Beware ASEAN’s Coming Economic Gloom

Regional economic prospects are dimming in Southeast Asia, with unemployment expected to rise and increasing concerns over job security preoccupying many – with Malaysians in particular being hard hit – a survey by the Financial Times has found.

The survey of jobseekers by the FT Confidential Research found that unemployment was expected to rise in ASEAN after significant job losses were recorded last year as the economy turned.

It surveyed 5,000 people – one thousand each from Indonesia, Malaysia, the Philippines, Thailand and Vietnam – ASEAN’s five major economies in terms of population and financial clout.

It also found that more than half of respondents were “finding it either hard or very hard to land a new job.”

About two-thirds of the people surveyed in Malaysia, where the oil and gas sector and the aviation industry have been prominently shedding jobs, described the employment market as tough.

Despite this and a major contraction in lending, Prime Minister Najib Razak has insisted that Malaysia still performs “pretty well.”

His tenure has been blighted by corruption scandals amid calls for his resignation and the release of opposition leader Anwar Ibrahim who won the popular vote at the last election in 2013 but lost on a seat count. Anwar was subsequently jailed.

Like most regional leaders, Najib has a tendency to blame China for the economic issues at home as opposed to focusing on the fiscal and monetary policies initiated by his own government that underpins his country’s economic future.

As an indicator for what might happen next, the FT findings were not good given that the crisis in China is still unfolding. There is always a lag between an economic event and its full impact on the broader economy.

As a rule of thumb, it can take anywhere up to 18 months for a simple interest rate hike to make its way through an entire economy. The impact of increased government spending or spending cuts can take just as long to take effect.

That’s a major headache for central bankers when weighing-up the short, medium and long term prospects for an economy in its decision-making process.

The Chinese economy began its descent on August 11, with a two percent devaluation of its currency, the renminbi, which astonished the world. Like an interest rate hike, that decision, along with all the monetary and fiscal policy adjustments made since then, are still to work their way through the regional and global economies.

Other countries were also forced to follow suit and devalue their currencies. Then, resource prices collapsed as the Chinese stock market began an uncontrollable slide which has gone global and spread from mining companies and commodities to banks and finance houses.

Importantly, another survey by The Economist found about $1 trillion, at an annualized rate, had been taken out of China in the last six months of last year. That’s an enormous figure and one Beijing can ill-afford to let continue.

Chinese debt stands at about $27 trillion, and its GDP at about $10 trillion. Do the math. Add a recent interest rate hike in the United States and a fall into negative interest rate territory in Japan to the mix and the economic landscape that emerges is as unique as it is telling.

ASEAN governments have spent decades crafting their reliance on the Chinese economy, with a strategic relationship shaped by geography and exports into China that achieved double digit growth for the last two decades.

That growth has ended, the outlook for Southeast Asia is intimidating and the latest surveys contain just a hint of what’s probably to come.