Falling rates to spur Asean spending

Real-interest rates across the region are falling, and this development is seen to spur countries in Southeast Asia, the Philippines included, to boost spending on assets and infrastructure, a globally recognized accounting body based in London said.

“Cheap money will allow countries in Asean to fund investments in public infrastructure, from transport links to education systems, while low returns in the financial markets are likely to prompt companies to invest in machinery, technology and skills instead,” the Institute of Chartered Accountants in England and Wales (Icaew) added.

Real-interest rates reflect the cost of money for those who need to borrow and the yield or return for lucky lenders after computing the corrosive impact of inflation.

They remain positive in the Philippines at present, no matter a recent decision of the Monetary Board to recalibrate 25 basis points lower the rate at which the Bangko Sentral ng Pilipinas (BSP) borrows from or lends to banks, BSP Deputy Governor Diwa C. Guinigundo said.

With real-interest rates falling in most parts of the world, governments and businesses were seen to hike their exposure in assets and infrastructure as a consequence, the Icaew said.

“With the availability of cheap money for Asean governments, we expect that public investment in needed infrastructure will increase this year,” according to Charles Davies, Icaew economic advisor and head of macroeconomics at the Center for Economics and Business Research (CEBR).

According to the CEBR, the average infrastructure-investment growth this year till 2014 is seen at 5.2 percent in Thailand, 8.1 percent in Vietnam, 9.1 percent in Indonesia and 6.8 percent in Malaysia.

Even Singapore, with the lowest infrastructure-investment growth in the region, should post a respectable 4.8-percent growth during the period.

Data from the World Bank show real-interest rates falling in the case of the Philippines from a high of 5.6 percent in 2009 to 3.3 percent in 2010 and only 2.3 percent last year.

Such rates have proved positive at 0.25 percent at present or enough compulsion for both borrowers and lenders to engage in productive economic activities as the effort still produces sufficient returns.

Since 2010, Malaysia has posted a negative real-interest rate environment, World Bank data also show.

The CEBR expressed apprehension over the continuing global slowdown arising from sovereign debt and banking uncertainties in Europe, the slowing down of emerging markets such as China and India as well as the tentative growth prospects of the Unites States.

“Singapore’s GDP [gross domestic product] has been downgraded substantially following the contraction of output in the second quarter, with an average growth of 2.2 percent expected in 2012 and a marginal increase to 2.5 percent in 2013.

“Countries such as Thailand, Malaysia, the Philippines and Indonesia remain positive, however, with domestic demand continuing to fuel growth. Nevertheless, falling commodity prices and the falling remittance from overseas citizens may impact on Indonesia and the Philippines, respectively,” the CEBR said.

“With the slowdown in international markets, the inherent weakness of an industrial sector geared toward global trade becomes more obvious. The more closely linked to Western markets, the more affected the Asean economy in question will be. However, the story of a developing Asean continues, and we expect Asean will weather the global uncertainty well as a bloc,” Mark Billington, regional director at ICAEW South East Asia, said.

Asean groups the Philippines, Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam. –JUN VALLECERA / REPORTER, Businessmirror