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CARI Captures 393

ASEAN-INDIA

ASEAN and India aim for US$200 billion in annual trade by 2022
(25 February 2019) ASEAN and India aim to reach US$200 billion in trade by 2022 — a significantly higher target than the US$73.6 billion recorded in 2017, according to a Bernama report. Speaking at the 4th India-ASEAN Expo held in New Delhi on February 21-22, the secretary-general of Malaysia’s Ministry of International Trade and Industry Datuk Lokman Hakim Ali said that businesses in India must recognize and seize opportunities presented in these regions, especially since the ASEAN bloc is expected to overtake the European Union and Japan to become the fourth-largest global economy by 2030. In turn, Indian junior commerce minister CR Chaudhary said that the government has identified investment and collaboration opportunities in 12 key high-growth areas in ASEAN, in industries such as medical services, tourism, information technology and hospitality. Meanwhile, the 19th ASEAN-India Joint Cooperation Committee (AIJCC) Meeting held in Jakarta on February 26 concluded with the parties agreeing to elevate cooperation in various areas and establish an ASEAN-India university network. India also committed to lending up to US$1 billion for the development of infrastructure and digital linkages with ASEAN.

INDONESIA-INDIA

Indonesia asks India to cut palm oil tariffs in exchange for sugar imports
(25 February 2019) Indonesia has urged India to lower tariffs on refined Indonesian palm oil exports by five percentage points to 45% to match tariffs that India imposes on Malaysian palm oil. In return, Indonesia will offer greater market access for Indian sugar. The request was made by Indonesian trade minister Enggartiasto Lukita during a meeting with Indian commerce minister Suresh Prabhu on the sidelines of the 4th India-ASEAN Expo and Summit in New Delhi. According to Enggartiasto, India “responded positively” to the request. Figures from the Indonesian palm producers association show that Indonesia exported 6.7 million tonnes of palm oil to India in 2018.

CAMBODIA, INDIA

India seeks to broaden trade with Cambodia
(26 February 2019) India is exploring possible new investments in Cambodia especially in the fields of science and technology, tourism infrastructure and manufacturing, according to a statement from the Cambodian Ministry of Commerce. The statement comes on the back of a meeting between Cambodian commerce minister Pan Sorasak and the Federation of Indian Chambers of Commerce and Industry (FICCI) held on the sidelines of the 4th India-ASEAN Expo and Summit in New Delhi. According to the statement, FICCI president Sandip Somany said that India sees great potential in the Cambodian market and it hopes to increase trade and investment in the country. Meanwhile, Sorasak asked for a direct flight between the countries to be established in order to improve connectivity.

ASEAN, JAPAN

Japan and ASEAN revise free trade pact
(27 February 2019) The Japanese government approved the revision of its Economic Partnership Agreement (EPA) with ASEAN on February 27 aimed at further strengthening economic cooperation between the countries. The EPA first came into effect in 2008 and was Japan’s first multilateral free trade agreement. The revised EPA is expected to come into effect after it passes the Japanese parliament in the fall and is ratified by all ASEAN countries. Japan’s total trade with the ASEAN bloc in 2018 was valued at US$108 billion. The revised pact is expected to focus on the services sector and investments.

SINGAPORE, EU

Singapore-EU trade hits record high
(22 February 2019) Total trade between Singapore and the European Union (EU) crossed the €100 billion mark (US$114 billion) in 2017, according to new data released by the European Commission. Of the sum, trade in goods reached €53.3 billion (US$60.7 billion) while trade in services reached €51.1 billion (US$58.2 billion). Furthermore, trade in goods between the parties reached a record high of €58.1 billion (US$66.1 billion) in 2018 — a 9% increase from the previous year. However, similar data for trade in services in 2018 has yet to be released. Speaking on the matter, EU Ambassador to Singapore Barbara Plinkert said that the record-breaking figures was clear evidence of the dynamic relations between the parties that will only continue to grow with the ratification of the EU-Singapore Free Trade Agreement.

INDONESIA, PAKISTAN

Indonesia grants greater duty-free access to Pakistan’s exports
(26 February 2019) Indonesia has granted tariff-free status to 20 key exports from Pakistan under a correction to the Indonesia-Pakistan Preferential Trade Agreement (IPPTA). The move comes as the IPPTA — signed in 2012 — failed to boost Pakistan’s exports to Indonesia, falling from US$236 million in 2011-12 to US$141 million in 2016-17. While 2017-18 saw Pakistan’s exports return to US$296 million, the trade deficit between the countries is tilted in Indonesia’s favour with Indonesia’s exports to Pakistan rising to US$2.53 billion in the same period. As such, the zero-duty status for 20 products that are of Pakistan’s “prime interest” will come into effect immediately beginning March 1.

MALAYSIA, NORWAY

Malaysia-Norway bilateral trade reached US$614 million in 2018
(26 February 2019) Trade between Malaysia and Norway grew by 72% in the past ten years to reach US$614 million in 2018, according to Norwegian trade and industry minister Torbjorn Roe Isaksen. Of the sum, Malaysia’s exports to Norway amounted to US$442 million while its imports from the same was valued at US$196 million. Additionally, Norway’s Pension Fund Global has so far invested around US$3.8 billion in 200 companies in Malaysia in stocks and sovereign bonds. In commenting on the issue of palm oil, Isaksen stressed that the Norwegian parliament did not impose a blanket ban on palm oil and that it merely wants to ensure that any biofuel that the country imports is sustainably produced. Furthermore, Isaksen expressed his hope that negotiations for Malaysia’s free trade agreement with the European Free Trade Association will resume soon.

