ASEAN Economic Forecast

Economic Snapshot for ASEAN

December 18, 2017

Growth surges in Q3 to nearly five-year high 

Comprehensive data reveals that the economy of the Association of Southeast Asian Nations (ASEAN) expanded robustly in the third quarter, with GDP growth notably overshooting preliminary estimates. According to an estimate compiled by FocusEconomics, regional GDP grew a buoyant 5.5% annually in Q3, a sharp acceleration from Q2’s 5.0%. The result marks the fastest growth rate since Q4 2012 as the region benefited from the tailwinds of higher commodity prices and healthy global demand.

The regional growth estimate was revised upward primarily because of stellar performances in Malaysia and Thailand. In Malaysia, GDP growth overshot expectations as the economy fired on all cylinders: Consumers loosened their purse strings, investment soared, exports boomed and government spending picked up ahead of next year’s election. Thailand’s economy also benefited from robust export growth, which has had positive spillover effects on investment in the country. Singapore’s GDP figure for the third quarter was also revised up in a recent estimate, revealing the largest expansion since Q4 2013 as the economy benefited from strong global demand for electronics products.

Three of the region’s major players took a step towards deeper economic ties in December to boost trade and investment between their economies. The central banks of Indonesia, Malaysia and Thailand launched a local currency settlement framework on 11 December, which will come into effect on 2 January. The framework will promote the use of local currencies in trade and investment, cutting the transaction costs of doing business and fostering closer cross-border relations. In addition, the agreement could help reduce the economies’ reliance on U.S. dollars, although the broader economic effects will be more visible in the long-run. The move is in line with ASEAN’s overarching vision of a more closely integrated economy.   

See the full FocusEconomics Consensus Forecast ASEAN report

This year’s tailwinds to remain in place in 2018

A combination of healthy labor markets, buoyant infrastructure spending and strong global demand are expected to lift growth in the ASEAN economy to a four-year high of 5.1% in 2017. Next year, these tailwinds are expected to remain largely in place and fuel another year of vigorous growth. Firm demand for technological goods will support exports of electronics, while higher commodity prices will support exports of minerals. Moreover, businessfriendly reforms and a pipeline of infrastructure projections should boost investment. A busy political calendar could result in higher government spending ahead of key elections in 2018 and 2019. The Consensus Forecast for the region is 5.0% growth in 2018, unchanged from last month’s projection. In 2019, growth is seen steady at 5.0%.

This month’s stable outlook was driven by unchanged projections for 3 of the region’s 10 economies, including major player Indonesia. Meanwhile, Brunei, Cambodia, Malaysia, the Philippines, Singapore, Thailand and Vietnam all saw their forecasts upgraded.

Myanmar is forecast to be the region’s fastest-growing economy next year, with growth of 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 2.7%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.3%, followed by Malaysia with 5.1% growth. Thailand is seen growing a more moderate 3.6%.

INDONESIA | Policymakers act to ensure financing woes do not interfere with spending goals

Incoming data for the fourth quarter suggests that the economy is slowly gaining momentum, after growth edged up in the third quarter. Retail sales picked up pace in October, and export growth accelerated in the same month. Moreover, consumer confidence and the manufacturing PMI both rose in November. The positive influx of data suggests that the economy is finally kicking into a higher gear. Despite several government stimulus plans, annual growth has hovered around 5.0% since 2014, in part due to financing constraints that have hampered the government’s infrastructure drive. In December, the government sold USD 4.0 billion in five-, ten- and thirty-year bonds to shore up revenues and finance its 2018 budget. The government has also recently taken steps to increase tax revenues, including amending contracts with several of the largest mining companies operating in the country.

Buoyant infrastructure spending and healthy household consumption should prop up growth next 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 | External sector fuels vibrant Q3 growth

The economic recovery continued in the third quarter, with the Thai economy posting a stellar growth rate. GDP increased 4.3% in annual terms, accelerating from 3.8% in the second quarter and beating market expectations. While the agricultural sector had a solid showing, growth was primarily driven by the external sector; exports have performed robustly throughout most of the year. On the domestic front, private consumption grew at a slightly quicker pace in the third quarter. Low inflation and interest rates, together with rising wages, buttressed household spending. The momentum is likely to carry over to the final quarter of the year, according to recent data. Exports and tourist arrivals increased in October, and the business confidence indicator recorded a slight improvement in November, signaling increased optimism in the non-manufacturing sector. However, private consumption growth slowed in October despite improved consumer confidence.

Robust overseas demand and sizable public investments are expected to support economic growth next year, but downside risks remain. Growth is likely to moderate on the back of a slowdown in external demand, as the external sector is currently benefitting from a notable base effect. Moreover, the underlying fundamentals of private consumption remain weak and households are highly indebted. Economic activity and confidence levels could also be dented by uncertainty around the general election set to be held next year. FocusEconomics panelists expect the economy to grow 3.6% in 2018, up 0.1 percentage points from last month’s forecast. The panel projects 3.5% growth in 2019. (

MALAYSIA | Economy grows notably in Q3 on domestic and external demand 

The economy recorded unexpectedly strong annual GDP growth in Q3, posting its most robust expansion in over three years on broad-based gains across the real and external sectors. Domestic demand was propelled by upbeat activity in the manufacturing and services sectors, which both accelerated from the previous quarter. Vibrant household spending signaled the continued health of the private sector and tight labor market dynamics. An acceleration in public spending from a quarter earlier also contributed to the robust fixed investment dynamics on display in Q3. Moreover, the external sector thrived as exports jumped to double-digit annual growth on impressive regional trade and a healthy global economy. Leading data from October was mixed: The external sector posted impressive growth in exports and the widest trailing trade surplus in more than a year, while the industrial sector saw the weakest acceleration since late 2016.

Robust GDP growth is expected again in 2018 as household spending should continue to benefit from low unemployment and fixed investment will get a helping hand from upbeat industrial and services sectors. Moreover, exports are expected to continue picking up steam. The consumer-friendly 2018 budget that was passed on October will focus on narrowing the fiscal deficit ahead of next year’s general election. FocusEconomics Consensus Forecast panelists expect GDP to expand a healthy 5.1% in 2018, up from last month’s estimate, and 4.9% in 2019. 

MONETARY SECTOR | Inflation inches down in November

Preliminary figures reveal that price pressures moderated in ASEAN in November, with inflation inching down from 2.6% in October to 2.5%. Most of the economies saw lower inflation in November. Monetary tightening in the United States has caused the majority of the region’s central banks to keep their monetary policy rates unchanged, despite muted price pressures. In December, the central banks of Indonesia and the Philippines left rates unchanged. 

The Consensus Forecast is for inflation to average 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%.

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