CARI Captures Issue 605: 42nd ASEAN Summit concludes in Labuan Bajo, Indonesia

42nd ASEAN Summit concludes in Labuan Bajo, Indonesia
(11 May 2023) From 10th-11th May, 2023, the Association of Southeast Asian Nations (ASEAN), held its 42nd ASEAN Summit in Labuan Bajo, Indonesia. Among the topics of discussion at the summit included the South China Sea dispute, with a call to all parties to exercise self-restraint. The post-summit chairman’s statement called for resolving tensions in the South China Sea in accordance with international law. The bloc also expressed its encouragement with regards to the progress made in negotiations on the text of a code of conduct in the South China Sea. Indonesian President Joko Widodo, as chairman of ASEAN for 2023, lamented the lack of progress made in implementing the “Five-Point Consensus”, which is a plan for resolving the Myanmar conflict drawn up in 2021. On 10 May, 2023, bloc leaders condemned an attack on an ASEAN-led humanitarian assistance team in Myanmar’s Shan state. The summit also discussed preparations for a roadmap for Timor Leste’s full membership in ASEAN.

Malaysia’s GDP expected to grow by 5.6% in first quarter of 2023
(10 May 2023) According to Bank Islam Malaysia Berhad (BIMB), Malaysia’s GDP is expected to grow by 5.6% in the first quarter of 2023 as compared to 5% in the first quarter of 2022. Malaysia’s growth in the first quarter is bolstered by strong domestic demand coupled with moderating inflation amid a slowing global economy. BIMB stated that private consumption would remain the mainstay of demand growth in the second quarter, supported by an improving labour market. Private consumption itself was supported by higher tourism receipts. BIMB observed that 4.5 million tourist arrivals were recorded in the fourth quarter of 2022, with these numbers expected to increase in the first quarter of 2023. The bank also noted that China’s economic reopening is expected to support the growth of the services sector.

Malaysia’s industrial production index (IPI) grows by 3.1% year-on-year in March 2023
(09 May 2023) According to the Department of Statistics Malaysia (DOSM), Malaysia’s industrial production index (IPI) grew by 3.1% year-on-year in March 2023. This was driven by a 4.1% expansion in the manufacturing sector and a 0.8% rebound in the mining sector. The IPI also saw an 8.3% month-on-month growth in March, following a consecutive three-month declining trend. The 4.1% growth in the manufacturing sector was mainly backed by domestic-oriented industries, which rose by 5.0%. Compared to February 2023, the manufacturing sector recorded a 7.8% growth, after having registered a continuous decline since December 2022. The manufacturing index grew by 3.4% year-on-year while the mining index grew by 2.1%, while on the other hand the electricity index declined by 1.2%.

The Philippines economy slows down to 6.4% growth in the first quarter of 2023
(11 May 2023) The Philippines’ economic growth slowed down to 6.4% in the first quarter of 2023 as compared to the 8% growth recorded in the first quarter of 2022. Growth in the first quarter of 2023 was also lower than the previous quarter’s 7.1% growth. Household consumption, which is a key driver in the Philippines’ economy, grew by 6.3% in the first quarter, slower than the 10% expansion a year earlier. This was attributed to inflation, which hit a 14-year record of 8.7% in January 2023 as utility bills, housing costs, and prices for onions and other food items all went up. Inflation decelerated to 6.6% in April 2023. Consumer spending and investment is expected to be weighed down by higher prices as well as aggressive interest rate hikes by the central bank. The benchmark rate has been raised by a cumulative 425 basis points since May 2022.

Populist election promises could result in US$14.8 billion in extra spending under the next government
(09 May 2023) Populist election promises by major Thai parties before the 14 May, 2023 election could result in spending of more than US$14.8 billion under the next government, which economists warn would take Thailand’s debt and budget to record highs. The incumbent Palang Pracharat Party has pledged giving each farm family US$890, while the opposition party Pheu Thai has offered US$297 for every person over 16.Other parties have promised around US$30 to US$89 per month as welfare for elderly people. The parties stated that the handouts would be funded by either borrowing or higher budget spending. Thailand has maintained its public debt at 40% to 50% of GDP for more than two decades until 2021, when the COVID-19 pandemic saw the government raise the ceiling to 70% to allow more fiscal space for supporting the economy. That has pushed Thailand’s public debt to a current record high of 60.43%. The government has also carried a fiscal budget deficit for decades, with the deficit having risen from US$7.4 billion in the 2013-2014 fiscal year to a record US$20.8 billion in fiscal 2022-2023.