MALAYSIA, BRUNEI

Malaysia and Brunei look to increase bilateral trade and investments
(28 February 2019) During her official two-day visit to Brunei, Malaysian Deputy Prime Minister Dato Seri Dr. Wan Azizah encouraged Bruneian and Malaysian businesses to work together to remain competitive and increase trade between both countries. According to Brunei’s energy, manpower and industry minister Dato Dr Hj Mat Sunny, total bilateral trade between the countries reached US$1 billion in 2018, while Malaysian investments in Brunei totalled over US$670 million in 2017. He further noted that Malaysia’s investments largely went to Brunei’s energy sector, totalling US$500 million in 2017.

MALAYSIA, INDONESIA, THAILAND

World’s largest natural rubber producing countries agree to trim exports
(22 February 2019) The world’s three largest natural rubber producing countries — Malaysia, Indonesia and Thailand — agreed to reduce natural rubber exports from their respective countries by 200,000 to 300,000 tonnes in accordance with the Agreed Export Tonnage Scheme (AETS). The announcement was made in a joint statement by the three countries after the Special Ministerial Committee Meeting of the International Tripartite Rubber Council (ITRC) held in Bangkok on February 22. The move comes as natural rubber prices remain discouragingly low amid uncertainty in the global economy and it is hoped that the regulation of such output will help improve prices. Nonetheless, all three countries will seek to counterbalance the decrease in exports by raising domestic consumption “significantly” through the Demand Promotion Scheme (DPS). All three countries also discussed forming a Asean Rubber Council as a platform to discuss the development of the natural rubber industry.

VIETNAM-US

Vietnam orders 110 Boeing jets worth over US$15 billion
(27 February 2019) Vietnam’s Vietjet and Bamboo Airways placed orders for 110 aircrafts from Boeing Co. on the sidelines of US President Donald Trump and North Korean leader Kim Jong-Un’s summit in Hanoi. Of the sum, Vietjet ordered 100 737 MAX planes worth US$12.7 billion, while Bamboo Airways ordered 10 787 planes worth US$2.9 billion. These purchases come on the back Vietnam receiving the US aviation administration’s authorization to fly to the US and codeshare with US airlines, as well as Vietjet’s US$5.3 billion deal with General Electric to provide long-term engine support for a class of engines in its fleet.

Singapore: January 2019 industrial production

HIGHLIGHTS

January 2019 industrial production

Singapore‟s IPI fell 3.1% yoy in Jan, the first decline in 13 months, due to setbacks in the electronics and precision engineering clusters.
Potential de-escalation in US-China trade tensions may be insufficient to counteract near-term risks to the manufacturing outlook in Singapore.

Factory output declined 3.1% yoy in January
Singapore‟s industrial production (IPI) declined by 3.1% yoy in January after a downwardly revised expansion of 1.7% yoy in December, in line with consensus estimates but better than our expectations of a 3.8% decrease. Excluding biomed, the IPI contracted 5.9% yoy in Jan (-3.0% yoy in December). On a seasonally adjusted basis, IPI rose 0.9% mom in January (- 5.2% mom in December).

Electronics downturn persists amid challenging year-ago base
The electronics sector contracted again in January (-13.7% yoy vs. -11.5% yoy in December) due to a high year-ago base in the semiconductor (-14.2% yoy in January vs. -12.7% yoy in December) and info-communication & consumer electronics segments (-20.4% yoy in January vs. +7.2% yoy in December). At the same time, structural declines in the production of data storage and computer peripherals continued to weigh on the electronics sector.

Drugs can’t kill the pain this time
While drugs had helped to prop up the manufacturing sector in recent months, the growth in biomedical manufacturing moderated to 10.0% yoy in January (+29.8% yoy in December). Pharmaceuticals output growth slowed to 13.5% yoy in January after a jump of 41.1% yoy in December as base effects overwhelmed the segment‟s 7.5% mom increase.

Robust transport engineering cushions dip in precision engineering
Sustained activity in the marine & offshore and aerospace clusters propelled the transport engineering sector to a solid 20.2% expansion in January (+27.7% yoy in December). However, output in precision engineering fell 15.7% yoy in January (-7.0% yoy in December) dented by weaker demand for machinery & systems, in particular semiconductor equipment. The chemicals sector rebounded in January (+2.0% yoy vs. -1.7% yoy in December), as the contraction in the petrochemicals segment moderated (-1.8% yoy in January vs. -10.6% yoy in December) while increased production of fragrances boosted output in “other chemicals‟ to 18.2% yoy in January (-2.5% yoy in December).

Tariff reprieve may not deflect from weakening external demand
On 25 February, President Donald Trump said the US would delay tariff increase from 10% to 25% on US$200bn of China imports due on 1 March, citing “substantial progress” in trade negotiations with China. Yet, a tariff reprieve may not provide a sufficient boost against waning growth momentum in advanced economies and China in the near term, which has resulted in Singapore manufacturers reducing inventory levels amid weakening order books. Hence, we maintain our GDP growth forecast of 2.6% in 2019F (+3.2% in 2018).

Originally published by CIMB Research and Economics on 26 February 2019.

This article has been edited to reflect its time-sensitivity.

