ASEAN Economic Forecast

Economic Snapshot for ASEAN

October 18, 2017

Growth picks up to multi-year high in Q3

Preliminary data reveals that the economy of the Association of Southeast Asian Nations (ASEAN) kicked into a higher gear in Q3, growing at the fastest pace since Q1 2013. According to a preliminary estimate compiled by FocusEconomics, regional GDP expanded a robust 5.3% annually in Q3, above Q2’s 5.0% increase.

Behind the acceleration was surging growth in Singapore and Vietnam. Singapore grew at the fastest rate since Q1 2014 on the heels of double-digit growth in the manufacturing sector. An upturn in the electronics cycle supported industry and exports, the latter of which is also benefiting from a healthy global economy. Likewise, Vietnam’s economy is also benefiting from high demand for electronics and grew at a pace not seen since 2008 in Q3. Robust FDI inflows, strong growth in the tourism sector and healthy agricultural output also boosted momentum.

Official GDP figures are not yet available for the other economies in the region; however, our analysts project that growth also gained steam in regional giant Indonesia. Accommodative monetary policy, a healthy labor market and rising consumer confidence should support an uptick in growth, although the acceleration was likely modest. In contrast, momentum is expected to have waned in Malaysia, and remained steady in the Philippines and Thailand.

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Steady GDP growth seen in 2018

Activity is expected to expand a solid 4.9% in 2017 and remain stable next year. Healthy labor market dynamics and solid external demand should support healthy growth of 4.9% in 2018, however, electronics production is expected to return to a more sustainable level after a stellar 2017. The forecast for 2018 is unchanged from last month’s projection. In 2019, growth is seen ticking up to 5.0%.

Behind this month’s unchanged outlook are stable forecasts for six economies in the region, including heavyweight Indonesia. Meanwhile, Singapore’s and Vietnam’s GDP forecasts were upgraded as recent data suggests that the economies are on a more solid footing than previously expected, while the projections for Brunei and Myanmar were downgraded.

Myanmar is forecast to be the region’s fastest-growing economy next year, expanding 7.5%, followed by Cambodia. On the other end of the spectrum, Brunei will grow 1.5%, and the more mature economy of Singapore is seen increasing 2.5%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.3%, followed by Malaysia with 4.8% growth. Thailand is seen growing a more moderate 3.5%.

INDONESIA | Incoming data points to slight acceleration in activity

Recent economic data points to another quarter of lackluster, albeit healthy, growth in Q3. Retail sales returned to growth in August, and consumer confidence rose in September. However, data for the manufacturing sector was less upbeat: Industrial production lost steam in August, and the manufacturing PMI fell in September. Despite low unemployment, rising wages and ambitious government spending, the economy has yet to fire on all fronts, and growth has hovered around 5.0% for the past year. In October, the government took steps towards approving a budget for next year, after a parliamentary committee approved the underlying assumptions. The government is targeting growth of 5.4% for 2018 and revenue of nearly IDR 1,900 trillion. More details concerning the 2018 budget should be solidified in the coming weeks.

The economy is expected to gain momentum next year thanks to accommodative monetary policy and ambitious public investment. The FocusEconomics panel sees GDP expanding 5.3% in 2018, which is unchanged from last month’s forecast. In 2019, the economy is seen growing 5.4%.

THAILAND | Government launches investment plan to boost domestic economy

The economy remains caught between a strong external position, underpinned by a large current account surplus, and a fragile domestic economy. Export growth reached a multi-year high in August, indicating healthy demand for Thai goods. Despite solid import growth, private consumption remains sluggish as high household debt and weak jobs growth eat into consumers’ pockets. Manufacturing output, on the other hand, beat annual growth expectations in August, seemingly putting an end to its hitherto volatile growth trajectory. Moreover, the government unveiled a USD 45 billion investment plan, which will be largely funded through the private sector. Construction on the planned projects is set to start before next year’s elections, which Prime Minister Prayuth Chan-ocha announced will be held in November 2018.

The robust external sector and sizable public investment should propel the economy next year and in 2019, although private consumption is expected to remain lackluster. A downside risk is the political uncertainty surrounding the election season and the new government. Additionally, hogh household debt clouds the mid-term outlook. Sound government finances and a strong external position should, however, provide buffers in the event of shocks. FocusEconomics panelists expect the economy to grow 3.5% in 2018, unchanged from last month’s forecast. The panel project 3.4% growth in 2019.

MALAYSIA | Government expected to rein in fiscal deficit in upcoming budget

Comprehensive incoming Q3 data fortifies expectations of another solid quarterly expansion, fueled by a thriving domestic economy and a resilient external sector. Domestic demand remains robust amid buoyant consumer and business confidence in September and low unemployment in July. In August, the trade surplus widened on the back of a strong expansion in exports. On the political front, the government plans to announce the 2018 budget on 27 October, which is expected to be less expansionary than in 2017, to reign in the country’s growing fiscal deficit. Policies aimed at increasing government revenue through higher tax collection and other tax reforms are expected to be key components.

The outlook remains positive despite expectations of a tighter fiscal budget in 2018.  Domestic demand will be supported by a strong labor market and ongoing private investment in the manufacturing and services sectors. Downside risks persist, however, as the open economy is vulnerable to geopolitical risks and tighter monetary policies in developed countries. Furthermore, growing household indebtedness could dampen private consumption. FocusEconomics Consensus Forecast panelists expect GDP to expand 4.8% in 2018, which is unchanged from last month’s forecast. For 2019, the panel foresees growth of 4.6%.

INFLATION | Inflation stabilizes in September

Preliminary data shows that inflation in ASEAN came in at 2.4% in September, matching August’s result. Overall, inflationary pressures remain subdued in the region; however, a tightening cycle in the U.S. has led most central banks to hold off from cutting rates. In September, the central banks of the Philippines and Thailand held the policy rates unchanged. Meanwhile, at its October semi-annual meeting, the Monetary Authority of Singapore held the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band unchanged.

Our panelists see price pressures rising slightly in 2018, from a projected average of 3.0% in 2017. Next year, our panel expects inflation of 3.1%, which is down 0.1 percentage points from last month’s forecast. For 2019, our panel sees inflation of 3.3%.

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