Economic Snapshot for ASEAN

December 14, 2018

Regional economy loses significant momentum in the third quarter; signs from Q4 are mixed

According to a comprehensive estimate by FocusEconomics, ASEAN expanded 4.7% in the third quarter of 2018, down 0.2 percentage points from last month’s estimate of 4.9% growth and marking a deceleration from H1’s average growth of 5.3%

According to recent data, the Thai economy performed significantly worse than expected in the third quarter and slowed markedly from Q2. While domestic demand was robust, meager growth in goods exports and a weaker tourism sector following July’s deadly boating accident weighed on activity.

There were similar dynamics at play in Malaysia, although growth dipped only slightly compared to the second quarter. The domestic economy recorded a strong performance, with private consumption surging on favorable tax changes which caused inflation to dim notably. However, as in Thailand, the external sector detracted from the GDP reading, and merchandise export growth ebbed markedly.

In Singapore, revised Q3 data showed the economy performed worse than expected, thanks to softer-than-previously estimated expansions in manufacturing and services. Indonesia and Philippines—which had already published GDP data last month—also lost some momentum in the third quarter, meaning Vietnam was the only large ASEAN economy to gain momentum in the period.

Turning to Q4, PMI data—which covers all ASEAN economies except Brunei, Cambodia and Laos—suggests the region’s manufacturing sector has virtually stagnated in October and November, likely impacted by elevated global trade tensions and weaker growth in China. Meanwhile, trade figures for October have been mixed. Singapore and Malaysia saw a pick-up in export growth, with Malaysia’s trade surplus reaching a multi-year high. On the other hand, the Philippines’ trade deficit surged due to the government’s infrastructure drive, which has sucked in imports, while Indonesia reported limp export growth and Thailand’s trade balance worsened year-on-year.

On the political front, ASEAN’s biannual summit was held in mid-November. Members of the bloc signed an e-commerce agreement, and Singaporean Prime Minister Lee Hsien Loong—whose country hosted the summit—highlighted progress made on Regional Comprehensive Economic Partnership (RCEP) trade talks, which could be concluded in 2019. The RCEP will encompass all ASEAN members plus six other key Asian economies, including China, and if completed should enhance regional commerce.

 See the full FocusEconomics Consensus Forecast ASEAN report

Economic fundamentals are robust, but trade war fears weigh on prospects

Looking ahead, ASEAN should continue to grow at a healthy pace. Private consumption should be supported by wage gains and strong labor markets, and fixed investment ought to expand robustly—notably in the Philippines (powered by President Duterte’s “Build, Build, Build” program) and Vietnam (thanks to FDI inflows and structural reforms). Moreover, global demand for the region’s exports should stay strong, despite a moderation in the pace of export growth next year. An escalation of the trade war between the U.S. and China is the significant downside risk to growth, given that both countries are key export markets. In addition, the associated rise in economic uncertainty—coupled with higher interest rates 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 4.9% in 2019, which is unchanged from last month’s forecast, and 4.8% in 2020.

The unchanged 2019 GDP reading reflects stable forecasts for all the region’s economies with the exception of Brunei, Malaysia and Myanmar, which saw their 2019 growth projections downgraded compared to last month.

Our panel projects that Laos and Myanmar will be the fastest-growing economies in the region next year, with both set to expand 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 2.6%, reflecting a moderation of growth towards potential.

INDONESIA | Indicators from the final quarter are mixed; government announces changes to foreign-ownership rules

The economy should have performed fairly well in the fourth quarter, likely supported by solid fixed investment and government consumption, although high-frequency indicators paint a nuanced picture. On one hand, tourist arrivals grew at a double-digit pace in October. On the other, growth in retail sales and merchandise exports was soft in the same month, while the manufacturing PMI declined for the third straight month in November and now hovers only slightly above contractionary territory. This comes after economic growth was solid in Q3 thanks to domestic demand, despite edging down from Q2. In mid-November, the government announced plans to relax foreign-ownership rules in numerous economic sectors, which should support FDI inflows going forward. Also in November, Indonesia concluded a trade deal with the four European Free Trade Association (EFTA) members, although the boost to the external sector will likely only be mild.