Mekong Monitor

Photo credit: Bangkok Post

TRADE, ECONOMY, AND INVESTMENT

LAOS, VIETNAM

Laos and Vietnam sign nine agreements to enhance bilateral ties
(27 February 2019) Laos and Vietnam inked nine agreements to enhance bilateral relations during Vietnamese President Nguyen Phu Trong’s two-day state visit to Laos on February 24-25, on the invitation of Lao President Bounnhang Vorachit. The bilateral meeting in Vientiane culminated in the signing of nine agreements covering areas such as financial cooperation, construction of the Vientiane-Vung Ang railway, as well as electricity and mining development. Vietnam has thus far invested US$4.1 billion in 409 projects in Laos and is the third largest foreign investor in the country. Trade between the two countries reached US$1 billion in 2018, up 13% from 2017. Furthermore, Laos reaffirmed its support for Vietnam’s candidacy as a non-permanent member of the UN Security Council for the 2020-2021 tenure and as ASEAN Chair in 2020.
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CAMBODIA, VIETNAM

Cambodia and Vietnam sign five agreements to boost bilateral relations
(26 February 2019) Cambodia and Vietnam signed five agreements to enhance bilateral ties during Vietnamese President Nguyen Phu Trong’s two-day state visit to Cambodia on February 25-26. Cambodian Prime Minister Hun Sen was also present during the signing ceremony held at the Peace Palace in Phnom Penh. According to a Xinhua report, the agreements cover the enhancement of land and water connectivity, trade facilitation, tourism promotion as well as a US$25 million grant to assist with the construction of Cambodia’s parliament administration building. Furthermore, both parties agreed to aim for a bilateral trade volume of US$5 billion by 2020, up from US$4.68 billion in 2018. Vietnam has around 210 investment projects in Cambodia worth US$3.03 billion, while Cambodia has 19 projects worth US$63.42 million in Vietnam.
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VIETNAM, CAMBODIA

Vietnamese telco records US$2.2 billion in revenue in its first decade in Cambodia
(21 February 2019) Vietnamese state-owned telecommunications company Viettel’s international brand Metfone announced that it recorded an accumulated revenue of over US$2.2 billion in its first 10 years of operating in Cambodia. Metfone also announced that it saw an accumulated profit of US$300 million, demonstrating a high EBITDA. Further, the company has reportedly created 3,000 direct jobs, contributed some US$500 million in taxes to the Cambodian government and increased Cambodia’s mobile phone density from 25% to 120% in its decade of operation. As such, Cambodian Deputy Prime Minister Samdech Pichey Sena Tea Banh lauded the company, saying that it has made a “significant contribution” to the country’s development.
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VIETNAM, THAILAND

Vietnam asks Thai cement conglomerate to continue investing in the country
(26 February 2019) Vietnamese Prime Minister Nguyen Xuan Phuc extolled Thai Siam Cement Group’s (SCG) many investments in Vietnam and encouraged them to continue doing so, during a reception hosted by the Prime Minister for SCG head Roongrote Rangsiyopash in Hanoi on February 26. The Prime Minister also highlighted the group’s petrochemical complex project in southern Vietnam, saying that the petrochemical industry is vital to the country’s economy. Rangsiyopash stated that they will ensure that the 460 Vietnamese staff involved in the project will be given intensive training to improve their professional skills. He also reaffirmed the company’s commitment in ensuring that the project is operational by 2023.
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THAILAND, VIETNAM

AirAsia doubles down on the Mekong subregion with new Thailand-Vietnam routes
(26 February 2019) Thai AirAsia launched new routes connecting Thailand and Vietnam as it looks to increase its market share in the Mekong region; composed of Cambodia, Laos, Myanmar, Thailand, Vietnam and provinces in southern China. The airline’s recent launch of its Chiang Mai-Da Nang route is one of three new routes slated to launch this year alongside routes from Don Mueang to Can Tho and Nha Trang. AirAsia previously launched a Chiang Mai-Hanoi route in 2018 which has so far maintained a load factor average of 88%, thus suggesting the need for more routes in the subregion. According to the Vietnamese Ministry of Tourism, the country received 349,000 visitors from Thailand in 2018, up 15.9% from 300,000 in 2017. According to AirAsia, the airline serves 19% of all passengers between these two countries with an average load factor of 87% across its routes.
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About Greater Mekong Subregion (GMS)

The Greater Mekong Subregion (GMS) Economic Programme was launched by the Asian Development Bank in 1992 connecting five developing ASEAN countries, namely Cambodia, Laos, Myanmar, Vietnam and Thailand, and Chinese provinces of Yunnan and Guangxi Zhuang Autonomous region. The region has some of the most robust economies sharing the Mekong River Basin thanks to its reform and liberalisation. The subregion is growing at a faster pace than the whole of East Asia and the Asia Pacific as the GDP growth rate for 2017 was at 6.4 percent, according to the World Bank. The population at the subregion as of 2016 is at 340 million while the GDP at PPP is at US$3.1 trillion in 2016. In 2015, trading within the region was at US$444 billion.

Indonesia: February 2019 Bank Indonesia meeting

HIGHLIGHTS

February 2019 Bank Indonesia meeting

Bank Indonesia (BI) kept its 7-Day Reverse Repo Rate (7DRRR) steady at 6.00%, as widely expected.
Reducing the current account deficit (CAD) to 2.5% of GDP is a pre-requisite for BI to start reducing policy rate.
As the US Fed has indicated patience in its interest rate policy, we expect BI to leave its policy rate unchanged at 6.00% throughout the year.

