ASEAN Economic Forecast

Economic Snapshot for ASEAN

July 17, 2019

Growth in the ASEAN economy is expected to moderate in 2019

This year, regional economic growth is seen moderating as a more challenging external environment leaves its mark. However, robust domestic demand, foreign investment flows and infrastructure spending should provide some stimulus. Lingering trade tensions and moderating economic growth in China—a key economic partner of the region—pose the main downside risks.

Indonesia Economic Outlook

In the second quarter of the year, growth should have been broadly unchanged from that of the first quarter. Domestic signs are generally encouraging: Retail sales grew rapidly in April and May, likely supported by buoyant consumer confidence, while the manufacturing PMI averaged higher than in Q1. However, goods exports plummeted in April and May, while tourist arrivals stagnated over the same period, potentially dampened by recent floods . That said, lower imports, amid government measures to contain the current account deficit, could have offset the damage to the external sector in the second quarter. Meanwhile, in other news, the government has recently announced a raft of tax incentives to support the property sector and firms who invest in employee training and research and development, in a bid to boost the economy..

Growth should be robust this year, with private consumption buttressed by a strong labor market and optimistic consumer sentiment. However, fixed investment will be held back by government measures to curb imports. Downside risks stem from global trade tensions and the rupiah’s vulnerability to global financial volatility.

FocusEconomics panelists expect GDP growth of 5.1% in 2019, which is unchanged from last month’s forecast. For 2020, panelists see the economy expanding 5.2%.

Thailand Economic Outlook

A more challenging external environment, owing to lingering trade tensions, likely continued to hamstring the economy in the second quarter. Exports, a key driver of the manufacturing sector, contracted at an accelerated pace in April–May compared to the first quarter. Moreover, manufacturing output also continued to falter in the same period. More positively, private consumption remained robust through May amid still-weak inflation. On 10 July, a new cabinet was installed that should largely see policy continuation; however, given the coalition’s slim majority and sheer number of parties, governing could prove difficult. A large stimulus package is expected and large-scale projects are likely to go ahead. This should help boost the economy going forward.

The installment of the new cabinet should prove to be good news for government consumption, which should buttress the wider economy; however, growth is seen easing nonetheless amid weaker domestic demand, and a challenging external environment and stronger currency dragging on exports and tourism. High household debt further clouds the outlook.

Our panel expects the economy to expand 3.3% in 2019, which is down 0.1 percentage points from last month’s forecast, and 3.4% in 2020.

Vietnam Economic Outlook

Growth slowed marginally in the second quarter on a weaker agricultural sector, likely due in part to the impact of an outbreak of African swine fever. Nevertheless, the economic picture was still bright, and the expansion was likely among the strongest in the region. Manufacturing rose by double-digits, while mining output rebounded. Moreover, the service sector picked up speed on stronger retail trade, while tourist arrivals were up notably year-on-year. This comes after the economy eased in Q1 on a broad-based slowdown. Meanwhile, Vietnam signed a trade deal with the EU at the end of June, which, if ratified, will eventually eliminate 99% of tariffs. This should prove a boon for the country’s burgeoning export sector and support the manufacturing industry. The government expects the deal to boost Vietnamese GDP by 2.2%–3.3% from 2019–2023.

The economy should be one of the region’s star performers this year, underpinned by stronger tourism, exports and industrial output. However, given the economy’s open nature, growth will be dampened somewhat by weaker global momentum. A possible larger-than-expected slowdown in key export markets such as China, the EU and the U.S. poses a downside risk.

FocusEconomics panelists project the economy will expand 6.7% in 2019, which is up 0.1 percentage points from last month’s forecast, and 6.5% in 2020.

ASEAN Monetary & Financial Sector News

Preliminary data showed that regional inflation fell to 2.2% in June from 2.4% in May, largely on softer price pressures in Thailand and the Philippines. This year, regional average inflation is expected to ease somewhat compared to last year’s reading amid weakening economic momentum. The strength of El Niño will also be an important factor in the months ahead.

Interest rates were kept on hold recently, owing to manageable inflation and a more dovish U.S. Federal Reserve. However, the Bank of Thailand unveiled measures to stem THB appreciation, while Bank Indonesia cut reserve requirements. Later this year, the regional average interest rate is seen falling, chiefly as Indonesia and the Philippines are expected to cut rates.

Regional currencies appreciated in recent weeks on greater political stability and a more dovish U.S. Fed. That said, the regional exchange rate is expected to remain largely unchanged this year, with THB appreciation and a fairly stable IDR projected to be offset by weaker currencies in the rest of the region. U.S. Fed policy easing poses an upside risk, however.

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