Domestic demand should continue to underpin the economy, with private consumption supported by a strong labor market and government consumption likely receiving a boost ahead of elections in April 2019. However, tighter monetary policy, delays to public infrastructure projects and cooling Chinese momentum could drag on the performance, while a possible resurgence of U.S.-China trade tensions poses a downside risk. FocusEconomics panelists see GDP expanding 5.2% in 2019, unchanged from last month’s forecast, and 5.2% again in 2020.                                                                     

See the full FocusEconomics Consensus Forecast ASEAN report

THAILAND | Growth slows markedly in Q3 on a softer external sector

Economic growth decelerated in the third quarter on a weakening external sector after exports were hit by spillovers from the U.S.-China trade spat. Domestic demand, however, remained resilient in the quarter, with private consumption growing at the fastest pace in nearly two years amid improving wage growth and subdued inflation. Data on the fourth quarter is somewhat mixed. The external sector started off on the wrong foot, recording a small deficit in October as merchandise import growth outpaced export growth. In addition, the manufacturing PMI remained below the critical 50-point mark through November, indicating a deterioration in operating conditions in the sector. In more positive news, private consumption expanded robustly in October, while private investment growth accelerated to a near six-year high in the same month.

Thailand’s economy is expected to continue growing at a solid, albeit more moderate, clip next year, powered by growing government consumption and fixed investment. However, softening contributions from the external sector and private consumption will likely weigh on growth. Looking ahead, although a continuation of the recent ceasefire in the Sino-American trade dispute would reduce downside risks to the external sector, possible tensions in the lead-up to general elections pose a threat. Our panel projects economic growth of 3.8% in 2019, which is unchanged from last month’s forecast, and 3.5% in 2020.

MALAYSIA | Domestic demand propels growth in the third quarter

The economy expanded at a fractionally slower pace in annual terms in the third quarter compared to the second quarter, owing to a drag from the external sector. Nevertheless, economic growth remained robust, underpinned by domestic demand. Private consumption performed particularly well and benefited from the zero-rating of the goods and services tax on 1 June; however, foreign demand for Malaysian goods eased markedly and net exports subtracted from the economy as a result. Looking at the final quarter, available data sends mixed signals. While the manufacturing PMI dropped further below the crucial 50-point mark in November, the external sector’s performance improved in October and registered the largest trade surplus in seven years amid strong export growth. Meanwhile, in early December, Malaysian police filed criminal charges against five people—including the former prime minister—over the 1MDB scandal, which saw large sums of money being swindled from a government fund. This could increase political tension and instability.

Economic growth is expected to remain robust in 2019, although the pace of growth in the economy is seen moderating slightly from 2018. Domestic demand should firm up on solid government consumption and stronger growth in fixed investment. However, household consumption growth will likely ease after a strong 2018. Meanwhile, the uncertain impact of the more expansionary fiscal stance on government finances, lingering trade tensions and financial market volatility all threaten the outlook. FocusEconomics Consensus Forecast panelists expect the economy to grow 4.6% in 2019, which is down 0.1 percentage points from last month’s forecast, and 4.4% in 2020.

See the full FocusEconomics Consensus Forecast ASEAN report

MONETARY SECTOR | Inflation dips in November

A preliminary estimate by FocusEconomics suggested regional inflation inched down from 2.8% in October to 2.7% in November, on the back of lower inflation in the Philippines, Thailand and Vietnam. Inflation was unchanged in Indonesia and is still outstanding for the region’s remaining economies. On the monetary policy front, Indonesia’s Central Bank hiked rates in November in response to a widening current account deficit, while the Central Bank of the Philippines also tightened its stance in the same month, to contain mounting domestic price pressures.

Going forward, inflation will be supported by higher global oil prices and solid domestic activity. Our panelists expect regional inflation to average 3.0% in 2019, down 0.1 percentage points from last month’s forecast, and 3.1% in 2020.

Oliver Reynolds

Economist