ASEAN Economic Forecast

Economic Snapshot for ASEAN

February 22, 2017

Economic activity strengthens in Q4 2016

Economic dynamics strengthened in the Association of Southeast Asian Nations (ASEAN) in the final quarter of 2016, according to a more complete set of data. Regional GDP expanded 4.8% annually, a notch up from Q3’s 4.7% increase and the preliminary estimate reported last month. Growth for the whole year came in at 4.8% in 2016, the strongest reading since 2013, despite a tumultuous second half of the year for global financial markets. 

The fourth quarter’s slight pick-up came on the back of stronger growth in Malaysia, Singapore and Vietnam. Employment and wage growth propped up consumption in Malaysia, despite fiscal tightening. Singapore’s Q4 GDP data got a significant upgrade and was reported as having expanded 2.9% in Q4, whereas the preliminary estimate was 1.8%. The revised figure illustrates that the island economy surpassed expectations and grew at the best pace in nearly six years supported by a surge in manufacturing activity. Meanwhile, activity in Vietnam inched up as the agricultural sector continued to recover from a drought earlier in the year.

At the start of 2017, growth appears to be on broadly even footing. The recent uptick in commodity prices is supporting exports in regional giant Indonesia and the country is poised for a credit rating upgrade. Singapore and Thailand’s governments both announced measures to buttress growth this year in recent weeks. Thailand’s military government approved a budget supplement of USD 5.4 billion in order to support the economy outside of Bangkok and win votes ahead of looming elections. Meanwhile, Singapore’s government also took an expansionary stance in their budget for 2017, which was presented on 20 February. While the government still plans to deliver a small fiscal surplus, a number of pro-growth measures were introduced including a large amount of spending on infrastructure. Against this backdrop, the FocusEconomics panel sees the region expanding 4.7% in Q1 2017. 

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Growth prospects brighten

The outlook for the ASEAN region improved this month, with better prospects for the first time since September. The FocusEconomics panel sees the ASEAN region growing 4.8% in 2017, which is up 0.1 percentage points from last month’s forecast. Solid domestic demand and a positive electronics export cycle should support growth in the region, although risks linger from the likelihood that U.S. trade policy will become more protectionist. In 2018, the ASEAN economy is seen growing 4.9%.

This month’s 2017 growth forecast reflects upgraded outlooks for the Philippines and Singapore. A recent data revision in Singapore shows the economy on stronger footing than previously thought and fueled a brighter forecast. Estimates for 7 of the 10 economies in the region, including Indonesia and Thailand, were left unchanged. The only economy to see a forecast downgrade was Myanmar.

Growth trends are expected to be divergent in the region. The Philippines and Vietnam will be among the top performers, with projected expansions of 6.5% and 6.4%, respectively. On the other side of the spectrum, Singapore will grow 1.7% as the country is highly vulnerable to global events and is facing a cooling property market. Our panel of economists sees regional giant Indonesia expanding a healthy 5.2%, while Malaysia should grow 4.3%.

INDONESIA | Dynamics firming at the start of 2017

Indonesia’s economy lost steam in the fourth quarter of last year as diminished government revenues caused public spending to contract at a multi-year low. Other drivers of growth showed resilience however, as household consumption remained healthy and the recent uptick in commodities prices boosted export revenues. Available data for the start of 2017 suggest that momentum firmed up: the manufacturing PMI crossed into expansionary territory in January and surging exports pushed the trade surplus to an over three-year high. Meanwhile, the country is poised for a credit ratings upgrade after Moody’s elevated its outlook from stable to positive on 8 February. All three major ratings agencies now have a positive outlook on Indonesia’s credit rating and an upgrade could be a catalyst to improving investor sentiment.     

Growth should gain steam steadily this year and next as accommodative monetary policy, recovering commodities prices and public investment spending act as tailwinds. Our panel sees growth of 5.2% in 2017, which is unchanged from last month’s forecast. In 2018, GDP growth is expected to pick up to 5.4%.

THAILAND | Government boosts spending in rural economy

Growth decelerated mildly in the final quarter of 2016 due to subdued private consumption and a smaller contribution from the external sector. The economy expanded 3.0% annually in Q4, down from 3.2% in Q3. The latest indicators paint a mixed picture of the economy at the outset of the year. In January, consumer confidence hit a nearly one-year high, while business sentiment receded mildly. On 27 January, the government announced supplementary fiscal stimulus of USD 5.4 billion for this year’s budget, which ends in September. The sum will be disbursed specifically in rural areas in a bid to close the growing inequality between urban and rural infrastructure and income. This shows that the military government is set to continue providing fiscal stimulus to GDP this year, which should spill over in the private sector via higher employment and improved economic sentiment.

Public investment in infrastructure and the gradual acceleration in global trade are supporting the economy this year. FocusEconomics panelists project growth of 3.2% in 2017, which is unchanged from last month’s estimate. For 2018, the panel expects growth of 3.3%.

MALAYSIA | Growth picks up at end of 2016

The Malaysian economy closed a difficult year on a good note: GDP recorded the strongest performance in four quarters in Q4, expanding at a better-than-expected rate of 4.5%. The robust result was underpinned by an acceleration in fixed investment and resilient private consumption. Exports also showed a significant improvement, growing at the fastest pace since Q4 2015, thanks to a weaker ringgit and rising oil prices. However, the external sector’s net contribution to growth remained stable as imports also gained steam. Government consumption, which contracted for the first time since Q2 2014, was the only drag on growth in Q4, reflecting the government’s commitment to its fiscal consolidation agenda for 2016.

Higher commodity prices and a weak currency should support the country’s export-dependent economy this year. Rising protectionism and a slowdown in China—Malaysia’s second-largest trading partner—pose downside risks to growth over the medium term. FocusEconomics panelists expect GDP to expand 4.3% in 2017, which is unchanged from last month’s forecast. For 2018, the panel also foresees the economy growing 4.3%.  

INFLATION | Inflation rises in January

Preliminary data show that inflation in ASEAN increased slightly from 2.3% in December to 2.5% in January. The result was driven primarily by higher price pressures in Indonesia—the region’s largest economy. Despite generally moderate price pressures, central banks in the region have found that their hands are tied, with little space to ease monetary conditions as the U.S. Federal Reserve continues on a tightening cycle. The central banks of Indonesia, the Philippines and Thailand central banks kept their monetary policies unchanged in February.

Our panelists see price pressures picking up in 2017, after tepid inflation of 2.3% last year. Our panel sees inflation averaging 3.2% in 2017, which is unchanged from last month’s forecast. In 2018, our panel sees inflation of 3.4%.

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Written by: Angela Bouzanis, Senior Economist

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