17 August 2018
Key events in Asia next week

Besides trade war noise, economic releases on GDP, manufacturing, and inflation will be the highlights of the Asian economic calendar in a shortened trading week 

Next round of US-China trade tariffs kicks off

First some good news. Latest media reports of trade negotiations resuming between the US and China by the end of August lift hopes of trade tension being averted. However, this comes as the US gets ready to implement the second round of tariffs on $16bn of Chinese goods. The kick-off date is set for next Thursday (23 August).

Markets should have taken the next batch of tariff implementation into their stride by now, but with the consultation for the next phase of tariffs already underway and set to be completed by early September, trade war concerns are unlikely to fade from being an overhang so soon - a small tweet-trigger by President Trump is enough to unsettle markets.

Indonesia: Are state budget and growth targets achievable?

President Jokowi's 2019 budget targets of 5.3% GDP growth and a fiscal deficit of -1.84% of GDP are indeed achievable in our view. But the assumption of a stronger Indonesian rupiah (IDR) is a reason for caution 

Assumptions for the targets are generally reasonable

President Jokowi’s budget for 2019 with GDP growth of 5.3% and a fiscal deficit at -1.84% of GDP looks attainable to us. The 2019 GDP target is in line with the current consensus forecast and lower than the initial proposal of 5.4% to 5.8%.

  • The projected moderate pace of economic activity takes into account the difficult external operating environment and includes more realistic expectations.
  • The 2019 budget also assumes a more realistic oil price assumption of $70/bl. This is in contrast to the quite optimistic initial 2018 oil price assumption of around $40-$50/bl. The current average oil price is around $65-70/bl. With a more realistic oil assumption, the fiscal challenge of 2018 of increasing the energy subsidy could be minimised in 2019.

There is reason to think that the performance of the government in 2019 will not deviate much from the proposed 2019 fiscal deficit of -1.84% of GDP.

  • The 2019 budget proposal estimates that revenues will increase by 12.6%, which would support 10% expenditure growth. Recent government performance supports this target.
  • The government’s seven-month 2018 fiscal performance of -1.02% deficit to GDP is below the operating 2018 fiscal deficit target of 2.12%. Government revenues for the seven month period increased due to a 23% rise in non-tax revenue collection and a 16% increase in the collection of customs and excise tax. 
  • A cause for concern is the possible IDR assumption of IDR14400, which is around 1.6% stronger than current levels. This could be difficult unless the government and central bank are successful in reducing the current account deficit from -3% of GDP in 2Q to closer to -2.5% of GDP. The consensus forecast is -2.3% of GDP in 2019. A deteriorating current account deficit would keep the IDR on the defensive in 2019 and thus could frustrate economic planners.
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Good MornING Asia - 17 August 2018

The unpredictability of the Trump administration's policies is a reason in itself not to take positions

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