CARI Captures Issue 590: Inward foreign direct investment into ASEAN, 2015-2021 (US$ billion)

Japan considering upgrading its relationship with ASEAN to comprehensive strategic partnership  
(25 January 2023) Japan is seriously considering upgrading its relationship with ASEAN to a comprehensive strategic partnership from its current status of strategic partnership. The upgrade in ties would be a symbolic commitment and help expand the scope of ties. Japan would be catching up with China and the United States, both of whom upgraded their relationship with ASEAN to a comprehensive strategic partnership in 2021 and 2022 respectively. 2023 is considered a milestone in the Japan-ASEAN relationship, as both sides will celebrate the 50th anniversary of diplomatic relations. Japan plans to host a special summit with ASEAN members in Tokyo in December 2023 to commemorate the 50th anniversary. The Japanese government is also preparing to hold business summits as well as conferences for Generation Z to foster youth exchange.

Indonesia planning incentives for exporters to keep their foreign exchange earnings at home
(26 January 2023) Indonesia is planning incentives for exporters to keep their foreign exchange earnings onshore for at least three months. This is to ensure Indonesia has a buffer to weather risks, including a possible global economic slowdown in 2023. The government is planning on offering ‘competitive’ interest rates for exporters that deposit their forex earnings in local banks. The proposed minimum holding period would be three months in Indonesia’s financial system. The government stated they would have to make the rates competitive compared to Singapore, a regional financial hub. Details of the incentives would be laid out in a revision of a 2019 regulation that mandates exporters of natural resources keep their earnings in a special account at domestic banks. Previously, it was stated that revisions to the regulation could include applying the foreign-exchange rules to exporters in the manufacturing sector, as well as more attractive tax incentives for exporters’ special savings.

Bank Indonesia indicates the end of hikes as Federal Reserves also winds down monetary tightening
(26 January 2023) Bank Indonesia has indicated the end of rate hikes as the US Federal Reserves also seemingly winds down its course of monetary tightening. It is believed the Federal Reserve’s rate will likely peak at 5.25%, with a chance of easing to 5% by the end of 2023 as US inflation cools. Indonesia itself saw a 225 basis-point increase since August 2022, which has taken the benchmark rate to the highest since July 2019. As noted by Bank Indonesia’s governor, Indonesia might have seen enough interest rate increases for now, with inflation in Indonesia expected to ease to about 3.5% by end-2023, coming off its seven-year high of nearly 6% in September 2022. The rupiah has advanced 4% in 2023 against the US Dollar, strengthening below the key 15,000 level as foreign funds return to Indonesia.

The Philippines’ economy expanded by 7.6% in 2022 due to resilient domestic consumption
(26 January 2023) The Philippines’ economy expanded by 7.6% in 2022 due to resilient domestic consumption, despite soaring inflation. The growth recorded in 2022 was faster than the 5.7% growth recorded in 2021, and narrowly exceeded the government’s projection of 6.5% to 7.5% growth. Growth in domestic demand was met by expansion in the services and industry sectors, with production in most subsectors back to their pre-pandemic levels. The fastest growth was recorded in the accommodation and food services at 31.8%, following the authorities reopening the economy and lifting COVID-19-related restrictions. In the fourth quarter of 2022, the economy expanded by 7.2%, slower than the 7.8% in the same period in 2021. Inflation in December 2022 jumped to a 14-year high of 8.1%, putting the full-year average at 5.8% and breaching the central bank’s target of 2% to 4%.

Bank of Thailand raises rates by 25 basis points to 1.50%, signals further monetary tightening
(25 January 2023) On 25 January 2023, the Bank of Thailand’s (BOT) monetary policy committee voted to raise the one-day repurchase rate by 25 basis points to 1.50%. This is the central bank’s fourth straight interest-rate increase since 2022, with the BOT signaling sustained monetary tightening ahead to ward off ongoing price pressures as a rebound in tourism helps fuel the economy’s recovery. The BOT warned that the recovery in tourism, while spurring jobs and consumption, could also fan demand-side inflation. While headline inflation in Thailand is off the peak, core inflation remains the fastest since 2008. The BOT warned that core inflation could remain high for longer than expected due to a potential increase in pass-through given elevated costs.