Chinese automobile manufacturer Hozon to produce electric vehicles in Thailand for Southeast Asian market
(06 May 2023) Chinese automobile manufacturer Hozon New Energy Automobile will manufacture electric vehicles in Thailand for the Southeast Asian market. According to Thai government officials, Hozon signed an agreement with Thailand’s Bangchan General Assembly this week to start production of its NETA V model. Production is expected to start in 2024. Hozon had launched its NETA V model in the Thai market in 2022, and plans to start offering its NETA U and NETA S models in the near future. Thailand is Asia’s fourth largest autos assembly and export hub for carmakers like Toyota and Honda. Thailand aims to become a key player in the global EV supply chain outside of China by offering tax cuts and subsidies to drive EV adoption and production. The government has set a target that 30% of domestic auto production be EVs by 2030.

Foreign investor purchase US$747 million of Thai bonds on 09 May, 2023
(10 May 2023) Foreign investors purchased US$747 million worth of Thai bonds on 09 May, 2023, the most since November 2022 and taking their total purchases in May 2023 to US$1.5 billion. This helped boost the Thai baht to the top of the Asian currency ranking this month. Foreign capital inflows and the baht rally has been underpinned by the revival of Thailand’s tourism sector following the reopening of China’s economy, with tourist arrivals having risen to over 2.2 million in March 2023, up from 1.5 million in October 2022. The government is forecasting another two million arrivals this month. The baht is also expected to gain following the general election on 14 May, 2023, with the baht historically having appreciated on average by 1.2% in the one month after the voting day. The baht has also been supported by weak oil prices.

RCEP Monitor

Australia posts first budget surplus in 15 years, with budget expected to return to deficit in fiscal year 2024
(10 May 2023) The Australian government posted a budget surplus of US$2.8 billion for the year to June 2023, its first since the 2007-2008 fiscal year. But the surplus is expected to be brief, with the budget returning to deficits of US$9.4 billion in fiscal 2024, US$23.8 billion in fiscal 2025 and US$24.8 billion in fiscal 2025-2026. Government income is set to grow 8.8% in 2022-2023 and 5.1% in 2023-2024, led by higher-than-expected prices for commodity exports and a record low unemployment rate of 3.5%, which has boosted tax receipts while reining in welfare payments. By comparison, government expenditure is estimated to rise 6% in 2024, driven by rising costs for health care, elder care and defense. The Australian economy is expected to slow down from 3.25% in 2023 to 1.5% in 2023-2024.

Consumer inflation weakens to two-year low of 0.1% in April 2023 as energy and food costs eased
(11 May 2023) According to the National Bureau of Statistics, consumer inflation weakened to a two-year low of 0.1% in April 2023, as food and energy costs weakened. Producer prices fell 3.6%, largely due to lower commodity costs. Core CPI, which excludes more volatile food and energy costs, was unchanged at 0.7%, indicating very little demand-driven inflation in the economy. Separately, data from the People’s Bank of China showed credit and new loans came in well below estimates in April 2023, as consumers and businesses curbed their borrowing. While China’s economic growth accelerated to a one-year high in the first quarter after pandemic restrictions were dropped, more recent data has suggested a slowdown in growth momentum, with manufacturing activity contracting in April and imports plunging. Economists have noted that policy easing by the central bank seems imminent.

Weak property market and industrial activity weighing on coal prices
(11 May 2023) China’s weak property market and sluggish industrial activity have weighed down on coal prices. Key industrial users of coal include steel mills and cement plants, who in response to weak economic activity are demanding more discounts on coal purchases, while others have ceased operations. Last week’s reading from purchasing managers showed factory activity contracting in April 2023 for the first time this year. Chinese coal miners held about 68 million tons in inventory at the end of April 2023, 21% more than at the same time in 2022. The stockpiles are meant to shield coal prices from the impact of safety inspections that have halted output at mines with nearly 50 million tons of annual capacity, equivalent to over 1% of China’s output in 2022. Benchmark coal prices at the trading hub of Qinhuangdao were down 16% from the start of the year.

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