US Monetary Policy Tempers Growth

Manila Bulletin, September 5, 2013 | Go to article overview

US Monetary Policy Tempers Growth


Tighter US monetary policy is expected to temper economic growth in the Philippines as this would mean reduced capital flows to ASEAN countries, a report warned.

The latest report "Economic Insight: South East Asia" by accountancy and finance body ICAEW stated that while strong growth in consumption and government spending will drive GDP up by 5.3% in 2013 and even higher in 2014, the annual growth in loans throughout the region is expected to fall from 2012 to 2015.

"Cheap money from the Fed's exceptionally loose monetary policies has previously helped companies and governments to borrow easily. This has also led to high inflation rates, property prices and impressive - though unsustainable - gains in local stock markets," the report said.

The ICAEW report Insight: South East Asia produced by its economic forecaster partner Cebr, provides its 140,000 members with a current snapshot of the region's economic performance. The report undertakes a quarterly review of South East Asian economies, with a focus on the five largest countries; Indonesia, Malaysia, the Philippines, Singapore and Thailand.

ICAEW Economic Advisor and Cebr's Head of Macroeconomics, Charles Davis, said: "Both companies and individuals in Philippines and the region have benefited from low interest rates, which have fuelled consumption and borrowing against future income. We are likely to see this gradually change as the US economy recovers and the Fed looks for an exit strategy from its very loose monetary policy stance. Consumers, businesses and governments will all now have to adjust to a period where loan availability drops and where the cost of borrowing money increases. However we believe that this will pick up again in 2015 as investor capital returns to seek advantage of opportunities for growth."

The slowdown in capital inflow is acting as a serious pressure on regional markets. However a return to the Asian financial crisis conditions - where investors believe that ASEAN currencies will continue to depreciate more than previously anticipated - is not expected.

According to Davis, currency movements suggest that there is already an element of wariness among investors, with ASEAN currencies depreciating across the board from their 2011 highs. …

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