Brief Macro: FLASH: UK PMIs Overstate Sour Start to 2019 and more

In this briefing:

1. FLASH: UK PMIs Overstate Sour Start to 2019
2. India Union Budget FY20: Electoral Compulsions Visible but Not Completely Overboard!!
3. Indonesia’s Negative Investment List – “Open For Business” Is Lip-Service Only

1. FLASH: UK PMIs Overstate Sour Start to 2019

• The UK PMIs all fell toward 50 in Jan-19, with the services survey’s 50.1 print over two standard deviations below its post-referendum
• PMI-based estimates of the ONS services data have been biased to overstate the effect of political uncertainty, so 2019 probably started less sour than suggested.
• I still expect 0.0% m-o-m GDP growth in Dec-18 and 0.3% q-o-q for 4Q18. Growth in 1Q19 may undershoot my 0.4% q-o-q forecast, but should easily exceed the PMIs.

2. India Union Budget FY20: Electoral Compulsions Visible but Not Completely Overboard!!

Expected Election Budget

The Indian Union Budget FY20 announced last week in the run-up to General Elections in May 2019 was without a doubt, a populist budget. It has directly touched the two key vote banks in India i.e. Middle Class and the Farmers. While a welfare announcement for farmers was expected due to significant distress in the rural hinterland, the tax sops given to the middle class was an unexpected surprise to take care of a growing disenchantment of this particular section considered to be a strong supporter of the ruling party.

Within acceptable fiscal imprudence

Despite being a populist budget with a slew of welfare handouts, the Government continued its commitment on fiscal prudence as the slippages are marginal. Even the assumptions in the budget don’t seem very aggressive albeit some of them might be difficult to achieve.

Consumption boost amid flagging economic growth

We believe that the income support scheme to the farmers and the tax sops to the middle class may eventually drive consumption and that may also benefit the government through indirect taxes. However, on the flip side these welfare schemes have come at the cost of capital expenditure that may derail the high growth that was witnessed in the manufacturing sector in recent times.

Our verdict: A one-off

The Modi government over the last four odd years has implemented and introduced a number of programs, interventions which we believe will go a long way in boosting the productivity of the Indian economy structurally. Notable ones were in health, infrastructure, financial inclusion, pension and social security.  Since all these measures are more long term in nature and might not have an immediate impact on the electorate, this interim budget is a departure in a sense, aimed to enhance the government’s chance of a 2nd term. Therefore, we think this budget is a one-off event and believe that this government’s focus on productivity enhancements and structural reforms may continue going forward if re-elected. As it is, all the fiscal assumptions will be revisited in July, but the current estimates we believe are not too far off the mark.

Will the voter be enthused, that’s anybody’s guess.

We look at some of the key points in detail

3. Indonesia’s Negative Investment List – “Open For Business” Is Lip-Service Only

First of all, Kung Hei Fat Choy and Saang Tai Gin Hon in the Year of the Earth Pig! As equity markets in Asia mostly take a break today we turn our attention to Indonesia.

When President Joko Widodo (Jokowi) took office in 2014 one of the first speeches he made to a foreign audience contained the claim that Indonesia was “open for business”. Fast-forward four years to December 2018 and the government’s announcement that its Negative Investment List (NIL) was being revised and that 54 sectors were to be opened to foreign investment. The president sticking to his word? Well, no. That policy lasted less than seven days – the list of sectors wasn’t even published – before the announcement came that it was under review. Cabinet ministers were scrapping with each other, private sector businesses were unhappy and Indonesia’s proclivity to retreat into its nationalist shell was on full show once again.