Current policy rate…
As widely expected, Bank Indonesia (BI) maintained its 7-Day Reverse Repo Rate at 6.00%. It left the Deposit Facility Rate and Lending Facility Rate unchanged at 5.25% and 6.75%, respectively. BI guided that the latest monetary policy decision is consistent with its efforts to strengthen the nation’s external stability.

… may be maintained throughout the year as the US Fed buckles
The US Fed has signaled a pause in the policy rate tightening cycle as it assesses growth and financial risks and plans to stop shrinking its balance sheet, reducing two sources of risks that contributed to the Rp/US$ weakness in the past year. Although there remains the question of how long the US Fed will hold its policy rate, recent comments by a few regional Fed Presidents indicated possibility of only one hike, or no hike at all, for 2019. Hence, we see room for BI to keep its policy rate unchanged throughout 2019 at 6.00%, a downward revision from our previous forecast of 6.50%, which suggested two rate increases.

Reducing current account deficit remains a key focus…
Lowering the nation’s current account deficit (CAD) to 2.5% of GDP remains a key priority for BI, and it will utilise accommodative macroprudential policies and liquidity-enhancing measures to boost lending activity to extend economic growth momentum. CAD worsened from 1.6% of GDP in 2017 to 3.0% of GDP in 2018 on the back of recovering domestic demand and higher oil prices. The surprise widening in trade deficit to US$1.2bn last month indicates complications in narrowing the CAD as imports are being supported by resilient domestic demand while export performance is being dampened by slowing global economic growth.

… before policy rate direction is reversed
Note that Indonesia’s financial account surplus (FAS) averaged 2.6% of GDP in 2015- 2018. Reducing CAD to 2.5% of GDP would ensure that excess consumption would be financed by net inflows in its financial account. This could provide some comfort to the central bank and government that the CAD would not exert too much pressure on Rp/US$. Until then, we think BI may be patient and leave its policy rate unchanged throughout 2019.

Originally published by CIMB Research and Economics on 22 February 2018.

China-ASEAN Monitor

File Photo

Economy, Investment and Trade

Laos urges China to increase import quota for Laotian rice to 50,000 tonnes
(21 February 2019) Lao industry and commerce minister Khemmani Pholsena asked China to consider increasing its import quota for Laotian products during Chinese National Development and Reform Commission (NDRC) vice chair Ning Jizhe’s visit to Vientiane on February 19. Among the products touted by Pholsena were Lao rice, rubber, tobacco and other industrial goods. Ning’s official working visit comes as the countries look to enhance bilateral cooperation, notably expediting the ongoing construction of the China-Laos Economic Corridor and China-Laos railway project.
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Indonesian province sees sharp increase in exports after Chinese investment
(25 February 2019) The Indonesian province of Central Sulawesi recorded a 16-times increase in exports in the past five years from US$297 million to US$5.11 billion after Chinese steelmaker Tsingshan turned the province’s Morowali district into the world’s largest nickel industrial park, according to a report by The Straits Times, which earmarked the project as an example of a private sector endeavour that does not come under the Belt and Road Initiative (BRI). Investors and tenants have thus far invested US$4 billion in the Indonesia Morowali Industrial Park (IMIP) to develop processing plants and facilities including an airport. Further, the IMIP has created 25,662 jobs as of the end of 2017, of which 18,556 are manned by Indonesians.
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Malaysia will resume ECRL project “if the price is right”
(26 February 2019) Malaysia will build the China-backed East Coast Rail Link (ECRL) if the project cost can be reduced to a level that is affordable for a country saddled with debt — or it will have to be postponed to a later date, said Malaysian Prime Minister Tun Dr Mahathir Mohamad. To that end, a Chinese delegation will be in Kuala Lumpur this week to discuss the project’s scope and price. Construction of the 690-kilometre railway line stretching from Malaysia’s largest port Port Klang to the northeastern town of Pengkalan Kubor in Kelantan state came to a halt in July 2018 after a change in the country’s administration in May 2018.
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Huawei allocates US$81 million to develop its Southeast Asia market
(26 February 2019) Chinese telecommunications equipment giant Huawei Group has allocated US$81 million to develop its Southeast Asian market from 2019 to 2021, said the group’s regional head James Wu. Speaking at the Mobile World Congress 2019 in Barcelona, Wu said that the company will spend up to US$23 million on ecosystem development OpenLabs in Bangkok and New Delhi, US$50 million on developing the Huawei Cloud Developer Programme, and US$8 million on developing industry talent in the region. According to Wu, the company remains confident about its prospects in the region and it will continue consolidating its Southeast Asian market, especially through its new regional headquarters in Thailand.
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Study shows that the Philippines distrusts China but recognises its influence
(25 February 2019) A recent study by the ISEAS-Yusof Ishak Institute found that 52.3% of Filipino experts surveyed believe that the global economic, political and strategic influence of the US has declined, while 61.3% believe that China is now the most influential country economically. Further, 77.1% of respondents believe that China will vie for regional leadership in the wake of perceived US indifference towards Southeast Asia. Having said that, the survey also found that the Philippines generally does not trust China, with 66.4% believing that China intends to turn the region into its sphere of influence — a view shared by approximately 45.4% of all respondents surveyed in Southeast Asia.
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Vietnam: January 2019 trade

HIGHLIGHTS

January 2019 trade

Vietnam recorded a trade surplus of US$816m in January 19 (vs. trade deficit of US$811m in December 18). GSO had estimated a US$800m trade deficit in January 19.
Continued downtrend in smartphone and electronics exports seen in January 19.
We expect a softer export outlook in 2019F (+12.0% yoy vs. 13.1% in 2018).

