Southeast Asia Outlook 2023

SIGNS OF SLOWING INFLATION

SIGNS OF OPTIMISM COO L I N G I N F L AT I ON T H O U G H I N T E R E S T R AT E S MAY S TAY H I G H

Source: Moody’s Analytics, Cushman & Wakefield Research

While inflation has shot up across SEA in 2022, there are signs that inflation has peaked. Based on Consumer Price Index data, consumer prices across SEA have climbed at a much slower rate in the last quarter of 2022.

MONETARY POLICY RATES

EXPECTED INFLATION FOR 2023 (B)

EXCHANGE RATE VS USD YOY % CHG (DEC 22)

POLICY RATE (DEC 21)

POLICY RATE (DEC 22) (A)

REAL POLICY RATE (A-B)

COUNTRY

TYPE

Overnight Lending Rate

Inflationary pressures in SEA are expected to moderate in 2023 with a milder pace of US rate hikes in 2023, coupled with an unwinding of supply chain disruptions due to softening global consumer demand growth. However, higher consumption demand from China could lend strength to current inflation levels. Nonetheless, inflation could remain at heightened levels and there is scope for more interest hikes in SEA, albeit the pace of increase is expected to be slower. Thailand and Singapore forward-looking real policy rates remain in negative territory. A negative real policy rate could incentivise higher spending in the economy that further pushes up inflation. Also, the rapid rise of US interest rates in 2022, has fuelled a strong dollar leading to currency depreciation for SEA. Excluding Singapore, the

currency depreciation in SEA was about 7% to 13% in 2022. Continued currency depreciation would increase risks to economic stability, although most of SEA external debt levels relative to GDP remain far lower than historical levels. Negative real policy rates and continued currency depreciation would fuel further interest rate hikes. Nonetheless, we remain sanguine that the worst of interest rate hikes are over, and the upward interest rate trend is likely to be gradual. Also, a weaker currency could bolster exports and encourage higher foreign property investment. As the outlook on interest rates clears, we should see investment demand picking up towards 2024.

2.0%

5.2%

5.0%

0.2%

-13.0%

Philippines

Singapore

SORA - Overnight

0.2%

3.2%

5.0%

-1.8%

-1.5%

Central Bank Policy Rate

Indonesia

3.5%

5.5%

4.2%

1.3%

-9.1%

Central Bank Policy Rate

Thailand

0.5%

1.2%

3.0%

-1.8%

-7.5%

Refinancing Rate

Vietnam

4.0%

6.3%

3.3%

3.0%

-6.6%

Central Bank Rate

Malaysia

1.8%

2.8%

2.2%

0.6%

-8.4%

Source: Moody’s Analytics, Cushman & Wakefield Research

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