More complete data show that economic activity slowed less than previously estimated in the third quarter in the Association of Southeast Asian Nations (ASEAN). The economy expanded 4.6% annually, up one notch from the 4.5% increase estimated last month. Nevertheless, the result marks a slight slowdown from Q2 as weak trade dynamics and lackluster investment limited growth in the region.
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The upgraded figure was largely due to a revision in Singapore’s growth figure. Singapore expanded 1.1% year-on-year in Q3, up from a preliminary estimate of a 0.6% increase. The upward revision was chiefly due to a spike in industrial output in September. However, the economy still grew at the slowest pace in over five years due to tepid demand for exports and weak services activity. Growth in the Philippines was also revised up in Q3, as the economy continues to benefit from soaring household consumption and booming investment.
The FocusEconomics panel expects growth in the region to moderate in the fourth quarter and sees GDP increasing 4.4%. If confirmed, this would mark the slowest growth rate since Q2 2015. Growth in Indonesia, the region’s largest economy, is seen remaining solid thanks to robust domestic demand. However, a continued slowdown in Singapore will weigh on the region’s activity.
Growth to pick up in 2017
The FocusEconomics panel sees economic dynamics in the ASEAN region improving in 2017, after an expected 4.6% expansion in 2016. The analysts polled by FocusEconomics see GDP growth of 4.8%, which is unchanged from last month’s forecast. An improvement in the region’s external sector should support quicker growth in 2017 along with resilient household spending. In 2018, the ASEAN economy is seen growing 5.0%.
This month’s 2017 growth forecast reflects an unchanged outlook for 7 of the 10 economies in the region, including Singapore and the Philippines. Meanwhile, prospects were downgraded for Indonesia and Malaysia. The only country to see brighter prospects was Brunei.
Myanmar and Laos, in that order, are expected to be the region’s top performers in 2017, with expansion rates of over 7.0%. At the other end of the spectrum, Brunei and Singapore are projected to be the worst performers, growing 2.6% and 1.6%, respectively. Among the region’s major economies, Vietnam and the Philippines will grow the fastest, with projected expansions of 6.4% and 6.3%, respectively. Our panel of economists sees regional giant Indonesia expanding 5.2%.
INDONESIA | Government focuses on fiscal revenues
GDP growth hovered around 5.0% annually in the first three quarters of this year, as robust private consumption supported activity. Households have benefited from low inflation and loosening monetary policy, which has shored up growth in the face of a demure external sector. Available data for Q4 point to steady momentum and the economy is expected to record another 5.0% expansion. The manufacturing PMI picked up in November, although it remained in contractionary territory, while the trade balance was broadly steady in October. Meanwhile, the government is focused on correcting its revenue shortfall and keeping the deficit below the 3.0% of GDP legal limit. The government has raised over USD 7 billion from the tax amnesty plan and is in negotiations with Google to recover millions in back taxes.
Indonesia’s economy should gain steam next year thanks to firming commodity prices, a revival of private investment and the government’s ambitious spending plan. Our panel sees growth of 5.2% in 2017, which is down 0.1 percentage points from last month’s forecast. In 2018, GDP is expected to expand 5.4%.
THAILAND | Growth wanes in Q3
Thailand’s economy lost speed in the third quarter since domestic demand failed to grow, due to a sharp contraction in government consumption and weak fixed investment. On the external side of the economy, however, the contribution of net trade was slightly above that of the second quarter since exports accelerated from Q2 while imports continued to contract. Going into Q4, indicators suggest sluggish activity: in October industrial production virtually stagnated and exports declined after two months of healthy growth. Sector-wise, agriculture is poised to rebound in H2 following a slump in H1. The sector grew 1.0% in Q3 and the government’s large-scale plan to invest in rural areas, which include subsidies for rice farming, should help sustain the momentum. The projected USD 5.3 billion extra spending on the plan will be financed mainly by the sale of baht-denominated saving bonds.
The government’s plan to further expand fiscal stimulus, which mainly includes transport-related infrastructure projects, should not only boost sentiment but also ease business conditions in the medium-term. The fiscal deficit is expected to deteriorate in 2017, before improving in 2018. FocusEconomics panelists project that the economy will expand 3.2% in 2017, which is unchanged from last month’s estimate. For 2018, the panel expects growth of 3.4%.
MALAYSIA | Central Bank moves to support ringgit
Although Malaysia’s GDP grew a healthy 4.2% in Q3, monthly indicators for October paint a mixed picture of the economy. Growth in industrial production beat market expectations thanks to a strong performance by the manufacturing and mining sectors, while export growth contracted a massive 10.1% as a result of a drop in energy sales. On 2 December, in an attempt to prop up the country’s dwindling currency, Malaysia’s Central Bank announced that 75% of all export earnings will have to be converted into ringgit. This decision follows other recently implemented measures designed to strengthen the currency, such as intervening in the foreign exchange market to reduce volatility and prohibiting offshore trading of the ringgit.
Malaysia’s oil sector and economy should be boosted by the agreed OPEC output cuts. However, the country will remain vulnerable to external developments such as a slowdown in China, Malaysia’s second trading partner. FocusEconomics panelists expect GDP to expand 4.3% in 2017, which is down 0.1 percentage points from last month’s forecast. For 2018, the panel sees GDP growing 4.4%.
INFLATION | Inflation rises in November
Preliminary data show that inflation in ASEAN rose slightly from 2.0% in October to 2.2% in November. The result was driven by higher price pressures in Indonesia, the Philippines and Vietnam and marks the highest inflation seen since February 2016.
Our panelists see price pressures picking up in 2017, after remaining meek in 2016. The deflationary effect from low commodity prices should fade in the coming months and some scheduled subsidy cuts and tax hikes in key economies will add to price pressures. Our panel sees inflation averaging 3.2% in 2017, which is unchanged from last month’s forecast. In 2018, our panel sees inflation of 3.5%.
Written by: Angela Bouzanis, Senior Economist