Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>Although the fiscal deficit declined to 1.6% of GDP in 2023, markets are pricing in risks arising from President-elect Prabowo's possible resort to fiscal profligacy in pursuit of 8% growth. </li>
<li>More tangibly, with exports declining 7.5%YoY and imports up 1.1%YoY in Q1CY24, the trade surplus shrank to US$7.3bn (from Q1CY23's US$12.11bn), likely widening the CAD (from Q4CY23's 0.4% of GDP).   </li>
<li>With IDR depreciating 9.3%YoY, BI hiked its policy rate by 25bp last week to pre-empt imported inflation. Another rate hike is likely before Oct'24, so we would Underweight Indonesia. </li>
</ul>


Although the fiscal deficit declined to 1.6% of GDP in 2023, markets are pricing in risks arising from President-elect Prabowo's possible resort to fiscal profligacy in pursuit of 8% growth. 
More tangibly, with exports declining 7.5%YoY and imports up 1.1%YoY in Q1CY24, the trade surplus shrank to US$7.3bn (from Q1CY23's US$12.11bn), likely widening the CAD (from Q4CY23's 0.4% of GDP).   
With IDR depreciating 9.3%YoY, BI hiked its policy rate by 25bp last week to pre-empt imported inflation. Another rate hike is likely before Oct'24, so we would Underweight Indonesia. 


Indonesia: Prabowo Risk Beginning to Hurt IDR, Requiring Tighter Money

<ul>
<li>The 'trade recession' of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). </li>
<li>Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. </li>
<li>MoM gains in core PCE were lower than core CPI in Feb'24, and likely will be in Mar'24 also, allowing a glide to lower core-PCE inflation and Jul'24 rate cut. </li>
</ul>


The 'trade recession' of 2023 is over, and the OECD CLI suggests global trade should grow 4.5% this year, after just 0.4% growth in 2023 (akin to global trade recession). 
Despite a hot job market (unemployment rate below NAIRU for 3 years), record illegal and legal immigration (and their higher working-age proportion) are keeping US wage growth relatively in check. 
MoM gains in core PCE were lower than core CPI in Feb'24, and likely will be in Mar'24 also, allowing a glide to lower core-PCE inflation and Jul'24 rate cut. 


US Benign This Year: Trade Recession Over, but Rates Still Likely to Decline

<ul>
<li>The exceptional Covid-induced monetary and fiscal stimulus is being wound down, but not fast enough. Fiscal deficits averaged 10% of GDP for 4 years, far larger and longer than 2009-11.  </li>
<li>QT was abandoned in Jul'23, and M2 has contracted at a modest pace. Upside growth surprises are thus likely to continue, and will require Q2CY24 M2 to decline more sharply. </li>
<li>Once core CPE inflation abates below 2.5%YoY (likely Jun'24) the first 25bp rate cut will occur at the Jul'24 FOMC, then similar cuts in Sep'24 and Dec'24. Benign for markets. </li>
</ul>


The exceptional Covid-induced monetary and fiscal stimulus is being wound down, but not fast enough. Fiscal deficits averaged 10% of GDP for 4 years, far larger and longer than 2009-11.  
QT was abandoned in Jul'23, and M2 has contracted at a modest pace. Upside growth surprises are thus likely to continue, and will require Q2CY24 M2 to decline more sharply. 
Once core CPE inflation abates below 2.5%YoY (likely Jun'24) the first 25bp rate cut will occur at the Jul'24 FOMC, then similar cuts in Sep'24 and Dec'24. Benign for markets. 


Rate-Cutting Agenda Stays, Growth Buoyed by Massive Fiscal Stimulus

<ul>
<li>Merchandise exports grew 11.9%YoY in Feb'24 (+7.5%YoY in Jan-Feb'24) amid a broad-based rebound in engineering, pharma, chemical, electronic exports. With exports outpacing imports, the merchandise deficit declined 8.2%YoY in Apr'23-Feb'24. </li>
<li>Services exports are robust, with many hitherto-imported services also moving onshore. The services trade surplus widened 20%YoY in Apr'23-Jan'24, likely enabling the FY24 CAD to shrink to 0.6% of GDP.</li>
<li>With goods exports set to accelerate, and crude oil prices relatively tame, we expect the current account to swing to a surplus in CY24 (and +0.5% of GDP in FY25). </li>
</ul>


Merchandise exports grew 11.9%YoY in Feb'24 (+7.5%YoY in Jan-Feb'24) amid a broad-based rebound in engineering, pharma, chemical, electronic exports. With exports outpacing imports, the merchandise deficit declined 8.2%YoY in Apr'23-Feb'24. 
Services exports are robust, with many hitherto-imported services also moving onshore. The services trade surplus widened 20%YoY in Apr'23-Jan'24, likely enabling the FY24 CAD to shrink to 0.6% of GDP.
With goods exports set to accelerate, and crude oil prices relatively tame, we expect the current account to swing to a surplus in CY24 (and +0.5% of GDP in FY25). 


India: Merchandise and Services Both Help Toward a CA Surplus in CY24

<ul>
<li>PBoC's 25bp LPR and 50bp RRR cuts in Feb'24 are likely to prove ineffective palliatives to deal with the massive overhang of unsold real-estate across China. </li>
<li>Challenge manifests in urban vacancy rates of 20% (&gt;twice Japan's at its bubble peak), real and potential liquidations of Evergrande and Country Garden, and bankruptcy of Zhongzhi shadow-banking group. </li>
<li>3% FAI growth underpinned 5.2% RGDP growth in 2023 despite low base. RGDP growth in 2024 will be 4%, and less in the medium-term as FAI and non-Russia exports stagnate.  </li>
</ul>


PBoC's 25bp LPR and 50bp RRR cuts in Feb'24 are likely to prove ineffective palliatives to deal with the massive overhang of unsold real-estate across China. 
Challenge manifests in urban vacancy rates of 20% (&gt;twice Japan's at its bubble peak), real and potential liquidations of Evergrande and Country Garden, and bankruptcy of Zhongzhi shadow-banking group. 
3% FAI growth underpinned 5.2% RGDP growth in 2023 despite low base. RGDP growth in 2024 will be 4%, and less in the medium-term as FAI and non-Russia exports stagnate.  


China's Growth Constrained by Crisis of Industrial & RE Over-Capacity

PK Basu has 34 years experience covering Asia's economies and markets (equities, fixed income and currencies), including 20 years covering the global economy. He was Chief Economist (SE Asia & India) at Credit Suisse First Boston for 5 years, and Chief Asia (x-Jpn) Economist at Daiwa Securities for a similar period. Among other roles, he was global head of research at Maybank Kim Eng, Malaysia equity research head and chief ASEAN economist at Macquarie, ASEAN economist at UBS and the first chief economist at Khazanah Nasional (where he was co-head of research, and led all agri-business initiatives). PK Basu started his career in the Asia Service of WEFA (Wharton Econometrics) in Philadelphia in 1990, rising to be Director of their Asia Service in June 1994. 
PK's book, "Asia Reborn: A continent rises from the ravages of Colonialism and War to a New Dynamism" won the Tata Literature First Book Award (non-fiction) for 2018. It is the first single chronicle of the modern economic and political history of the whole of Asia (from Iraq and Turkey to Korea and Japan, and everything in between), told from an Asian perspective.