India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Macro Mantra
Asean: Food weighs in
We believe growth in the Asean economies in 2011 will rely more on domestic
demand rather than the external environment. That said, this does not mean
these economies are immune to external developments – in particular, the
structural uptrend in commodity prices hints at a potential bump in the road.
Inflation risk is to the upside but there’s more to it…
Inflation is the most obvious danger from higher commodity prices in
Asean. Inflation risk in the region is skewed to the upside and 2011 could see
a combination of cost-push and demand-pull pressures, raising the spectre of
a return of 2008’s second-round inflation effects and quickly rising interest
rates.
What is often forgotten is that the interplay between inflation and commodity
prices goes beyond wage dynamics and interest rates. In the Asean space,
the results are many and varied, affecting consumer and investor behaviour
as well as public finances, due in large part to the different economic
structures and government policies.
Impacts vary around Asean
Thailand is a beneficiary from higher commodity prices as it is a
significant net food exporter, most notably of rice. As a result, this could prove
to be growth supportive as it boosts rural incomes and may act as a boon to
the provincial economy, helping to propel a structural transformation of the
Thai economy that broadens the growth engine.
Malaysia also stands as a potential beneficiary as it is a net food and
energy exporter. This provides a positive to consumer incomes and spending,
while subsidies contain upside risk to inflation. The main economic weakness
lies in the subsidies, which pose significant risk to public finances and hurt
private investor sentiment by limiting profit gains.
The risks for Indonesia appear slightly positive owing to its position as
a commodity exporter. Downside risks to growth stem from high inflation
causing a diversion of consumer spending away from high-multiplier
discretionary purchases. High global oil prices could also pose a problem.
That said, higher commodity prices increase the feasibility and attractiveness
of commodity extraction in the archipelago, creating GDP growth-boosting
jobs, investment and exports.
Of the net food and energy importers, Singapore is the best positioned
as its economy is less reliant on consumer spending to drive growth. At the
same time, higher consumer gearing to asset markets and loose global
monetary conditions suggest these could be supportive through the
generation of positive wealth-effects via higher domestic asset prices.
Low per capita GDP and high consumer spending on food make
Philippines the most vulnerable to higher global commodity prices. This is
worsened by its status as a net food and energy importer, forcing it to manage
inflation pressure via undesirable peso strength. Fortunately, the inflation
outlook is benign until mid-2011, affording Bangko Sentral ng Pilippinas (BSP)
room to retain accommodative policy settings for a while longer.
No comments:
Post a Comment