ASEAN Economic Forecast

Economic Snapshot for ASEAN

April 26, 2017

Economy maintains momentum at the start of 2017

Preliminary figures for the economy of the Association of Southeast Asian Nations (ASEAN) showed that activity remained firm at the start of 2017. The economy expanded 4.7% annually in Q1 2017, matching Q4 2016’s result. While the overall figure illustrates healthy growth, performance was mixed across the region’s different economies. In Singapore, growth eased from Q4’s two-year high amid a pullback in industrial activity, while GDP figures disappointed in Vietnam. In the latter case, activity lost wind as a new tax on natural resources and declining output from mature oil fields dented mining activity, and a disruption in smartphone supply chains weighed on manufacturing output.

Official GDP figures are still outstanding elsewhere in the region, but the available evidence suggests that growth picked up in Indonesia—the region’s largest economy. An improved global backdrop is helping to support exports, although government spending likely remains muted. A moderate acceleration is also seen in the Thai economy, while activity is seen steady in regional heavy-weight Malaysia. Overall, stronger external demand, a dynamic tourism sector and healthy macroeconomic fundamentals should support growth in the coming quarters and FocusEconomics panelists see GDP expanding 4.8% in Q2. 

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Growth forecast unchanged for second consecutive month

The outlook for the ASEAN region was held stable this month, with our panelists foreseeing a healthy GDP expansion of 4.8% this year. If confirmed, the result would be a moderate improvement from 2016’s 4.6% increase as a favorable external environment and solid domestic economy shore up momentum. In 2018, the ASEAN economy is seen gaining steam and growing 4.9%.

This month’s unchanged outlook reflects stable projections for Cambodia, Indonesia, Malaysia and the Philippines. Meanwhile, Vietnam’s growth prospects were downgraded, following a poorer-than-expected performance in Q1, as were forecasts for Brunei, Laos and Myanmar. Singapore and Thailand were the only economies to see upgrades this month.

Laos and Myanmar will be the region’s fastest growing economies this year, expanding 7.0% or higher. On the other side of the spectrum, the more mature economy of Singapore will grow the slowest, increasing 2.2%, as will Brunei. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.2%, followed by Malaysia with 4.4% growth. Thailand is seen growing a more moderate 3.3%.

INDONESIA | Momentum firms in Q1

The economy likely gained some steam at the start of the year, although official figures are still outstanding. Export growth surged in Q1 and the manufacturing PMI rose into expansionary territory in March. However, the pick-up is likely to be moderate as retail sales growth was lackluster in February and available evidence suggests that infrastructure spending is slow. Despite ambitious plans, the government has made feeble progress in ramping up investment in Indonesia, in part due to financing pressures, and contracting public spending took a toll on GDP figures for Q4 2016. In the political arena, unofficial counts suggest that the opposition candidate Anies Baswedan won the Jakarta gubernatorial election. While the result is a small blow for the government, the effects on economic policy are likely to be contained as Baswedan’s stance on key issues is similar to current governor and government candidate Basuki Purnama.

GDP growth should accelerate slightly this year thanks to a stronger global economic backdrop and a strong rebound in public spending. Our panel sees GDP expanding 5.2% in 2017, which is unchanged from last month’s forecast. In 2018, GDP growth is expected to pick up further to 5.4%.

THAILAND | Strong baht threatens exports

Thai policymakers are becoming increasingly worried about the strength of the baht, as it threatens to undermine the recovery in the country’s all-important external sector. Buoyant demand for Thai debt, a favorite among investors looking for high yields and relatively safe emerging market assets, has prompted demand for the currency to soar since the start of the year. In response, the Bank of Thailand has resorted to intervening in FX markets and has reduced its issuance of short-term bonds, which could however fall foul of U.S. officials seeking to brand Thailand as a currency manipulator. While exports rebounded in March, suggesting a degree of resilience to the robust baht, imports, conversely, did highlight the effect of a stronger currency and soared in both February and March. Further evidence for a pickup in domestic activity as Thai households started to pull their weight, with auto sales for the first two months of the year growing at a double-digit rate.

Government-led investment—particularly in infrastructure projects—, a gradual acceleration in global trade and improved sentiment linked to the recent royal endorsement of a new constitution are all expected to be supportive of growth going forward. FocusEconomics panelists project growth of 3.3% in 2017, which is up 0.1 percentage points from last month’s estimate. For 2018, the panel expects growth of 3.4%.

MALAYSIA | Higher oil prices to boost activity

The economy’s two-year slowdown—brought on by low oil prices and subdued global trade—likely bottomed out in 2016 and activity should make a small recovery this year. A pickup in global trade and an expected improvement in fixed investment as a result of higher oil prices should fuel Malaysia’s export-led economy. Adding to the good news, wages should rise this year as the government is implementing measures to bolster households’ incomes, which should translate into stronger private consumption. Leading economic indicators for Q1 already show signs of improvement: growth in industrial production accelerated in February, while exports grew at a double-digit pace in the first two months of this year.

Higher energy prices and a weak ringgit should support the Malaysian economy this year. Meanwhile, rising trade protectionism and a slowdown in China pose the main downside risks to the country’s outlook. FocusEconomics panelists expect GDP to expand 4.4% in 2017, which is unchanged from last month’s forecast. For 2018, the panel also foresees the economy growing 4.4%.  

INFLATION | Inflation steady at nearly two-year high in March

Preliminary data show that inflation in ASEAN came in at 2.9% in March, matching February’s result and the highest level since July 2015. Rising price pressures along with tightening U.S. monetary policy have limited room for central banks to ease monetary conditions, and policymakers across the region have left interest rates unchanged in recent weeks.

Our panelists see price pressures picking up in 2017, after tepid inflation of 2.1% last year. Our panel expects inflation to average 3.3% in 2017, which is up 0.1 percentage points from last month’s forecast, and 3.4% in 2018.

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Written by: Angela Bouzanis, Senior Economist

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