THAILAND
Thailand’s proposed 90-kilometer ‘Land Bridge’ faces fresh roadblocks
(28 August 2024) Thailand’s ambitious plan to create a 90-kilometre highway-and-rail link across the Malay Peninsula, aimed at reducing reliance on the congested Strait of Malacca, faces significant challenges. The project, which includes two new ports in Ranong and Chumphon provinces and a special economic zone, has sparked local opposition due to environmental concerns, particularly regarding the impact on Koh Phayam’s coral reefs. Despite these concerns, the Thai government is pushing ahead, estimating the ‘Land Bridge’ will cut shipping times by four days and reduce transportation costs by 15%, with Ranong’s port projected to handle 20 million TEUs annually by 2036. However, investor interest remains tepid, with no firm bids due to the project’s estimated THB trillion cost and uncertainties about financial returns. Regional competition from Malaysia’s East Coast Rail Link and political instability in Thailand, highlighted by the recent removal of Prime Minister Srettha Thavisin, further complicates the project’s future.

ASEAN
Investor interest in Southeast Asian markets surging due to expectations of US interest rate cut  
(26 August 2024) Investor interest in Southeast Asian markets has surged due to expectations of a U.S. interest rate cut, with stock indices in the region reaching new highs. Indonesia’s Jakarta Composite Index recently hit a record, and Malaysia’s Kuala Lumpur Composite Index reached its highest level since December 2020. The rally is driven by a narrowing rate gap between the U.S. and Southeast Asia, strengthening regional currencies, and higher-than-expected GDP growth in countries like Malaysia, which saw a 5.9% increase in Q2 2023. The MSCI ASEAN Index has risen 6% in August, outperforming the S&P 500. Structural reforms and initiatives in Malaysia, along with increased foreign direct investment in sectors like semiconductors, are boosting investor confidence. Southeast Asia’s growth prospects are robust, with projections indicating an average annual growth rate of 5.1% from 2024-2034, positioning the region as a key beneficiary of shifting global supply chains amid Sino-American tensions.

THAILAND
Ongoing flooding in Northern Thailand results in THB 491 million in losses for tourism sector   
(29 August 2024) Ongoing flooding in Northern Thailand has resulted in significant damage to the tourism sector, with losses estimated at THB 491 million. The floods have led to a reduction of 57,092 visitors and a decline in tourism spending of approximately THB 200 million, affecting the livelihoods of 628 tourism workers. Several tourist attractions have been temporarily closed due to floods and landslides. In response, the Ministry of Tourism and Sports, along with the Tourism Authority of Thailand, has developed a restoration plan that includes special offers from airlines, hotels, and restaurants, as well as promotional campaigns to attract tourists back to the region. Planned events include the Amazing Nan Marathon, Wet Series Music Festival 2024 in Chiang Rai, and an art and culture exhibition in Phrae. Additionally, the government has introduced urgent support measures for flood-affected businesses, including debt payment suspensions and low-interest recovery loans through state banks.

THAILAND
Bank of Thailand reiterates readiness to adjust borrowing costs as needed
(28 August 2024) Thailand’s central bank Governor Sethaput Suthiwartnarueput reiterated the Bank of Thailand’s readiness to adjust borrowing costs as needed while maintaining flexibility in response to unexpected risks. Speaking at a Stock Exchange of Thailand forum, Sethaput highlighted the need for a pragmatic approach to monetary policy, given the current economic challenges, including deteriorating credit quality and a widening gap between consumption and manufacturing growth. Despite maintaining the benchmark interest rate at 2.5% for the fifth consecutive time on 21 August, Sethaput indicated that the central bank remains open to supporting the economy if it weakens further, though it is unlikely to join the global trend towards easing monetary policy just yet. The Thai baht has appreciated nearly 5% this month, influenced by a weaker dollar and rising gold prices.

INDONESIA
Indonesian banks to be required to publish breakdown of lending rates
(27 August 2024) Starting in October 2024, Indonesian banks will be required to publish a detailed breakdown of their lending rates, including margins, under a new regulation issued by the Financial Services Authority (OJK). The regulation aims to increase industry competitiveness, promote lending growth, and prevent excessive charges to borrowers. The OJK stated that the rule is designed to encourage banks to set interest rates more efficiently, supporting economic financing. Indonesian banks currently have the highest net interest margin (NIM) in Southeast Asia, with a NIM of 4.57% as of June 2023. The regulation mandates that banks update clients with detailed rate changes, including costs and margins, and report monthly to the OJK on the risk premium charged. Penalties for inaccurate information can reach up to IDR 15 billion (USD 970,000). Major banks such as Bank Central Asia and Bank Mandiri have indicated they will adjust their lending rates based on market conditions, liquidity, and business strategies.