Singapore home prices grew at slowest pace in more than two years in fourth quarter of 2022
(27 January 2023) Singapore home prices grew at their slowest pace in more than two years in the fourth quarter of 2022, signalling that the property boom is starting to moderate amidst dwindling supplies and rising interest rates. Private property values rose 0.4%, marking the weakest growth since the second quarter of 2020. For the full year, prices climbed 8.6%. A series of cooling measures announced in September 2022 led to a ‘knee-jerk effect’ on prices and volumes in the fourth quarter, meaning the market will need time to readjust. Private rents are expected to rise at a slower pace in 2023 as the supply of new homes picks up, easing pressure on tenants. The first three quarters of 2022 saw rents surge almost 21%.

Steel industry slumps due to government crackdown on property market
(24 January 2023) Demand for steel in Viet Nam has slumped due to an ongoing government crackdown on the real estate sector, which is impacting demand for new buildings. Hoa Phat Group, the largest steelmaker in Southeast Asia, suspended operation of four blast furnaces in Viet Nam in autumn 2022, while other Vietnamese steelmakers using electric furnaces have also been forced to slash production. Operating rates at makers using electric furnaces in southern Viet Nam started declining around September 2022. Many of these plants are believed to be working at less than 50% capacity, with some having laid off employees. The government has been spearheading a crackdown on corruption, focusing on illegal deals in financial and capital markets linked to the real estate industry. These anti-corruption measures subsequently triggered a downturn in the property market.

RCEP Monitor

South Korea to double energy vouchers and gas prices discounts amidst soaring energy bills
(26 January 2023) South Korea plans to double energy vouchers and a discount for gas prices for underprivileged families in order for them to cope with spiraling heating bills amid a prolonged cold wave. This comes as the world economy faces rising energy costs due to a global surge in natural gas and heating fuel prices caused by the ongoing war in Ukraine. Monthly gas bills in South Korea in December 2022 rose by 34% year-on-year. The proposed measures by the South Korean government will benefit almost 1.2 million families receiving energy vouchers and around 1.6 million homes eligible for the gas discount this winter. Authorities noted that South Korean rates are still lower than the levels in many other advanced countries.

Tech industry’s outlook for confidence drops to its lowest level in seven years
(27 January 2023) South Korea’s tech industry’s outlook for confidence dropped to its lowest level in seven years, with the industry more pessimistic about consumer demand than it was during the COVID-19 pandemic. According to data released by the Bank of Korea on 27 January, 2023, the outlook among electronics, display and communication-device businesses fell to 61 for February. If the actual business outcome matches the initial forecast, it would be the lowest reading since February 2016 when the business survey index dropped to 59. The industry confidence gauge encompasses manufacturers of semiconductors, displays and smartphones, all of which are major Korean exports. South Korea experienced its first economic contraction in years in the fourth quarter of 2022, as exports fell and consumption slowed.

Inflation rises to 32-year high of 7.8% in fourth quarter of fiscal year 2022
(24 January 2023) Inflation in Australia rose to a 32-year high of 7.8% in the fourth quarter of fiscal year 2022, rising at its steepest pace since March 1990. Costs related to domestic and international travel saw the highest price rises at 13.3% and 7.6%, respectively. Prices of goods rose by 9.5%, a slight drop from the 9.6% recorded in the previous quarter. Meanwhile, the costs of services rose 5.5%, the highest since 2008. The ‘trimmed mean annual inflation’, which excludes large increases and declines in prices, increased to 6.9%, the highest since the government started publishing data in 2003. The National Australia Bank’s monthly business survey showed worsened business conditions for December 2022, with a reading of 12 points, a drop from November’s reading of 20 points.

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