Trade surplus of US$816m in January 2019
In January 2019, exports grew 8.9% yoy (vs. -0.4% in December 2018) while imports grew 5.4% yoy (vs. 1.6% in December 18). As a result, Vietnam’s trade balance registered a surplus of US$816m in January 19 (vs. a deficit of US$811m in December 18). The General Statistics Office (GSO) had previously estimated a trade deficit of US$800m for January 19. FDI exports recovered in January with a growth of 5.0% yoy (vs. -5.2% in December). However, growth was much lower than the same period last year (+41.4% yoy in January 18) due to a high-base effect and a sharp drop in electronic products exports (-10.7% yoy in January 19).

Continued downtrend in smartphone and electronics exports
Exports of top electronic products decreased by 10.7% yoy in January 19 (vs. an 11.9% increase in December 18), led by a contraction in shipments of smartphones (-16.4% in January vs. -26.2% in December) and cameras (-15.8% in January vs. -8.7% in December). Exports of other segments, such as computers, PCs and electronics parts, were nearly unchanged compared to the same period in January 18. Subdued demand for smartphones and consumer electronics, underscored by Samsung’s guidance for challenging market conditions in 1H19F, is likely to curtail Vietnam’s exports in the near term.

Expansion of domestic sector’s exports
Despite a slowdown in FDI exports, the domestic sector performed better than expected with an export growth of 17.8% yoy in January (vs. 10.3% in December). This came on the heels of robust export growth of textiles, handbags and wooden products. Export data breakdown by domestic sector showed that textiles and handbags grew at 36.6% yoy while wooden products grew at 23.5% yoy in January. However, exports of agricultural products declined by 7.7% yoy, led by weakness in cashew, coffee and rice exports.

Rebound in capital goods imports
Machinery equipment import growth has remained in the red for 10 months since Feb 18, but there was a rebound in January 19 with a rise of 18.1% yoy. It is still too early to conclude if a recovery in capital goods imports could boost exports growth, but this is a good sign that investment is continuing to grow amid trade war uncertainties. In January 19, disbursed FDI surged by 47.6% yoy to US$1.6bn, suggesting continued strength in FDI flows

We expect a softer export outlook for 2019
We retain our forecast of low double-digit export growth (+12.0% yoy in 2019F vs. 13.1% in 2018). Despite an uncertain global trade outlook, we think the trade negotiations between the US and China create provide some glimmer of light at the end of the tunnel. Therefore, we do not see the trade war as a major risk. Instead, we think a slowdown in China and moderation in global growth will have a bigger impact on Vietnam’s export performance.

Originally published by CIMB Research and Economics on 22 February 2019.

Malaysia: January 2019 consumer price inflation

HIGHLIGHTS

January 2019 consumer price inflation

Malaysia recorded a headline inflation of -0.7% yoy for January as the reinstatement of a weekly fuel price float depressed the transport price index.
We retain our headline inflation forecast at 1.8% for 2019F due to downward pressure from lower fuel prices and subdued core inflation.
The macro backdrop has turned more conducive towards an extended period of policy accommodation; we expect the OPR to remain at 3.25% in 2019F.

First deflation reading in consumer price index since Nov 2009
The consumer price index (CPI) fell at a steeper-than-expected pace of 0.7% yoy in January (+0.2% yoy in December 2018), while core inflation eased to 0.2% yoy (+0.4% yoy in December 2018). On a monthly basis, the headline CPI fell 0.5% mom (+0.1% mom in December 2018). The negative inflation was due to falling prices for goods, while services inflation remained stable at a range of 1.6-1.8% yoy since the re-introduction of the Sales and Services Tax (SST) on 1 Sep 2018.

Falling oil prices depress transport inflation
Seven of the 12 main groups in the CPI basket saw prices decline in January. The sharpest contraction came from the transport index (-7.8% yoy vs. -2.0% yoy in December 2018), which outweighed higher food inflation (+1.1% yoy in January vs. +0.8% yoy in December 2018). As global oil prices declined, the reinstatement of weekly fuel price float saw downward adjustments to RON95, RON97 and diesel retail prices, as reflected in 12.6% yoy decline in fuel & lubricants sub-index (-2.9% yoy in December 2018).

Pricing pressure remains generally weak post GST/SST
Sharper decline in prices were observed for clothing and footwear (-3.3% yoy vs. -3.2% yoy in December 2018), recreation & culture (-0.4% yoy vs. -0.2% yoy in December 2018), and health (-0.5% yoy vs. -0.4% yoy in Dec 2018). Furnishing, household equipment and maintenance group re-joined the deflation group after prices briefly increased at the end of last year (-0.3% yoy vs. +0.1% yoy in December 2018).

Further discounts on KTM fares
Effective for one year from 1 April, an additional 20% discount will be applied to KTM fares, on top of the existing 20% savings for cashless transactions, as the government looks to lower transport costs. The benefit is restricted to Malaysians, and a mechanism for tiered rates is being finalised. Given that the share of rail transport in the CPI basket is below 0.1%, the impact of the discount on headline inflation is negligible.

