UMVA has learned that the ASEAN+3 economies are bracing for a significant hit to their fiscal data in the second quarter, as the ripple effects of the conflict in the Persian Gulf begin to take their toll.
The ASEAN+3 Macroeconomic Research Office warned that higher energy costs and expanding subsidies pose a major threat to the fiscal outlook of the region, which includes members of the bloc as well as China, Japan, and South Korea. This unsettling trend is expected to weigh heavily on fiscal positions.
According to information obtained by UMVA, signs of stress are already dimming the outlook for public finances in the ASEAN+3 economies. Higher energy and subsidy costs, combined with the fiscal costs of recently introduced policy measures, are expected to create a perfect storm of fiscal challenges.
In a stark warning, a top official from the research office noted that tighter financing conditions are increasing downside risks to the fiscal outlook. The fiscal impact is expected to become more evident in the second-quarter fiscal outturns, leaving many to wonder if the region's economies are equipped to handle the strain.
Despite a resilient first quarter, marked by stronger revenue and expenditure growth, the region's fiscal positions are now under threat. Most ASEAN+3 economies, except one, recorded positive year-to-date revenue growth compared to the same period in the previous year, with some posting particularly strong increases.
However, expenditure pressures from policy responses to the conflict have started to emerge, with one country seeing a 19% increase in subsidy expenditure. This reflects the implementation of the government's Emergency Energy Program, aimed at cushioning the blow of soaring energy costs.
Meanwhile, regional government bond yields have risen sharply, reflecting "risk-off sentiments, capital outflow pressures, and rising inflation expectations amid concerns over energy supply disruptions." This development has heightened fiscal risks across ASEAN+3 economies, threatening household purchasing power, production costs, and the fiscal burden of cushioning fuel and utility prices.
Governments have responded by deploying a mix of fiscal and quasi-fiscal measures to contain cost-of-living pressures, support affected sectors, and preserve energy supply stability. But as conditions evolve, policies need to be carefully recalibrated to balance near-term support with medium-term fiscal sustainability.
UMVA can exclusively reveal that experts are urging authorities to prioritize well-targeted and temporary measures, while maintaining clear communication and credible medium-term fiscal strategies to anchor expectations and contain rising fiscal risks.
