The International Monetary Fund (IMF) has toned down its growth outlook for the five biggest economies in the Association of Southeast Asian Nations (Asean 5) for 2015 and 2016, in line with the lender’s downward revision to its forecast for the global economy.
Asean 5 consists of Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
In the January 2015 edition of its World Economic Outlook (WEO), the IMF predicts economic growth in Asean 5 this year to settle at an average 5.2 percent, or 0.2 percentage points lower than its October 2014 projection of 5.4 percent.
For 2016, the growth forecast for the bloc is 5.3 percent, down 0.1 percentage point from the 5.4 percent previous forecast.
IMF’s downward forecast for the Asean 5 economies is in line with its reduced growth projection for the global economy to 3.5 percent for 2015 and 3.7 percent for 2016.
“The revisions reflect a reassessment of prospects in China, Russia, the euro area and Japan, as well as weaker activity in some major oil exporters because of the sharp drop in oil prices. The United States is the only major economy for which growth projections have been raised,” it said.
The institutional lender said four key developments have shaped the global outlook since its assessment in October 2014, first of which was the decline in oil prices on the back of unexpected demand weakness in some major economies, in particular, emerging market economies.
The IMF also noted growth divergences among major economies such as the US and Japan.
“Specifically, the recovery in the United States was stronger than expected, while economic performance in all other major economies—most notably Japan—fell short of expectations,” it said.
The agency also pointed out that with more marked growth divergence across major economies, the US dollar has appreciated some 6 percent in real effective terms relative to the values used in its outlook in October 2014.
In contrast, the euro and the yen have depreciated by about 2 percent and 8 percent, respectively, and many emerging market currencies have weakened, particularly those of commodity exporters, it added.
Lastly, the IMF said interest rates and risk spreads have risen in many emerging market economies, notably commodity exporters, and risk spreads on high-yield bonds and other products exposed to energy prices have also widened.
“Long-term government bond yields have declined further in major advanced economies, reflecting safe-haven effects and weaker activity in some, while global equity indices in national currency have remained broadly unchanged since October,” it said,
Risks to growth
In terms of risk, the multilateral agency said significant uncertainty about the oil price path in the future and the underlying drivers of the price decline has added a new risk dimension to the global growth outlook.
On the upside, the boost to global demand created by lower oil prices could be greater than is currently factored into the WEO projections, especially in advanced economies.
However, it added that oil prices could also have overshot on the downside and could rebound earlier or more than expected if the supply response to lower prices is stronger than the WEO forecast.