ASEAN Economic Outlook November 2018

ASEAN: Economic Snapshot for ASEAN

October 16, 2018

Regional economy performed well in Q3 thanks to broad-based expansion

According to a preliminary estimate by FocusEconomics, ASEAN expanded a healthy 5.0% in Q3 2018, buttressed by strong domestic demand. However, this still marks a loss of momentum from the second quarter’s 5.2% expansion.

Preliminary GDP data for Singapore confirmed that the economy slowed in annual terms, on tough prior-year comparatives and ebbing momentum in the manufacturing sector after a stellar H1. Moreover, construction was mired in contractionary territory, likely depressed further by the impact of fresh property restrictions in July.

In contrast, Vietnam saw a slight pick-up in momentum in Q3, and continues to be one of ASEAN’s strongest performers. Cumulative data for the first nine months shows the economy was driven by private consumption, fixed investment and exports. Private consumption benefited from rising wages, fixed investment was boosted by a notable credit expansion and FDI inflows, while exports recorded double-digit growth on solid global economic activity. 


Although GDP figures for the region’s other key economies are still outstanding, high-frequency indicators suggest growth momentum largely carried over from Q2. Regional heavyweight Indonesia likely saw an economic boost from the Asian Games held in August, which lifted tourist arrivals and retail sales. Retail sales were also brisk in Malaysia in July and August, supported by the zero-rating of the GST and suggesting private consumption drove economic activity in the quarter. In Thailand, rising incomes likely buttressed the economy.

While domestic activity remains robust, the region’s external sector appears to have softened. The ASEAN manufacturing PMI—which covers all the region’s economies with the exception of Brunei, Cambodia and Laos—showed that new export orders declined for the second consecutive month in September, with the PMI reading for Q3 averaging lower than Q2. Moreover, the trade balance for key regional economies such as Indonesia, Thailand and Malaysia has weakened in annual terms so far in the quarter.

On the political front, in early October the EU announced it would revoke preferential market access for Cambodia due to human rights concerns and suggested a similar move for Myanmar could be in the pipeline. If enacted, this would dampen the export performance of both economies—particularly Cambodia, which is highly reliant on the EU market for its garment exports.

Economic fundamentals are healthy, but trade war fears continue to cast a shadow

Looking ahead, growth should be robust across ASEAN. Private consumption will be supported by wage gains and strong labor markets, while global demand for the region’s exports should remain vigorous, despite a moderation in the pace of growth. In addition, the economic performance of the Philippines will be supported by the government’s infrastructure push. However, public investment in Indonesia and Malaysia could be dampened by these governments’ attempts to limit imports and the fiscal deficit, respectively. An escalation of the trade war between the U.S. and China is the key downside risk to growth, given that both countries are key export markets. In addition, the likely fallout, coupled with the ongoing tightening cycle in the United States, could put further pressure on the currencies of countries with weaker external positions, such as Indonesia, Myanmar and the Philippines. GDP growth for the region is expected to come in at 5.0% in 2019, which is unchanged from last month’s forecast, and 4.9% in 2020.

The 2019 GDP reading reflects lower growth forecasts for Brunei, Malaysia, Myanmar and Singapore, an upward revision to growth projections for Thailand and Laos and unchanged forecasts for the rest of the region’s economies.

Our panel projects that Myanmar will be the fastest-growing economy in the region next year, with a 7.2% expansion, as it continues to benefit from structural reforms and greater economic liberalization. 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 2.6%, reflecting a moderation of growth towards potential.

See the full FocusEconomics Consensus Forecast ASEAN report

INDONESIA | Economy performing well, but rupiah weakness remains a concern

The economy likely performed well in the third quarter. The manufacturing PMI stayed in positive territory throughout the period on growth in new orders and employment. Moreover, retail sales growth in the first two months of Q3 was solid, supported by strong consumer sentiment and the Asian Games in August. Tourist arrivals were also up markedly in year-on-year terms in July and August. However, tourism could be dented temporarily in Q4 by the tsunami which struck the country at the end of September, while reconstruction spending will put pressure on public resources—at the same time as the government has promised to delay certain infrastructure projects and reduce the fiscal deficit. Moreover, external sector vulnerabilities are still present. The rupiah continues to wilt despite higher interest rates and import curbs, while international reserves declined in September and the trade balance worsened in July and August in annual terms.

