Domestic economy remains stable despite global concern on inflation

Domestic economy is expected to remain steady this year despite the relatively higher inflation averaging at 3.3 per cent in the first quarter of 2022, said the managing director of Brunei Darussalam Central Bank (BDCB).

The positive prediction was based on higher government revenue from elevated oil prices, further relaxation of COVID-19 restrictions, and several ongoing Foreign Direct Investment (FDI) projects.

Hajah Rokiah Haji Badar in her remarks at the recent Global Research Briefing hosted by Standard Chartered Brunei said that many local businesses interviewed in the monthly Business Sentiment Index (BSI) survey shared their concerns regarding rising operational costs stemming from more expensive raw materials, high transportation and logistics costs that erode their profit margins.

“Though the overall inflation is rising at a relatively more manageable pace compared to many major economies around the world, businesses and households alike here have had to adjust their costing and spending patterns significantly,” she said.

The managing director reiterated forecasted data from the Department of Economic Planning and Statistics (DEPS), Ministry of Finance and Economy that the sultanate’s gross domestic product growth to be within the range of 0.4 to 0.8 per cent in 2022, after seeing a 1.6 per cent contraction in 2021.

She added that the non-oil and gas sector is expected to be the primary growth driver contributing between 6.3 to 7.0 per cent while the Oil and Gas sector contribution is expected to decline by about 5.2 per cent.

Noting that inflation is a global concern, Hajah Rokiah further said that many central banks around the world have begun tightening monetary policy while being mindful of the possibility and potential consequences of economic recession which could derail the post-pandemic recovery in many economies, as well as additional risk to highly leveraged corporates and households.

Image: Iqbal Dato Selamat

“The Managing Director of the International Monetary Fund (IMF) had recently described business conditions in the last three months to the risk of a global economic recession is on the rise,” she continued.

She added: “Many of us have heard that the tipping point is certainly near. There are heightened concerns that the confluence of numerous downside risks could tip some countries into recession in the near to medium-term.”

Hajah Rokiah also said that the IMF has revised its global growth forecast for the third time this year from 3.6 per cent to 3.2 per cent for 2022 and from 3.6 per cent to 2.9 per cent for 2023, reflecting the impact of, among other factors, rising inflation, aggressive interest rate hikes by central banks, a slowdown in global economic growth and sanctions against Russia.

“The financial markets are not spared from these impacts. We are also facing a unique situation as we observed that the typical negative correlation between equity and bond markets no longer hold,” she said, adding that both the bond and equity markets are indeed heavily affected by the rising global inflation.

Moreover, touching on cryptocurrencies and stablecoins, the managing director said that there is a market meltdown for the digital currencies which pushed global financial regulators to call for tighter oversight of such virtual assets, with concerns about the extreme volatility and vulnerabilities that could impact other assets.

“While the use of cryptocurrencies and stablecoins is not yet prevalent domestically, BDCB foresees this to be a potential risk area and is also working on putting in place the necessary frameworks to bring such crypto assets into its regulatory fold and to address such harms,” continued the managing director.

She continued: “Alhamdulillah, His Majesty The Sultan and Yang Di-Pertuan of Brunei Darussalam and digitalisation initiatives as outlined in the Economic Blueprint and the Digital Economy Masterplan are well underway to support future economic developments that will spur sustainable growth in the country.”

Image: Iqbal Dato Selamat

The managing director is hopeful that BDCB continues to further develop and diversify the financial services sector that will serve as a catalyst to economic growth.

Through the strategies chartered, the central bank aspires to create a conducive environment strategies chartered in the Financial Sector Blueprint and Digital Payment Roadmap, cultivating the growth of a dynamic and diversified financial services sector equipped with the ability to withstand shocks and vulnerabilities.

BDCB has also strengthened its regulatory frameworks, she added, and putting in place important prudential safeguards, noting that financial Institutions are more robust and continue to be safe and sound for the past two years.

On his part, Chief Executive Officer of Standard Chartered Bank Brunei Pg Aki Ismasufian Pg Hj Ibrahim in his welcoming address at the briefing said that the external environment is likely to remain difficult to predict but the region’s long-term fundamentals are indisputable.

“Standard Chartered has a unique franchise in Asia, spanning three economic engines of China, ASEAN and India, supported by our two strong international financial hubs in Hong Kong and Singapore, making our strategic position second to none,” he said.

The bank is always ready to support its clients to capture the structural trends of global supply chain shifts, growing intra-Asian flows, rising affluence, sustainable financing, and innovation needs, as well as China’s financial opening, concluded Pg Aki.

Image: Iqbal Dato Selamat

The global research briefing was attended by the bank’s corporate clients and stakeholders where senior economists from its global network shared their outlook and insights on the year ahead.

In the morning conference, a presentation was delivered by Chief Economist ASEAN and South Asia Edward Lee and Head of Asia FX Research Divya Devesh sharing viewpoints on the global and Brunei’s economic outlook for the year as well as discussing strategies for the business current climate.
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