The Market Monitor Minding the Nation's Business
Asian businesses will be challenged this year as a result of the impact of the worsening political situation in some European countries and China’s weakening economy, the outcome of the annual outlook and risk conference of a credit insurance firm indicated.
Atradius unveils insights for businesses in Asia to brace themselves against a tough year ahead, warning that political condition in Europe may start to impact the region along with other major risks associated with China’s economic stall.
“As the most dynamic region in the world today, Asia is well positioned to be the engine driver for economic growth. In fact it is, and Asia is leading the way,” John Lorié, Chief Economist, Atradius Credit Insurance N.V., stated during the conference.
“However, Asia’s strength is also dependent on the global market which means that turbulence in the West has the potential to dent the positive developments. A premature interest rate hike in the US could pose a risk,” Lorie said.
While the US is showing robust economic growth, the Eurozone has just started to post positive growth figures. “The impact on the Eurozone from Russia’s economic meltdown, which is due to international sanctions and the plummeting oil price, is expected to be limited,” Lorié continued.
“Lower oil prices, historically low interest rates, ample liquidity and a much lower Euro will significantly clear up the economic picture for the Eurozone in 2015 and onwards.
Asian countries, and particularly Singapore with its extremely open economy, are expected to benefit from these higher growth levels, as exports to the Eurozone and the United States may pick up.”
Petr Racek, Head of Risk, Southeast Asia, Atradius Credit Insurance N.V added that the political developments in Europe will also create a ripple effect in Southeast Asia’s main economies.
“We need to stay vigilant as each country has its specific risks, and at different points in time, there are some sectors that may develop to become riskier,” it noted.
“Currently, we are paying more attention to certain specific sectors such as commodities and bunkering as weaknesses are more apparent.”
According to Lorié, Asian economic growth levels however will stay ahead of the global pack.
“As Chinese growth is showing the long expected slowdown, ASEAN countries are expected to show healthy growth rates ranging between 3 percent and 6.5 percent in 2015. For Singapore, a healthy growth of 3 percent is expected, with export growth picking up,” he said.
Meanwhile, Indonesia is expected to post a somewhat higher growth at 5.3 percent underpinned by higher consumer spending. By the end of this year, these countries can also expect a further boost to their regional trade through the establishment of the ASEAN Economic Community 2015.”
The lower oil price provides a welcome stimulus as well. Atradius expects the oil price to recover only gradually to the lower end of the $60 per barrel Brent levels in 2015 and $75 in 2016.
As for the business environment, Atradius proprietary research suggests that insolvency levels, though forecasted to be lower, remain high in 2015, in the Eurozone and particularly in its periphery. US figures indeed show lower insolvency figures in 2015 compared to 2014. “
China may see an increase in insolvencies as economic growth slows. ASEAN countries’ insolvency levels are much lower and suggest a declining trend, with Singapore being no exception to that general picture,” Lorié closed.
Going forward, Atradius sees an urgency for enterprises to step up their risk prevention approaches to ensure business sustainability in these uncertain economic times, particularly in light of the upcoming ASEAN economic integration. “Change has been one of the most consistent features of Southeast Asia in recent history and the widely heralded creation and launch of the ASEAN Economic Community planned by the end of 2015 will provide further changes. It is expected to have far-reaching economic consequences, by significantly promoting ‘intra’ and ‘extra’ ASEAN trade and investment and by strengthening the global importance of the ASEAN as an economic bloc,” Racek said.