Capital City
agriculture, construction and trading. Source: GeoNames, HERE, Microsoft, UOB Global Economics & Markets Research
Funding & Development Stages
The entire project will cost a total of
IDR486tn (roughly USD33bn), financed
through the state budget (19.2%), private
sector (26.2%), and public-private-
partnership (PPP, 54.6%) to accommodate
an estimated 1.5 million people (Figure
3). National Development Planning
(Bappenas) reiterated that the first phase
of the new capital development will start
at the end of next year (2020), following
further study, area design, and building
layout between 2019 – mid 2020. The
construction of basic infrastructure will
take about 3 to 4 years, while the actual
Figure 3. Source of Funding
relocation will start in 2024 (Figure 4).
Source: National Development Planning, UOB Global Economics & Markets Research
What Will Happen To Jakarta?
Jakarta, on the other hand, will remain Public-Private State Budget State Budget
as the country’s main financial and Partnership (PPP) 19.2% Construction Istana Negara
business center; therefore, relocation will 54.6% and Strategic Building of
not deprive Jakarta of economic growth. National Arm Forces (TNI),
Police (Polri), Civil Servant
It is estimated that Jakarta (with current
population approx. 10 million in the city Private
and 30 million across Greater Jakarta IDR 486tn Residential/Housing
area) will only lose 800,000 of its current Complex, Shopping mall
inhabitants (civil servants in particular).
Private PPP
Even though several hundred thousand of
Other Infrastructures which
its population are expected to move to the Companies are not covered above
new capital city, problems and challenges 26.2%
still remain. Jakarta’s population is on the
track to break through the top 10 most
populated cities in the world. This would
Figure 4. Development Stages
mean that Jakarta will continue to face
traffic congestion and air pollution. Source: National Development Planning, UOB Global Economics & Markets Research
Other Countries Study New capital city is ready, Development of national
begin the relocation parks, conservation
That Moved Their Capital process area, non-civil servant
The question of whether this capital clusters, etc.
relocation will result in some type of
2019 - 2020 2024 2030 - 2045
political, social, or economic benefit
remains unanswered. Countries that
have shifted their capital include Brazil
and Myanmar among others. Brazil’s 2020 - 2024 2025 - 2029
economic expansion was concentrated
Land preparation and Property development
in the old capital of Rio de Janeiro, while for education and health
spatial implementation
Sao Paulo, Santos and other inland parts Basic infrastructure facilities, as well as
including Amazon are behind. In addition, development military bases
Brazil would like to take stronger hold of
its vast territory which is surrounded by 10
other countries. To address the economic and security issue, Brazil’s government decided to shift the capital to Brasilia in 1960, which
is located more to the center of the country. Brazil’s capital relocation was considered a success as the new capital Brasilia experienced
rapid growth, and has become the region with the highest income per capita in the country. For Myanmar, the modern capital since 2006
is Naypyidaw. However the previous capital city Yangon remains the main economic driver while the new capital Naypyidaw’s economy
has yet to surge. Certainly, moving the capital will not be quick nor cheap. It carries massive hidden costs and takes years to establish a
fiscally viable city with higher proportion of economic contribution overall.
Quarterly Global Outlook 4Q2019
18 UOB Global Economics & Markets Research INDONESIA FOCUSASEAN FOCUS
Real Estate Outlook
Dark clouds have gathered over Kuala
Lumpur (KL) and ASEAN-4 residential
As concerns grow over weaknesses markets. KL residential, retail and office
in global property markets amid segments are dragged by oversupply; ASEAN-4
elevated prices and economic residential markets are facing a slowdown or
slowdown, we assess the real estate decline due to a mixture of cooling measures
outlook in ASEAN-4 (SG, MY, ID, and demand-supply imbalances. On balance,
TH), taking a closer look at key risks prospects are favourable for SG office with
& emerging opportunities. limited supply expected to underpin growth.
Residential Property Clock Office Property Clock
Source: UOB Country & Credit Risk Management Source: UOB Country & Credit Risk Management
Fa
g
Fa
in
g
Singapore
llin
in
ak
llin
Bangkok
ak
g
Pe
g
Kuala
Pe
Lumpur
Bangkok
Kuala Lumpur
Jakarta
Singapore
Jakarta
g
g
in
R
in
m
R
is
m
is
tto
in
tto
in
g
Bo
g
Bo
Industrial Property Clock Retail Property Clock
Source: UOB Country & Credit Risk Management Source: UOB Country & Credit Risk Management
Kuala
Fa
g
Fa
g
in
Lumpur
in
llin
llin
ak
ak
g
g
Pe
Pe
Kuala Lumpur
Jakarta
Bangkok
Bangkok
Singapore
g
g
Singapore
in
in
R
R
m
is
m
is
Jakarta
tto
in
tto
in
g
g
Bo
Bo
A rating scale of 1-6 is used: 1- low risk, 2- moderately low risk, 3- moderate risk, 4- moderately high risk, 5- high risk, 6- highly vulnerable.
