ASEAN: Economic Snapshot for ASEAN
January 20, 2019
Regional economy likely gained steam in the final quarter
According to a preliminary estimate by FocusEconomics, ASEAN expanded 4.9% year-on-year in the fourth quarter of 2018, which if confirmed would mark an uptick from Q3’s 4.7% expansion.
Flash data for Vietnam showed that growth accelerated in Q4 and was likely the fastest among the region’s major economies. The performance was driven by strong showings in the services, industry and construction sectors, as well as by robust FDI inflows and a healthy labor market.
In contrast, the more mature economy of Singapore lost some momentum in the final quarter due to sluggish growth in the service sector, even as manufacturing growth accelerated.
The rest of the region’s major economies have yet to report national accounts figures for the final quarter, although growth was likely firm. Strong domestic demand should have driven the performance, although headwinds stemming from easing momentum in China and elevated U.S.—China trade tensions seemed to weigh on the external sector.
In Indonesia, robust consumption and investment should have spurred growth, notwithstanding higher interest rates. In Thailand, growth likely bounced back from Q3’s weaker-than-expected reading amid solid private consumption, although a deadly boating accident in July last year continued to take the wind out of the tourism industry’s sails and dampened Chinese visitor numbers. In Malaysia, consumers likely benefited from rock-bottom inflation and favorable tax changes, while the Philippines should have also benefited from ebbing price pressures.
Turning to ASEAN’s smaller economies, Cambodia, Laos and Myanmar likely continued to expand solidly, thanks to strong export growth and FDI inflows. In contrast, Brunei likely endured a tough fourth quarter due to the collapse in the price of oil, the country’s lifeblood.
On the political front, border tensions between Malaysia and Singapore eased in early January after a meeting between the respective countries’ foreign ministers. Talks between the two are ongoing.
In the Philippines meanwhile, the government is yet to approve its 2019 budget due to disagreements in Congress. Given the significant role that government infrastructure spending plays in fueling growth, each day that passes without a resolution is a further blow to the economy.
Economic fundamentals are robust, but trade war fears linger
Looking ahead, ASEAN should continue to grow at a healthy pace. Private consumption should be supported by wage gains and strong labor markets, while fixed investment ought to expand robustly thanks to infrastructure development and FDI inflows. An escalation of the trade war between the U.S. and China, tighter global financial conditions and a faster-than-expected slowdown in the Asian giant are the key downside risks to growth. GDP growth for the region is expected to come in at 4.8% in 2019, which is down 0.1 percentage points from last month’s forecast, and 4.8% again in 2020.
Brunei, Indonesia, Laos, Malaysia, the Philippines, Singapore and Thailand saw their 2019 forecasts downgraded from last month, while the region’s remaining economies saw their projections unchanged.
Our panel projects that Myanmar will be the fastest-growing economy in the region this year, with an expected expansion of 6.9%. Among the major economies in the region, Vietnam and the Philippines should record the fastest growth. Conversely, high-income Singapore is expected to record the weakest expansion at 2.5%, reflecting a moderation of growth towards potential.
INDONESIA | Growth was likely robust in Q4; government seals deal over Grasberg mine
The economy likely grew fairly strongly in the fourth quarter, bolstered by healthy consumption and fixed investment, although high-frequency indicators are mixed. The manufacturing PMI averaged slightly lower in Q4 compared to Q3 against a backdrop of swirling global trade tensions, while the country posted a record trade deficit in the period on a combination of lackluster exports and double-digit import growth. That said, import growth did ebb from the extremely high readings seen in prior quarters amid higher import tariffs. In addition, the tourist sector performed well, while the rupiah has recovered sharply since November and foreign reserves—which were depleted in Q1-Q3—increased. On the political front, in late December the government finally reached an agreement with mining company Freeport-McMoRan over the huge Grasberg copper mine, which will see the government acquire a majority stake in the mine. In exchange, Freeport should be able to continue operations until 2041.
Domestic demand should continue to drive the economy this year, with private consumption supported by a strong labor market and government consumption likely receiving a slight boost ahead of elections in April. However, tighter monetary policy, delays to public infrastructure projects and cooling Chinese momentum could drag on the performance. A possible resurgence of U.S.-China trade tensions poses a downside risk to the outlook. FocusEconomics panelists see GDP expanding 5.1% in 2019, down 0.1 percentage points from last month’s forecast, and 5.1% again in 2020.
THAILAND | Private consumption should have supported growth in the fourth quarter
Following a moderation in the pace of growth in the third quarter of 2018, the economy should have accelerated in the final quarter on the back of rising private consumption. Indeed, in October–November, annual private consumption growth remained broadly unchanged from the multi-year high averaged in the second quarter. In less positive news, however, the trade balance likely fell into the red in the fourth quarter on weakening export growth amid global trade tensions and robust import growth reflective of firming domestic demand. Moreover, business confidence worsened in December, falling into pessimistic territory. Meanwhile, in the political arena, scheduled general elections were once again delayed—this time from 24 February to mid-March, due to supposed administrative difficulties. This impelled the first protesters to take to the streets since the military government outlawed such demonstrations following the 2014 coup d’état.
Although economic growth is expected to moderate somewhat this year, it should nonetheless remain robust. Growth in fixed investment and public consumption is likely to pick up pace, while private consumption growth should remain solid. A possible flare up in the U.S.-China trade spat following the end to the temporary truce would dim prospects, while rising tensions leading up to the general election present a further downside risk. Our panel projects economic growth of 3.7% in 2019, which is down 0.1 percentage points from last month’s forecast, and 3.5% in 2020.
MALAYSIA | Indicators for Q4 are mixed; government announces measures for low-income households
Recent economic data has been largely underwhelming, even though retail sales continued growing at a robust pace in October and November as consumers benefited from low inflation. Export growth came to a virtual standstill in November on a sharp contraction in shipments of palm oil and palm oil-based products, offsetting a jump in foreign demand for refined petroleum products. Meanwhile, import growth eased on softer demand for consumption goods. Furthermore, output in the manufacturing sector weakened in November, which lead industrial production growth to soften, while in December operating conditions in the manufacturing sector worsened at the sharpest pace since the PMI survey began over six years ago. Taken together, this suggests that the manufacturing sector ended the year on a weak footing. On the political front, the government introduced measures at the start of the year, including cash handouts and free health insurance, in an effort to support low-income earners and reduce income inequality.
The economy should continue growing at a robust pace this year owing to firm domestic demand. However, while fixed investment growth is expected to pick up, private consumption will likely moderate after its stellar performance in 2018. Lingering global trade tensions and financial-market volatility are the main downside risks to the outlook. FocusEconomics Consensus Forecast panelists expect the economy to grow 4.5% in 2019, which is down 0.1 percentage points from last month’s forecast, and 4.5% again in 2020.
MONETARY SECTOR | Inflation declines in December
A preliminary estimate by FocusEconomics suggested regional inflation fell from 2.6% in November to 2.3% in December amid a plunge in global oil prices. Inflation dimmed in Indonesia, Myanmar, the Philippines and Thailand, and was unchanged in Vietnam. December inflation readings are still outstanding for the region’s remaining economies. On the monetary policy front, Thailand’s Central Bank raised rates for the first time in seven years in December, with the bank judging that the economy was strong enough to absorb the withdrawal of some monetary stimulus.
Going forward, regional inflation should remain moderate, dampened by the recent fall in global oil prices. Our panelists expect regional inflation to average 2.9% in 2019, down 0.1 percentage points from last month’s forecast, and 3.0% in 2020.