Domestic demand should continue to underpin growth going forward, with fixed investment supported by higher commodity prices and government consumption likely receiving a boost ahead of elections in April 2019. However, tighter monetary policy, delays to public investment projects, cooling Chinese demand and U.S.-China trade tensions pose downside risks to growth. FocusEconomics panelists see GDP expanding 5.3% in 2019, unchanged from last month’s forecast, and 5.3% again in 2020.                                                             

THAILAND | Private consumption likely powering growth, but tourism sector loses steam temporarily

Following a moderation in economic growth in the second quarter of the year, data suggests that economic momentum continued to ease slightly in the third quarter but stayed robust. Manufacturing output growth slowed markedly in August to the weakest reading in over a year. In the same month, Thailand recorded its second consecutive trade deficit and the fourth deficit for the year to August, as import growth continued outpacing export growth. Moreover, growth in tourist arrivals softened notably in July and August, largely due to a drop in arrivals from China following a boat accident. More positively, private consumption growth was robust in July and August, supported by higher consumer confidence and higher household incomes. In early October, the Central Bank announced tighter mortgage rules in order to cool the property market and avoid the escalation of risks.

Economic growth is expected to dip slightly next year on the back of a moderation in the external sector’s contribution to growth. Domestically, private consumption should remain resilient owing to rising income levels and employment gains, and fixed investment is likely to pick up amid high capacity utilization and government infrastructure spending. An intensification of trade tensions between the U.S. and China is a downside risk to the outlook. The panel projects the economy to grow 3.9% in 2019, which is up 0.1 percentage points from last month’s forecast, and 3.6% in 2020.

See the full FocusEconomics Consensus Forecast ASEAN report

MALAYSIA | Consumer spending benefits from zero-rating of GST, underpins the economy in Q3 

Data suggests the economy accelerated in the third quarter. Retail sales grew strongly in July and August, buoyed by the three-month window between the zero-rating of the goods and services tax (GST) and the reinstatement of the sales and services tax (SST) on 1 September. Moreover, the manufacturing PMI in the third quarter was up substantially from Q2, with September’s reading supported by stronger job growth and a pick-up in domestic and foreign demand. However, although manufacturing firms have not yet felt the impact of the SST, some were concerned over the impact on future orders. Less positively, export growth moderated strongly in August due to sharp contractions in exports of palm oil and palm-oil based products. Labor shortages and rising labor costs due to a higher minimum wage are piling pressure on palm exporters.

Next year, the economy should be supported by strong private consumption growth and a solid manufacturing sector. However, the postponement and possible cancellation of large infrastructure projects could dampen domestic demand somewhat. Moreover, risks are tilted to the downside and include a possible intensification of trade tensions, heightened volatility in financial markets, and uncertainty over the fiscal position. FocusEconomics Consensus Forecast panelists expect the economy to grow 4.7% in 2019, which is down 0.1 percentage points from last month, and 4.5% in 2020. (see details on page 30)

MONETARY SECTOR | Inflation dips in September

A preliminary estimate by FocusEconomics suggested regional inflation dipped to 2.7% in September from 2.8% in August. The decline came on the back of lower inflation in Indonesia and Thailand. Inflation was unchanged in Vietnam and increased in Laos and the Philippines. September inflation figures for the rest of the region are still outstanding.

On the monetary policy front, Indonesia’s Central Bank raised rates in September—the fifth such hike since May—in an effort to stem the depreciation of the rupiah. The Philippine Central Bank also raised rates in September, but was more motivated by domestic factors, with inflation at a multi-year high. In addition, the Monetary Authority of Singapore tightened its stance at its biannual meeting in October, by increasing the slope of the nominal effective exchange rate. In contrast, the Bank of Thailand left its monetary stance unchanged at the 19 September meeting, due to an absence of external or internal pressures.

Going forward, inflation will be supported by higher global oil prices and solid domestic activity. Our panelists expect regional inflation to average 3.1% in 2019, which is unchanged from last month’s forecast, and 3.1% in 2020.

See the full FocusEconomics Consensus Forecast ASEAN report


Oliver Reynolds


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