OPR on hold amid subdued inflation and macro backdrop
We reiterate our headline inflation forecast of 1.8% for 2019F, which sits below Bank Negara Malaysia’s medium-term inflation target of 2-3%. The lack of price pressures, potential downside risks to Malaysia’s economic growth, and a more accommodative external monetary policy backdrop lead us to think that the central bank will maintain its Overnight Policy Rate (OPR) at 3.25% in 2019F.

Originally published by CIMB Research and Economics on 22 February 2019.

CARI Captures 392

SINGAPORE

Budget 2019 launched by Finance Minister Heng Swee Keat
(19 February 2019) Singapore Finance Minister Heng Swee Keat announced the country’s Budget 2019 on February 19 with an eye on supporting industry transformation, accelerating enterprise growth and positioning Singapore as a global leader in technology, innovation and enterprise. To this end, Heng outlined three key pillars to keep Singapore’s industry transformation on track, i.e. building deep enterprise capabilities, building deep worker capabilities and encouraging strong partnerships. Firstly, the government allocated S$4.6 billion (US$3.4 billion) to boost business capabilities in the next three years, of which S$3.6 billion (US$2.7 billion) will be used to help its workforce enter new growth areas and S$1 billion (US$739 million) to help firms grow deep enterprise capabilities. Secondly, numerous enterprise development funds and programmes will be created or continued, including an additional S$100 million (US$73 million) co-investment fund to help enterprises scale up. Thirdly, the government will work with local trade associations and chambers (TACs) to develop multi-year roadmaps as part of its focus to forge deeper partnerships locally and globally. On the trade front, the government will focus on streamlining trade processes to help businesses make better use of free trade agreements, while facilitating the secure exchange of electronic trade documents

THAILAND

Thailand’s GDP growth in 2018 exceeds forecasts despite slowing export growth
(18 February 2019) Thailand’s economy expanded at its fastest pace in six years in 2018, fueled by stronger domestic demand and tourism arrivals in the fourth quarter which helped offset slowing export growth. According to the National Economic and Social Development Council (NESDC), GDP grew 4.1% in 2018, up 0.1% from the previous year. The state planning agency also maintained its 3.5%-4.5% growth projection for 2019 despite cutting its forecast for exports in 2019. Analysts noted however the key risks to growth outlooks will be the possibility of unrests due to the election to be held on 24 March. Meanwhile, the use of free trade agreement (FTA) and Generalised System of Preferences (GSP) privileges by Thai exporters reached nearly US$80 billion in 2018, beating the government’s US$70.8 billion target. According to the Thai Foreign Trade Department, Thai-ASEAN FTAs recorded the highest use, totalling US$26.9 billion, followed by FTAs with China, Australia, Japan and India. The department attributed the rise in utilisation to the government’s trade facilitation efforts and expansion into new export markets.

PHILIPPINES

President Duterte signs bills to ease inflation, boost central bank powers
(18 February 2019) Philippine President Rodrigo Duterte signed into law a slew of measures this past week aimed at bolstering the economy. These included measures to remove rice import quotas in order to lower grain prices, increase the central bank’s capitalisation while expanding its regulatory powers, as well as provide estate and delinquent tax amnesties. Also notable was President Duterte’s signing of the Universal Health Care Act on February 20 which automatically enrolls all citizens into the National Health Insurance Program (NHIP), thus granting every Filipino “immediate eligibility” and access to health services.

INDONESIA

Indonesia passes new cryptocurrency trading regulations
(18 February 2019) The Indonesian Ministry of Trade’s Commodity Futures Trading Regulatory Agency (Bappebti) announced a new legal framework to regulate crypto assets on futures exchanges in the country. Under the regulations, entities involved in crypto futures trading must seek regulatory approval and meet a set of requirements in order to operate legally in Indonesia. For instance, platforms offering this mode of trading must have paid-up capital of at least US$106 million and maintain a closing capital balance of US$85 million. Further, crypto futures trades and storage service providers must maintain a minimum paid-up capital of US$71 million and minimum closing balance of US$57 million. These regulations follow Bappeti’s previous announcement which officially recognised Bitcoin and other digital assets as trading commodities.

BRUNEI-LAOS

Brunei and Laos sign MOUs on education, information and trade
(19 February 2019) The Sultan of Brunei, Sultan Hassanal Bolkiah hosted a banquet for Lao Prime Minister Dr Thounglun Sisolith on February 16 which culminated in the inking of several memorandum of understandings (MOUs). Among the MOUs signed were agreements between the countries’ National Chambers of Commerce to boost micro, small and medium enterprises, and coordinate information sharing to encourage business opportunities between the countries. Meanwhile, the Sultan also hosted a meeting with the chair of the Russian parliament Valentina Matvienko on February 19 to discuss opportunities to heighten trade, economic and investment cooperation between the countries. According to figures from the Russian parliament, bilateral trade between Brunei and Russia reached US$18.5 million in 2015 due to a contract with a Russian oil producer, but fell to around US$740,000 when said contract ended.

