| Azlan Othman |
BRUNEI Darussalam is rated as one of the improving economies in the Association of Southeast Asian Nations (ASEAN) region in the next two years, along with Indonesia, Laos, Myanmar and the Philippines, according to a report released by the ASEAN+3 Macroeconomic Research Office (AMRO) in Manila, Philippines on Thursday.
Revealing the regional economic outlook for the region, AMRO’s ‘ASEAN+3 Regional Economic Outlook (AERO) 2018’ report said that the Sultanate is projected to post the strongest gross domestic product (GDP) growth, which almost tripled from 0.6 per cent in 2017 to 1.6 per cent in 2018 and is expected to double to 3.4 per cent in 2019.
ASEAN+3 includes 10 ASEAN economies and three other large economies – China, Japan and South Korea.
Last Saturday, the Department of Economic Planning and Development (JPKE) said Brunei’s economy grew by 1.3 per cent in 2017 after a 2.5 per cent decline in 2016. The overall growth was achieved after the GDP in the fourth quarter (Q4) of 2017 expanded by 5.2 per cent year-on-year (y-o-y).
On Brunei’s economy, AMRO said after four years of contraction, the economy showed signs of improvement, driven by a recovery in the oil and gas sector and an expansion in investment. Between 2013 and 2016, the economy contracted as oil prices plummeted to their lowest level in a decade and oil production suffered from unexpected disruptions.
Since the second quarter of 2017, growth has improved on the back of higher oil and gas production and expanding private investment. A moderate recovery in oil and gas prices and further progress of major infrastructure and foreign direct investment (FDI) construction projects are expected to contribute to positive GDP growth of 0.6 and 1.6 per cent in 2017 and 2018, respectively.
On the external side, the trade balance remained in surplus but it is expected to continue to shrink due to a sharp import recovery on the back of the progress in major infrastructure and FDI construction projects due to the implementation of the two large scale construction projects – the Temburong Bridge Project and the Hengyi Oil Refinery and Petrochemical Plant Project.
Given that the services and secondary income accounts remained in deficit, the current account surplus is projected to continue to decline.
Nevertheless, it is expected to improve from 2019 onwards as the downstream industries begin their commercial production and exports.
Banks continued to be sound but some challenges remained.
The banking sector continued to be well buffered. The capital adequacy ratio and the liquidity ratio stood well above the minimum requirements.
However, bank intermediation remained limited as reflected by the low and declining loans-to-deposit ratio (LDR) against the backdrop of decelerating loans growth to the private sector.
To address this issue, the AMBD has implemented some initiatives to spur credit growth through the increase of personal financing cap from 40 per cent to 60 per cent and increasing the total debt service ratio (TDSR) from 60 per cent to a maximum of 70 per cent since 2016.
Looking ahead, AMRO said, the Sultanate’s high reliance on oil and gas-related factors will continue to pose risks to the economy and the fiscal sector. There are two main risks related to the oil and gas sector – unexpected disruption in production due to ageing oil fields and unfavourable global oil and gas prices in the medium term.
Brunei’s economic growth and the fiscal sector are highly dependent on oil and gas production and global energy prices. As the government sector has a very significant role in the economy with government consumption and investment accounting for more than 30 per cent of the GDP. A further decline in oil and gas-related revenue may significantly limit the government’s capacity to support growth.
Meanwhile, the ASEAN+3 economies are projected to grow at a slower pace in the next two years, reducing the region’s overall growth rate.
Seven of the 13 economies that are predicted to grow more slowly in the next two years include the four East Asia economies besides Thailand, Singapore and Malaysia, the leading economies in the ASEAN region.
The GDP growth rates for these economies range from 1.3 per cent to 6.6 per cent in 2018 and from 0.7 per cent to 6.4 per cent in 2019.
Among them, China is seen as the strongest growing economy while Japan is considered the weakest as AMRO slashes its growth forecast from 1.3 per cent in 2018 to 0.7 per cent in 2019.
AMRO predicts the GDP growth of the ASEAN+3 block to reach 5.4 per cent in 2018, down 0.2 percentage points from 2017.
Two economies that may be steady in the next two years are Vietnam and Cambodia, whose GDP growth may remain stable at 6.8 per cent and 6.6 per cent respectively.
Therefore, the region’s overall GDP growth is projected at 5.4 per cent in 2018 and 5.2 per cent in 2019, “underpinned by resilient domestic demand and export growth with stable inflation,” the AERO 2018 report said.
“Most regional economies are in their mid-business cycle, where growth is picking up with a small output gap close to zero and stable inflation,” AMRO said, as credit has started slowing down in some of the regional economies after a period of “above-trend growth, partly reflecting the result of proactive policy action by authorities”.
According to AMRO, risks confronting the region are mainly external, with near-term ones being the escalation of global trade tensions, faster-than-expected tightening in global financial conditions, escalation of regional geopolitical risks and weaker growth in the G3 (the US, Japan and the EU), while medium-term risk is the sharper-than-expected slowdown in China’s growth and capital flight.
These risks can also have high impacts on regional economic growth in future. In addition to this, the region can face perennial risks that lie in cyber-security attacks and climate change.
“If these risks materialise, there will be spillovers to the region through capital outflows, higher borrowing costs and lower trade and investment flows,” AMRO said.
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