INDONESIA
President-elect aims to implement mandatory 50% palm oil-based biodiesel blending by 2025
(26 August 2024) Indonesia’s president-elect Prabowo Subianto aims to implement a mandatory 50% palm oil-based biodiesel blending (B50) by early 2025, projecting a reduction in fuel imports by USD 20 billion annually. Currently, the blending level is at 35%, with plans to increase to 40% by January 2025. Although Prabowo is pushing for rapid implementation, Indonesia’s palm oil producers and biofuel experts have expressed concerns about the feasibility, citing the need for further testing and production capacity expansion. Implementing B50 will require an estimated 18 million metric tonnes of crude palm oil, up from 11 million for B35, potentially reducing export volumes. The biodiesel industry also faces challenges related to product quality, particularly regarding sediment formation during storage and transportation, which could necessitate new equipment and extended testing. Experts suggest that full implementation by the end of 2025 is more realistic. The initiative is part of a broader effort to reduce fossil fuel dependency and develop palm-based biofuels, including for aviation.

INDONESIA
Global appetite for Indonesian bonds unaffected by pro-democracy protests
(26 August 2024) Foreign investors purchased USD 610 million worth of Indonesian bonds on Thursday, marking the largest single-day inflow in five years, driven by optimism around a potential Federal Reserve policy shift. Despite pro-democracy protests against a proposed revision of regional election laws, which led to the proposal being scrapped, investor interest remained strong, underscoring the prioritisation of yield-seeking. Indonesia’s 10-year bond yields now offer a premium of approximately 280 basis points over similar-dated U.S. Treasuries, attracting significant inflows, with rupiah bonds receiving USD 2.2 billion month-to-date. Factors such as Indonesia’s target deficit of 2.53% of GDP for 2025, lower currency hedging costs, and expectations of a rate cut by Bank Indonesia next month further support this trend. The 10-year yield closed slightly higher at 6.65% on Thursday, while the rupiah strengthened to its highest level since September, and foreign investors continued to buy Indonesian stocks.

RCEP Monitor

CHINA
Chinese officials dismiss speculations that country’s emissions may have already peaked
(29 August 2024) China’s top energy officials have dismissed speculation that the country’s carbon emissions may have already peaked, emphasizing that achieving the target by 2030 will still require significant effort. Despite a rapid increase in clean energy generation from solar and hydroelectric sources, which has reduced fossil fuel power output, officials highlighted that China’s ongoing development and rising energy demand make the outlook uncertain. The National Energy Administration stressed the need for continued efforts towards carbon neutrality. The clean energy boom, coupled with declining steel and cement production due to a real estate slump, and a reduction in gasoline consumption from the rise of electric vehicles, suggest a potential structural decline in emissions. Chinese officials are considering new targets for the country’s nationally determined contributions under the UN climate process. Last month, China’s solar and wind capacity exceeded 1,200 gigawatts, surpassing the 2030 goal set by President Xi Jinping.

AUSTRALIA
Housing crisis in Australia sees rents rise an annualized rate of 9%, fastest rate since 2008
(26 August 2024) Sydney’s rental market is facing significant challenges, with vacancy rates at 1.7% in the city and 1.3% nationally, leading to intense competition for rental properties. Rents in Australia are rising at an annualised rate of 9%, the fastest since 2008, driven by near-record low vacancy rates and a decade-long 90% increase in property prices. The median house price in Australia’s capital cities was AUD 1.1 million in June, with Sydney being the most expensive at AUD 1.6 million. Many renters are struggling to find affordable housing, often resorting to shared living arrangements. The Commonwealth Bank of Australia noted that the rising costs are delaying family formation, as more people choose to live in shared housing or with relatives. While rental price growth slowed to 0.1% in July, upward pressure remains due to a severe housing shortfall exacerbated by long-term policy decisions, construction constraints, and labour shortages. The Australian government, led by Prime Minister Anthony Albanese, has pledged AUD 32 billion to build 1.2 million homes by 2029, but faces political challenges from both the Greens and the opposition. Build-to-rent developments are being promoted as a solution, though they face high borrowing costs and policy uncertainty. The construction industry also faces significant challenges, with dwelling approvals at a 13-year low, and a need for 90,000 new workers to meet government goals.

JAPAN
Middle-aged workers sees wages rise by 2.7% and 1.0% year-on-year in second quarter of 2024
(29 August 2024) In the second quarter, wages for Japanese workers in their 40s and 50s increased by 2.7% and 1.0% year-on-year, respectively, according to data from Payroll, a Tokyo-based salary accounting service provider. This marks a significant improvement for the “lost generation,” who have faced pay stagnation since entering the workforce during the hiring freeze of the 1990s and 2000s. The wage increase, partly driven by the 5.1% rise negotiated in the spring wage negotiations (shuntō), contrasts with a 0.1% decline for these age groups in the same period last year. Despite these gains, economists remain cautious about sustained wage growth for middle-aged workers, citing the high costs for companies to increase their salaries compared to younger workers, whose wages rose 4.2% (under 30) and 3.6% (in their 30s) in the same quarter. Given the crucial role of middle-age workers in driving economic consumption, experts suggest that enhancing career flexibility and reskilling opportunities is essential for further wage growth. However, the moderate increase in wages is unlikely to significantly boost consumer confidence, and sustained efforts from both the government and companies are necessary to support this demographic.