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Times are tough when you’re wrestling with Covid-19, recession — and a rapidly recovering America. The US offers superior rates of growth, a prospect once considered outlandish, and a bullish prognosis on vaccinations. Emerging economies in Southeast Asia are naked. They should also be afraid.
The US economy is roaring back from 2020’s debacle. Unlike Donald Trump’s foundering response to the health and economic crises, Joe Biden is being likened to the second coming of Franklin D Roosevelt and the Federal Reserve is credited with staving off a global financial collapse. Once, emerging markets were more enticing, with a galloping pace of growth to offset shortcomings in skills, health and corporate governance. Now, they’ve lost their head of steam.
This shift has major implications for how countries like Indonesia, Malaysia, Thailand and Vietnam manage the next few years. Sub-par growth with little inflation would normally be a recipe for a fresh reduction in interest rates and a dramatic increase in government spending. Yet monetary policy appears stubbornly on hold after significant easing last year. The US comeback creates a problem. With the Fed likely to deliberate over coming months on how and when to withdraw stimulus, emerging markets risk being left exposed to capital flight should they move in the opposite direction. It’s one thing to keep alongside the Fed; you’re likely to pay little price. It’s quite another to head the other way and effectively try fighting it.
The US is expected to hit more than 7% growth this year, the best result since 1984. Yet Indonesia’s economy, the largest in Southeast Asia, contracted more than anticipated in the first quarter, with gross domestic product declining 0.7% from a year earlier, the fourth consecutive dip.
—Bloomberg