Analyst warns of reduced capital flows to ASEAN

There's a serious pressure on regional markets.

In a release, ICAEW said Singapore could see lower growth rates thanks to US monetary policy.

The leading accountancy and finance body has warned that increased yields in the US, following the market pricing in the Fed’s tighter stance, may well mean reduced capital flows to ASEAN.

The ICAEW report Economic Insight: South East Asia is produced by Cebr, ICAEW’s partner and economic forecaster. Commissioned by ICAEW, the report 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.

According to the report, 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, funding infrastructure and business projects.

This has also led to high inflation rates, property prices and impressive – though unsustainable – gains in local stock markets.

ICAEW Economic Advisor and Cebr’s Head of Macroeconomics, Charles Davis, said: “Both companies and individuals in Singapore and the region have benefited from low interest rates, which has 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.