Quarterly Global Outlook 4Q2019
ASEAN FOCUS UOB Global Economics & Markets Research 19Residential markets in SG, KL and Bangkok (BKK) could face sustained downward pressure. Punitive cooling measures, elevated
supply resulting from the en bloc boom and global economic slowdown will continue to weigh on SG. Meanwhile, demand in BKK will be
dampened by stricter mortgage lending rules w.e.f. Apr 19 and easing demand from Chinese investors (~20% of condo presales, highest
in ASEAN). In KL, oversupply pressures could persist with the high-end segment most affected. Jakarta (JKT) residential has been
subdued post-commodities downturn though relaxation in LTV and ebbing elections uncertainty could help support.
ASEAN-4 Cities At Risk Of Sustained Downturn/Slowdown
Contributing Factors
Sustained
Country Housing Oversupply Sensitivity To Slower
Downside Pressure Policy Tightening Mortgage Loan Growth
Pressure Regional / Global Growth
Singapore
Kuala Lumpur
(high end)
Bangkok
(selected districts) (condos)
Jakarta
(policy easing)
Source: UOB Country & Credit Risk Management
ASEAN-4 Residential Prices Singapore Residential Market’s Decline Caused By Cooling Measures
Source: BIS, National sources, UOB Country & Credit Risk Management Source: URA, UOB Country & Credit Risk Management
Note: 4QMA = 4 qtr moving average. Transactions include both new launch & secondary sales
2010 levels=100 %
250 160
50
230
210
30
190 150
170 10
150
130 -10
140
110
90 -30
70
50 130 -50
Jun 10 Dec 11 Jun 13 Dec 14 Jun 16 Dec 17 Jun 19 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19
Jul 18 cooling measure
Singapore Kuala Lumpur PPI
Bangkok Jakarta Transactions 4QMA%YoY (RHS)
Thailand’s New Mortgage Rules wef Apr 19
Kuala Lumpur Market Down Since 4Q17 On High End Oversupply
Expected To Dampen Bangkok’s Housing Market Ahead
Source: NAPIC, UOB Country & Credit Risk Management Source: CEIC, UOB Country & Credit Risk Management
Note: High end is defined as over RM500k/unit
2010 levels=100 % 2009 levels =100
210 200 80%
90%
200 190
40%
190 60%
180
180 0%
30%
170
170
-40%
0% 160
160
150 -30% 150 -80%
Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Jun 16 Mar 17 Dec 17 Sep 18 Jun 19
Tighter mortgage rule announced
KL House Price Index Condo Price Index
Transaction 4QMA %YoY (RHS) Transactions 12MMA YoY (RHS)
Housing Developer's Sentiment Index 6M (RHS)
>RM500k launches as % of total (RHS)
Quarterly Global Outlook 4Q2019
20 UOB Global Economics & Markets Research ASEAN FOCUSDownside to housing prices could however be benign based on historical episodes. The drivers in the current episode are largely domestic (e.g. oversupply, policies), against a backdrop of moderating economic growth. On the other hand, the sharpest downturn faced by ASEAN-4 in the last 30 years occurred during the Asian Financial Crisis where prices fell by as much as 45% in SG and 37% in BKK. Ex-SG, housing markets have been largely resilient in the face of adverse events, with the next most severe downturn at
Mortgage quality risk mitigated by macro-prudential
measures, firm labour markets and downward pressure on Household Debt To GDP Ratio Has Mostly Declined In ASEAN-4
rates. Except for ID, property measures have been tightened in Source: BIS, UOB Country & Credit Risk Management
ASEAN-4 and these have helped curb credit-fuelled excesses
and stabilise household debt levels. While ID’s recent removal of % of GDP
80
first time buyer’s down payment may be credit negative, this could
be mitigated by lower rates, healthy labour market and prudent 70
credit underwriting by the banks. Impact of tighter LTVs in TH may 60
be limited as likely only a minority of new housing loans would be
50
affected.
40
Office demand increasingly reliant on co-working; oversupply 30
still weighing on KL & JKT. Co-working has grown rapidly in
20
ASEAN (c.40% CAGR from 2014-17) with a proliferation of
operators though still accounting for minimal share of overall 10
stock (4+% in SG, ~2% in ASEAN). With sustainability of co- 0
working business model untested and major players still in the Dec-10 Jun-12 Dec-13 Jun-15 Dec-16 Jun-18
red, potential consolidation could negatively impact the sector as ID MY Global SG TH
underlying demand from traditional occupiers has lagged. Given
rising tenant concentration risk, EU banks have curtailed lending
to office assets whereby an established shared workspace company is a major tenant.
Retail buffeted by additional headwinds from China slowdown amid e-commerce disruption. SG and TH are more susceptible
to a China slowdown as shopping expenditure by Chinese tourists contribute c.6% and c.4% of retail sales respectively in 2018. With
ASEAN e-commerce penetration still lagging (SG: 8%, rest of ASEANYou can also read