PHILIPPINES-US

Philippines and the United States to hold bilateral talks on free trade
(19 February 2019) The Philippines is one of four countries that the US hopes to establish a free trade agreement with and industry players hope that the government will be well prepared to take full advantage of the proposed FTA during negotiations. According to Philippines telco head Manuel V. Pangilinan, initial discussions revolved around greater access for trade, services and investments. Former US Ambassador to the Philippines John Negroponte added that there was a need to include clauses on digital commerce in the FTA, as was included in the US trade agreement with Mexico and the Trans-Pacific Partnership.

INDONESIA-EURASIA

Indonesia eyes Eurasian market through the EEU
(17 February 2019) Indonesia will expand its reach in the European market when it signs a memorandum of cooperation (MOC) with the Eurasian Economic Union (EEU) later this year, said Indonesian trade minister Enggartiasto Lukita. Trade between Indonesia and the EEU (Russia, Kazakhstan, Belarus, Armenia, Kyrgyzstan) was valued at US$2.79 billion in 2017 and Indonesia hopes to double this figure in the next five years. According to Enggartiasto, Indonesia hopes to eventually sign a Comprehensive Economic Partnership Agreement (CEPA) with the EEU, but said that negotiations would likely take a long time as it would involve the five EEU member countries. EEU integration and macroeconomics minister Tatyana Valovaya lauded the move, saying that the MOC will help reduce trade barriers between the two parties and that a free trade agreement was indeed a possibility in the future.

INDONESIA-AUSTRALIA

Indonesia and Australia to sign trade pact in March
(15 February 2019) Indonesia and Australia will sign a long-awaited trade deal in March after eight years of negotiations, according to a recent article by The Straits Times. The trade deal is expected to increase bilateral trade between the countries, which stood at US$11.7 billion in 2017. Once ratified, the agreement will give Australian farmers, universities and health providers greater access to the Indonesian market. In turn, Indonesia’s automotive, textile, timber, electronic and medicinal sector will gain greater access to the Australian market. The deal was expected to be signed by the end of 2018, but was stalled due to diplomatic tensions after Australia proposed relocating its Israeli embassy to Jerusalem in October 2018.

INDONESIA-ROK

Indonesia and South Korea aim to sign trade deal by November
(19 February 2019) Indonesia and South Korea announced on February 19 that they will relaunch negotiations for the Indonesia-Korea Comprehensive Economic Partnership Agreement (IK-CEPA), which they now hope to conclude by November. Negotiations between the parties first commenced in 2012, was put on hold in 2014, and was recently revived when the countries’ trade ministers expressed their commitment to resuming talks. According to Indonesian trade minister Enggartiasto Lukita, the agreement could increase bilateral trade from US$20 billion in 2018 to at least US$30 billion in the next three years. He noted that the Vietnam-South Korea bilateral trade had reached US$60 billion and it was important for Indonesia to not lag behind. South Korean trade minister Kim Hyun-chong lauded the move, saying that the country looks forward to collaboration in the technology, chemical and construction sectors.

ASEAN-ROK

South Korea gears up for special summit with ASEAN in November
(19 February 2019) South Korea began preparations for the 30th ASEAN-ROK dialogue forum and 2019 ASEAN-ROK Commemorative Summit in November. To this end, the government will launch a preparatory task force to coordinate the event, alongside commemorative events held in both regions throughout the year. For instance, the ASEAN-Korea Center (AKC) held its annual council meeting on February 18, where AKC Secretary-General Lee Hyuk expounded on the role of South Korea’s New Southern Policy in promoting greater ties between the parties. In 1989, the trade volume between both countries amounted to only US$75 billion. However, the figure has since risen to US$160 billion in 2018 and ASEAN countries remain the most popular tourism destination among Koreans, with the number of Korean visitors reaching 7.64 million in 2018.

Mekong Monitor

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TRADE, ECONOMY, AND INVESTMENT

CAMBODIA, VIETNAM

Vietnam and Cambodia agree to eliminate tariffs, enhance rice trade
(15 February 2019) A meeting between Cambodian commerce minister Pan Sorasak and Vietnamese industry and trade ministry representative Do Quoc Hung on February 13 resulted in agreements between the two countries to drop tariffs on a range of goods. Under the agreement, Vietnam will impose no tariffs on 32 Cambodian products, while Cambodia will do the same for 26 Vietnamese products. Further, Vietnam will increase its import quota for Cambodian rice and tobacco leaves to 300,000 tonnes and 3,000 tonnes respectively. The elevated import quotas will be enforced in 2019 and 2020. Bilateral trade between both countries reached US$3.8 billion in 2017
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MYANMAR, VIETNAM

Myanmar-Vietnam trade reached almost US$200 million in 1Q FY2018-19
(16 February 2019) Trade between Myanmar and Vietnam reached US$196 million in the first quarter (October to December) of the 2018-2019 fiscal year, according to the Myanmar Ministry of Commerce. Of the sum, Myanmar’s exports to Vietnam amounted to US$48.5 million while its imports from the same were valued at US$147.7 million. Myanmar’s key exports to Vietnam are mineral, agricultural, forest and marine products. Its key imports from Vietnam are automobile spare parts, computer parts, construction materials, steel, plastics, pharmaceuticals and chemical products. Meanwhile, the Myanmar Investment Commission recorded an inflow of US$10.48 million worth of foreign investment during the same period.
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VIETNAM, LAOS

