ASEAN Economic Outlook

March 20, 2019

Looking ahead, ASEAN should grow strongly, supported by wage gains, infrastructure development and FDI inflows. However, more sluggish momentum in advanced economies and the lingering U.S.-China trade war will hurt exports. An escalation of the trade spat, potential financial market turbulence and a sharper-than-expected slowdown in China are the key downside risks.

Indonesia Economic Outlook

The economy remains in fairly good shape in Q1 2019 according to recent indicators. Consumer confidence has been elevated so far this year, retail sales surged in January, and the Central Bank has penciled in an even quicker expansion in retail sales for February. Households are likely benefiting from multi-year low inflation and government fiscal support to low-income families in the build-up to the April elections. Moreover, tourist numbers continued to rise at a solid pace in January. On the other hand, the manufacturing sector continued to broadly stagnate in February according to the PMI reading, amid lower new exports and output, and against a backdrop of global trade tensions and ebbing momentum in China. On the political front, Indonesia and Australia signed a free trade agreement in early March. If ratified, the deal would boost market access for Indonesian goods exports.

Economic growth will be firm this year, underpinned by domestic demand. Private consumption will benefit from a strong labor market, while government consumption is likely seeing a slight boost ahead of the elections. However, potential delays to infrastructure projects could weigh on growth, while global trade tensions and uncertain momentum in China pose downside risks. 

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

The country is gearing up for elections scheduled for 24 March, which the current military junta leader Prayut Chan-o-cha is expected to win. On the economic front, domestic demand fueled the acceleration in economic growth in the fourth quarter of last year and early data on the domestic economy in Q1 2019 remains fairly positive. Private consumption and private sector investments grew robustly in January, with the former reaping the fruits of low unemployment and moderate inflation. However, manufacturing operating conditions and business sentiment worsened in February. On the external front, Thailand recorded its largest trade deficit in January since April 2013 on a surge in imports and a drop in exports. The latter was weighed down by an appreciating currency and trade tensions dragging on demand from China and Europe.

Economic growth should moderate somewhat this year despite strong fixed investment and public expenditure. Downside risks remain present in the Sino-American trade conflict, which could spill over and drag on Thailand’s exports, while domestic tensions could rise in the aftermath of the general election.

Our panel expects the economy to expand 3.6% in 2019, which is down 0.1 percentage points from last month’s forecast, and 3.6% again in 2020.

Vietnam Economic Outlook

Economic momentum appears to be holding up in the first quarter of the year as the resilient manufacturing sector defies external headwinds from weakening global growth and the slowdown in China. Industrial production picked up in February on stronger manufacturing output, although growth in the first two months was well below that of the same period last year. Manufacturing operating conditions also improved in the same month—albeit at the softest pace in nearly three years. The continued expansion in the manufacturing sector likely fed through to the external sector, with merchandise exports growing at a solid clip in the first two months of the year. Meanwhile, retail sales gathered steam in February, underpinned by a rock-solid labor market, while tourist arrivals recorded double-digit growth in February which, in turn, likely propped up services exports and consumer spending.  

While growth is expected to cool from 2018’s robust showing, the economy should remain on solid footing in 2019. Industrial output and investment are expected to stay robust as Vietnam continues to solidify its position as a global manufacturing hub. Likewise, exports and FDI inflows will likely be resilient despite headwinds from slower global growth and U.S.-China trade tensions.

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 was steady at 1.9% in February. Price pressures should increase slightly this year, underpinned by strong growth, rising wages and higher food prices. However, inflation will still remain fairly mild in most countries, supported in several instances by government measures. 

After substantial policy tightening in 2018—largely due to multiple rate hikes in Indonesia and the Philippines—any extra tightening in ASEAN this year is likely to be mild. This is because price pressures are fairly subdued in most countries, and the U.S. Federal Reserve’s looser stance should lessen pressure on regional currencies.  

Following a notable depreciation in most regional currencies against the USD last year, on the whole currencies are seen staying fairly stable in 2019 thanks to a more dovish Fed. However, the region will remain vulnerable to financial market turbulence and changes in global investor sentiment, which could see capital outflows and put downward pressures on exchange rates. 

See the full FocusEconomics Consensus Forecast ASEAN report