ASEAN: Economic Snapshot for ASEAN
January 24, 2018
ASEAN economy ends 2017 on a strong note
Preliminary data reveals that the economy of the Association of Southeast Asian Nations (ASEAN) recorded another quarter of robust growth at the end of 2017, although activity slowed from Q3’s nearly five-year high. According to an estimate compiled by FocusEconomics, regional GDP expanded 5.2% annually in Q4, marking the second-fastest growth rate since Q1 2013 (Q3: +5.6% year-on-year). The ASEAN economy picked up notably in the second half of 2017 thanks to strong external demand, especially for technology goods; healthy labor markets; and accommodative monetary policies.
Looking at the details of the fourth quarter, Vietnam’s economy gained traction, supported by an over 20% jump in exports. The year was particularly bright for Vietnam, characterized by strong FDI, high growth and low inflation. In contrast, Singapore’s economy lost steam at the end of 2017 amid a contraction in the construction sector, although the manufacturing sector continued to benefit from solid demand for electronics.
Official GDP statistics are still outstanding for the remainder of the region’s economies; however, recent data revealed that China’s economy fired on all cylinders in the fourth quarter, boding well for export growth in the ASEAN region. Moreover, a stream of positive economic data has rolled in for Indonesia, suggesting a modest uptick in activity in Q4. Overall, the ASEAN region experienced a stellar 2017 and is expected to have grown 5.2%, the fastest expansion since 2012.
2018 prospects lifted as last year’s growth drivers remain intact
The Consensus Forecast for ASEAN was raised this month, and regional GDP is now seen expanding 5.1% in 2018, a notch above last month’s forecast. The tailwinds that propelled growth last year are expected to carry over into this year: Demand for tech goods is seen remaining solid, and labor markets should continue to be tight. In addition, upcoming elections in key economies should bode well for government spending. Moreover, key risks to ASEAN’s outlook appear to be contained. A sharp slowdown in China has yet to emerge, and global financial conditions are likely to tighten very gradually. In 2019, regional growth is seen broadly stable at 5.0%.
This month’s improving outlook was driven by upward revisions to the GDP forecasts for 5 of the region’s 10 economies, including Malaysia, the Philippines, Singapore and Thailand. The Philippines’ upgrade comes on the heels of President Duterte’s signing of the Tax Reform for Acceleration and Inclusion (TRAIN), which should help boost household spending. The forecasts for Brunei, Indonesia, Laos and Myanmar were left unchanged this month, while Cambodia was the only economy to have its GDP projection cut.
Myanmar is forecast to be the region’s top performer in 2018, expanding 7.4%, followed by Cambodia. On the other end of the spectrum, Brunei is expected to grow 2.6%, and the more mature economy of Singapore is seen increasing 2.9%. Looking at the major players, the Philippines will lead the pack and is seen expanding 6.6% this year. The Indonesian economy will grow 5.3%, followed closely by Malaysia with 5.2% growth. Thailand is seen growing a more moderate 3.7%.
INDONESIA | Fiscal deficit widens slightly in 2017
The economy appears to have ended 2017 on a solid note, with growth expected to have edged up for the second consecutive quarter in Q4. Retail sales accelerated in November and consumer confidence picked up in December. However, strong growth in imports in Q4 caused the trade balance to fall, despite double-digit export growth. The economy is expected to have hit a milestone last year, growing to over USD one trillion dollars in nominal terms. Despite the increase, Finance Minister Sri Mulyani Indrawati stated in January that government revenue came in below target in 2017 due to low tax revenue. However, lower-than-planned government spending kept the budget deficit at 2.6% of GDP, only slightly up from 2016’s 2.5% of GDP shortfall. On the political front, President Joko Widodo reshuffled his cabinet in January, replacing his chief of staff and the social affairs minister. The shakeup was widely expected as some of Widodo’s staff will run in regional elections this year, and the move should not affect economic policy.
Buoyant investment growth and healthy household spending should fuel a modest acceleration this year. FocusEconomics panelists see GDP expanding 5.3% in 2018, which is unchanged from last month’s forecast. In 2019, the economy is seen growing 5.4%.
THAILAND | Economy closes year on a solid note
Monthly indicators hint at a strong finish to 2017: Industrial production and private investment performed well in November. Exports performed well throughout Q4 despite decelerating in December. Additionally, the number of tourist arrivals reached a new record high in December and the PMI returned to expansionary territory after three months of contraction. It was supported by a robust domestic economy while foreign demand for manufactured goods waned. Nevertheless, export growth reached a multi-year high in November. While the strong baht has not hurt the external sector, exporters are pressing the Central Bank to intervene. On 17 January, the Bank’s governor commented that it will ensure that exporters and certain businesses would not be harmed. The country’s sizable trade surplus and exchange rate intervention by the Bank mean that Thailand is moving closer to meeting the U.S. criteria of a currency manipulator.
Economic growth this year should be supported by public investment, foreign demand and private consumption. Export growth is, however, expected to moderate due to a larger base effect. A minimum wage hike will aid private consumption, but high household indebtedness is expected to hold private consumption growth back somewhat. Fixed investment should feel the effects of political uncertainty in the build up to the July elections. FocusEconomics panelists expect the economy to grow 3.8% in 2018, up 0.2 percentage points from last month’s forecast. The panel projects 3.6% growth in 2019.
MALAYSIA | Government signals spring vote
Incoming high-frequency data for the fourth quarter is relatively upbeat, pointing to firmer external and domestic demand. In November, merchandise exports continued to grow at a double-digit pace, and industrial output growth rebounded from a weak October print on the back of healthy manufacturing production. Robust growth in intermediate goods imports up to November also suggests solid manufacturing activity ahead, while strong growth rates in imports of core capital goods and consumer goods indicates solid domestic demand. On the political front, government officials have recently signaled that parliament is unlikely to be dissolved before the last scheduled parliament session concludes on 4 April, which suggests elections will be held sometime between late April and May. The ruling Barisan Nasional coalition is likely to emerge victorious due to a fragmented opposition, which should keep fiscal reforms intact.
A pro-cyclical 2018 budget and improved labor market conditions will buttress household spending this year. In addition, sizeable budgetary funds earmarked for rural infrastructure development, a number of major construction projects slated to start early this year, and capacity utilization rates at multi-year highs will all boost fixed investment growth. External demand is also expected to remain supportive of growth through most of 2018. FocusEconomics Consensus Forecast panelists expect GDP to expand a healthy 5.2% this year, up 0.1 percentage points from last month’s estimate, and 4.9% in 2019.
MONETARY SECTOR | Inflation stabilizes in December
Preliminary figures reveal that inflation was unchanged in ASEAN in December, coming in at November’s 2.5%. Inflation remained in check last year, largely due to subdued food price pressures, allowing the majority of the region’s central banks to take accommodative stances. However, monetary tightening in the U.S. has reduced space for easing, while a pick-up in economic activity has also eroded the need for monetary action. In recent weeks, the central banks of Indonesia, Malaysia and Thailand left rates unchanged.
Regional inflation averaged a modest 2.9% in 2017. This year, the Consensus Forecast is for price pressures to remain subdued, albeit pick up slightly from last year. Inflation is seen averaging a modest 3.1% in 2018, which is unchanged from last month’s forecast. For 2019, our panel sees inflation broadly stable at 3.2%.