Singapore and Malaysia are two of the most important economies in South East Asia. Measured by Gross Domestic Product (GDP), Malaysia is the 36th largest economy in the world, whilst Singapore is the 39th largest. But what is the current outlook for the economies and their banking sectors?
We take a brief look at their economic outlook and consider what is driving the performance of the banking sectors in both countries. We consider the impact of important macroeconomic factors including global issues and compare the two countries on economic fundamentals. We also delve into more country specific issues, such as the impact of Shariah law, the outlook of credit ratings agencies and how these are affecting economic performance.
MACROECONOMIC IMPACT – Slowdown in China
The economic restructuring and subsequent slowdown in China has been impacting significantly on global market, with Emerging Asian economies so closely tied to the prospects of Chinese growth, this has created some significant issues. The prospect of a “hard landing” in China is still a major concern for economic growth in the region and one which could have a negative impact on its banks.
China is currently undergoing a massive economic re-structuring away from the high growth, high investment, export driven, capital intensive economy; towards a lower growth, more sustainable, consumption driven economic model. Having seen several years of double digit economic growth, GDP expansion is slowing. As recently as 2010, Chinese growth was up around 12%, however, annual GDP growth is set to fall below 7% this year and in Q2 was back to 6.7%.
Current expectations are that China will manage to avoid a hard landing (seen as a drop back to near zero growth). As a comparison, Japan and South Korea have previously been on similar paths of rapid growth and subsequent slowdown. Both were achieving almost double digit growth during highly industrialized periods before …