ASEAN Economic Forecast

Economic Snapshot for ASEAN

May 22, 2019

Growth in the ASEAN economy is expected to ease slightly in 2019

Growth in the regional economy is expected to ease slightly this year amid a more challenging external environment due to lingering trade tensions and moderating growth in China, a key economic partner of the region. This, however, masks robust domestic demand, infrastructure spending and foreign investment inflows, all of which should support economic activity.

The ASEAN regional economy is projected to expand 4.7% in 2019, down 0.1 percentage points from last month's forecast. For 2020, the region is forecast to expand 4.8%.

Indonesia Economic Outlook

The economy performed fairly well in the first quarter of the year, despite growth slightly undershooting market expectations. Private consumption was likely supported by a multi-decade low unemployment rate and mild inflation, while public consumption appeared to receive a boost from pre-election spending. Moreover, the external sector strengthened amid government measures to curb imports. On the downside, exports declined, while fixed investment growth tapered. Turning to the second quarter, available indicators are fairly downbeat. In April, the manufacturing PMI dipped on stagnating new orders, while the external sector recorded a record trade deficit as exports continued to plunge. On the political front, incumbent Joko Widodo emerged victorious in the 17 April presidential elections, signaling policy continuity.

Growth will be firm this year, underpinned by healthy consumption and investment. Moreover, the external sector should strengthen after significantly dragging on growth last year. Downside risks stem from global trade tensions, potential global financial volatility weighing on the rupiah, and possible delays to infrastructure projects

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

In general elections held on 24 March, the military-backed Palang Pracharat (PP) party fell short of securing a majority in the Lower House. Although the party is still expected to form a coalition with smaller parties—therefore, the incumbent prime minister should remain in office—, political instability will remain elevated. Meanwhile, the Thai economy should have cooled in the first quarter of this year on softening domestic demand: Average private consumption growth eased to an over one-year low, despite a slight uptick in consumer sentiment and still-muted inflation; private investment contracted for the first time in two years; and manufacturing output dropped for the first time in three years. Moreover, while monthly trade data showed that the trade balance swung back into black for the first time since Q2 2018, this was only owing to a stronger drop in imports compared to exports.

Economic growth should moderate this year even though increased government expenditure related to infrastructure projects will likely provide some stimulus. Downside risks mainly stem from lingering trade tensions between the U.S. and China affecting exports, while high household indebtedness is likely to drag on private consumption, which is seen moderating this year.

Our panel expects the economy to expand 3.6% in 2019, which is unchanged from last month’s forecast, and 3.5% in 2020.

Vietnam Economic Outlook

The economy appeared to perform well at the outset of the second quarter. In April, the manufacturing PMI increased on a recovery in employment, while industrial production growth rose. Moreover, exports expanded robustly year-on-year in the same month, despite external trade headwinds, and retail sales surged, likely supported by mild price pressures. In the first four months of the year, FDI was up markedly, potentially driven in part by firms diverting production away from China amid the prolonged U.S.-China trade dispute. This comes after economic momentum ebbed in the first quarter of the year, weighed on by slower growth across all sectors. In late April, the IMF completed a staff visit. While highlighting broad-based growth and fiscal consolidation efforts in recent years, the Fund encouraged the government to cut red tape and improve the private sector’s access to land and credit.

The outlook for 2019 remains favorable. Household spending will remain brisk amid modest inflation and rising incomes, while stronger tourism, FDI, exports and industrial output should continue to power growth. The possibility of a larger-than-expected Chinese or global slowdown pose downside risks.

FocusEconomics panelists project the economy expanding 6.6% in 2019, which is unchanged from last month’s forecast, and 6.4% in 2020.

ASEAN Monetary & Financial Sector News

Regional inflation is expected to have picked up to 2.1% in April, on the back of stronger price pressures in Indonesia and Vietnam, from an upwardly revised 2.0% in March. Meanwhile, inflation in Thailand remained stable and moderated in the Philippines. Going forward, resilient domestic demand should push up inflation from its current level. 

While the central banks of Indonesia and Thailand stood pat in recent weeks, those of Malaysia and the Philippines cut rates. Going forward, regional interest rates are expected to decline slightly this year compared to last year, amid a more dovish U.S. Fed and mild price pressures in many countries. 

Following marked depreciations last year due to rate hikes by the U.S. Fed, this year regional currencies are expected to regain only marginal ground against the U.S. dollar amid lingering trade tensions, persistent fiscal deficits and large current account deficits in some countries. Financial-market turbulence and investor mood swings could potentially drag on the currencies.

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