ASEAN+3 Faces Challenges From Inflation Resurgence And Geopolitical Uncertainty -- AMRO

SINGAPORE, Oct 10 (Bernama) -- ASEAN+3 economies should, in the near term, remain vigilant against the risks associated with a resurgence in inflation, escalating geopolitical tensions, and a global growth slowdown, which could challenge the resilience of the region's financial system.

ASEAN+3 Macroeconomic Research Office (AMRO) chief economist Khor Hoe Ee said given the increased interconnectedness of financial systems, continuous monitoring of international spillovers is essential, along with strengthening ASEAN+3-centric surveillance and cooperation.

“This includes enhancing cross-border surveillance, data sharing, regional stress testing, home-host supervision, and liquidity support to manage and mitigate potential spillover risks effectively,” he said in AMRO's ASEAN+3 Financial Stability Report (AFSR 2024) foreword, launched today.

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In addition, Khor said measures to stabilise the property sector should be implemented to prevent fundamentally sound companies from defaulting due to tight credit conditions driven by a worsening market, while also enhancing the resilience of financial institutions, particularly smaller banks and non-bank financial intermediaries (NBFIs).

Meanwhile, to improve resilience against external shocks within the dollar-reliant environment, ASEAN+3 should reinforce their economic and financial fundamentals, strengthen surveillance frameworks for monitoring US dollar liquidity conditions, bolster macroprudential frameworks for banks and NBFIs, and provide financing support to member economies facing US dollar liquidity stresses.

Khor suggested that reducing structural reliance on the US dollar in the medium to long term by promoting the use of local currencies and developing cross-currency payment systems should be a key priority.

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“To tackle the near to long-term risks and challenges to ASEAN+3’s financial stability, the region must come together as one and strive for resilience and stability,” he added.

Khor noted that, overall, the risk to financial stability across ASEAN+3 in 2024 appears lower than in 2023, offering authorities a chance to rebuild policy space while remaining vigilant to emerging risks.

He observed that the current environment of robust growth and disinflation presents an opportunity for authorities in the region to reduce debt and enhance fiscal capacity to manage potential shocks.

“Rebuilding foreign exchange reserves during periods of capital inflows can further boost market confidence and provide buffers against extreme market volatility,” he added.

The AFSR 2024 report stated that since December 2023, financial risks in the ASEAN+3 region have evolved. While some risks, such as high inflation, have subsided, others, such as geopolitical tensions, have intensified.

The geopolitical situation in the Middle East remains fragile, and the outcome of the upcoming US presidential election is a major source of uncertainty for financial markets.

“Depending on who wins the election, there will be implications for the region next year, for sure,” Khor said in a press conference during the report’s launch, noting that a Donald Trump presidency would have a more consequential impact on the region.

Regarding the US-China tension, he stated that the region has managed the situation well, positioning itself as a connector between the two and attracting significant investment, such as in Malaysia, which has drawn many electronic factories.

“And this is the problem for many policymakers because it depends on who wins the election, what happens in the Middle East, and how severe the tension between the US and China becomes,” he added.

-- BERNAMA