Vietnam and Laos step up energy development cooperation
(18 February 2019) Vietnam and Laos will ink agreements for the development of several major hydropower, renewable energy and mining projects soon, said the Vietnamese Deputy Prime Minister Trinh Dinh Dung at a reception for Lao Minister of Energy and Mines Khammany Inthirath in Hanoi on February 18. Furthermore, Deputy Prime Minister Dung also suggested that the countries collaborate on developing a mechanism to monitor the construction of irrigation and hydropower projects near the border to prevent environmental damage. Both sides reiterated their commitment in advancing their cooperation, especially in the energy and mining sectors.
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THAILAND, LAOS

Thailand hopes to get Lao hydropower generator running ahead of schedule to curb power tariffs
(20 February 2019) Thailand’s Energy Regulatory Commission (ERC) plans to get the Xayaburi hydroelectric power project in Laos operating ahead of schedule in order to maintain Thailand’s power tariff and avoid an increase in electricity prices. The Xayaburi hydropower project — Southeast Asia’s largest hydropower plant — was initially scheduled to launch on October 1. However, sources say that the project developer had already began the project’s test phase last year, and they have also allocated additional funds in order to complete development before October. Once completed, the project will comprise seven turbines which will generate power for the state-owned Electricity Generating Authority of Thailand (EGAT) and one turbine that will distribute power for domestic use in Laos.
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VIETNAM, THAILAND

Vietnamese steel exports subject to Thailand’s final anti-dumping review
(18 February 2019) The Thailand Department of Foreign Trade’s investigation on anti-dumping duties imposed on steel products from countries such as Vietnam is in the final stages, according to the Vietnamese Ministry of Industry and Trade’s Trade Remedies Authorities. As such, the Vietnamese authority has instructed local steel exporters to provide their full cooperation during the final investigation and to raise any objections they may have through said authority. The review, which began in September 2012, covers steel imports from Vietnam, Taiwan and China.
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Economy, Investment and Trade

Malaysia-China trade volume reach a record high of US$108.6 billion
(18 February 2019) Total trade between Malaysia and China reached a record high of US$108.6 billion (RM443 billion) in 2018, 683 times higher than the total trade volume recorded 45 years ago when diplomatic relations between the two countries were first established. The total trade volume grew 13% from US$96 billion (RM392 billion) in 2017. The figures were provided by the Malaysia-China Business Council, who also said that the number of Chinese visitors to Malaysia reached 2.94 million last year. Meanwhile, Malaysian Prime Minister Mahathir Mohamad said that China is Malaysia’s biggest trading partner and the country looks forward to improving these valuable ties. To this end, the Prime Minister confirmed a working visit to China in April where he will also attend the One Belt One Road summit.
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Indonesia-China trade deficit increases by 32% y-o-y in January
(17 February 2019) Indonesia reported a US$2.4 billion trade deficit with China in January representing a 32% year-on-year increase, according to the Indonesian Central Bureau of Statistics (BPS). Of the sum, the share of Indonesia’s non-oil and gas exports to China fell to 13.52% or US$1.71 billion in the same month — a smaller fraction compared to 14.51% or US$1.92 billion recorded in January 2018. BPS head Suhariyanto attributed the widening deficit to lower demand for raw materials and other exports due to China’s slowing economic growth.
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Singapore’s exports impacted by China’s economic slowdown
(19 February 2019) Singapore’s exports to China fell sharply in January, with non-oil exports falling by 25.4% and oil exports falling by 30.8%, according to a recent article by the South China Morning Post. This has raised concerns about Singapore’s exposure to China’s economic woes and the health of the global trading environment. Further, exports of gold to China fell by 94.9%, specialised machinery by 55.2%, and measuring instruments by 40.9%. The figures follow earlier reports of a 15.9% decrease in Singapore’s electrical exports to China, which includes a 34.3% decrease in personal computer exports. According to the chief economist of a regional bank, the numbers point to a “broad weakness in external demand” and were deeply concerning.
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Myanmar-China bilateral agreement for cattle trade in the works as border trade increases by US$203 million
(18 February 2019) A bilateral trade agreement providing an official barter system for cattle between Myanmar and China’s Yunnan Province will be signed soon, according to a Myanmar Ministry of Commerce official. The agreement comes on the back of rising Chinese demand for cattle and the absence of an overarching Myanmar-China bilateral trade agreement. Meanwhile, trade at the Muse gateway on the Myanmar-China border fell by over US$480 million to US$1.67 billion in the first four months (October 1 – February 1) of the 2018-2019 fiscal year, compared to US$2.15 billion during the same period last year. However, total border trade volume reached US$3.252 billion in the same period, an increase of US$203 million from the same period last year. In commenting on the decline, Minister of Commerce Dr Than Myint said that the quality of the export sector must be improved and more promotion must be done to boost trade activity.
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China offers Panda bonds to Malaysia to help lighten debt burden
(19 February 2019) China Construction Bank has proposed the issuance of Panda bonds in China to the Malaysian government to help lighten the country’s financial troubles, said Chinese ambassador to Malaysia Bai Tian at the Malaysia-China Bilateral Cooperation 2019 luncheon on February 18. An analyst from Sunway University commenting on the matter said that such bonds could be a win-win solution for both countries as China would be able to broaden its yuan-denominated bond market, while Malaysia gains access to more diversified funding at a potentially lower cost. Nonetheless, the Malaysian government will have to weigh the costs and risks of doing so. The Philippines became the first ASEAN country to issue Panda bonds in March 2018 when it issued its three-year 1.46 billion yuan or 12 billion peso Panda bond at a 5% coupon rate.
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