ASEAN: Steady but not yet stellar
July 19, 2017
Steady but not yet stellar
The economy of the Association of Southeast Asian Nations (ASEAN) continued to jog along in the second quarter of 2017, according to a preliminary estimate of regional GDP compiled by FocusEconomics. Growth was steady at Q1’s 4.8% annually in Q2, coming in a notch below last month’s projection. While the ASEAN economy has managed to maintain healthy growth in the past quarters despite a number of uncertainties, growth has hovered around 4.6% since 2014 as a number of economies fail to grow at full speed.
Looking at the details of Q2’s result, activity was steady in Singapore, largely driven by surging electronics production which has boosted manufacturing and helped offset other weaker sectors of the economy. Limp construction activity held back growth amid low private investment and tepid loan growth, while services accelerated, although momentum was still sluggish. Meanwhile, growth gathered pace in Vietnam as the manufacturing sector bounced back from a weak opening quarter. While its economy is among the most dynamic in the region, dragging mining output is plaguing the outlook.
Although official GDP figures are not available for the other economies in the region, our analysts project growth to ease modestly in the Philippines and Thailand. Meanwhile, activity in Malaysia is seen receding after a robust first quarter, but remaining strong overall thanks to positive spillovers from exports growth. Regional giant
Prospects upgraded due to improved outlooks for Malaysia and Singapore
FocusEconomics analysts raised ASEAN’s outlook after four months of unchanged prospects. After a 4.6% expansion in 2016, our panel sees GDP increasing 4.9% this year, which is up 0.1 percentage points from last month’s forecast, as the region slowly gains steam. Growth is seen stable at 4.9% in 2018. While protectionist U.S. policies and a pronounced slowdown in China are large downside risks to the region’s outlook, so far neither has materialized yet and growth has remained healthy thanks to favorable electronics exports and resilient domestic demand.
Behind this month’s improved outlook are upgrades to the 2017 GDP forecasts for Malaysia and Singapore. Surging exports and robust investment plans are supporting the upgrade to Malaysia’s outlook, while Singapore is expected to benefit from an expansionary fiscal stance. These upward revisions however are partly countered by lower growth prospects for the Philippines and Vietnam. All of the other economies in the region saw stable projections this month.
Myanmar will be the region’s fastest-growing economy this year, expanding 7.4%, followed by Cambodia. On the other end of the spectrum, Brunei will grow a tepid 1.1% and the more mature economy of Singapore is seen increasing 2.4%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.2%, followed by Malaysia with 4.9% growth. Thailand is seen growing a more moderate 3.4%.
INDONESIA | Government plans to ramp up spending
Incoming data suggests that the economy is slowly gaining momentum. Exports and imports both soared in May, illustrating strengthening internal and external demand. Retail sales growth also edged up in the same month, although the manufacturing PMI swung into contractionary territory in June. In July, the government proposed hiking 2017 spending and lowering the revenue target for its budget this year. The government has been trying to jumpstart the economy with an ambitious spending plan that has so far yielded mixed results. While extra spending should add impetus to growth, it will likely widen the fiscal deficit to 2.92% of GDP according to the finance ministry, narrowly below the 3.0% of GDP legal limit. The proposed changes to the budget still need to be approved by parliament.
Recovering commodities prices and robust public and private spending should support a modest acceleration in growth this year. Our panel sees GDP expanding 5.2% in 2017, which is unchanged from last month’s forecast. In 2018, GDP growth is expected to pick up further to 5.4%.
THAILAND | Surging exports suggest healthy growth in Q2
The economy started the year on a positive note and incoming data points to healthy growth in Q2. Despite earlier concerns about the strong baht, exports recorded a record-high pace of growth in May. The manufacturing PMI also performed well and returned to expansion territory in June on the back of increased domestic and overseas demand. While business confidence slipped in June, it remained entrenched above the crucial 50-point mark, signaling a positive outlook. On the political front, the government finally approved phase one of a Chinese high-speed railway connecting Thailand to South China, budgeted at USD 5.2 billion.
Robust public spending aimed at boosting investments and solid private consumption will spur growth while the large current account surplus brightens the outlook. However, the strong baht and potential shocks to export could drag on growth. FocusEconomics panelists expect the economy to grow 3.4% in 2017, which is unchanged from last month’s forecast, and also 3.4% in 2018.
MALAYSIA | Solid Q1 performance fuels forecast upgrade
Malaysia’s economic momentum has firmed up after years of slowing growth. Following the strong start to the year, GDP likely grew at a healthy pace in Q2 as a pickup in exports is generating positive economic spillovers. Incoming hard data for the period is healthy. In May, industrial production accelerated and exports growth returned to double-digits aided by a competitive ringgit. The improving economic picture has led some analysts to predict that the government may capitalize on the bright backdrop by calling early elections. Malaysia is scheduled to go hold a general election by August 2018 at the latest.
Rebounding exports and a strong pipeline of investment projects should lead to an acceleration in growth this year—the first since 2014. FocusEconomics panelists upgraded their view of the economy this month, reflecting strong incoming data. The panel expects GDP to expand 4.9% in 2017, which is up 0.2 percentage points from last month’s forecast. For 2018, the panel foresees the economy growing 4.6%.
INFLATION | Price pressures soften in June
Preliminary data show that inflation in ASEAN came in at 2.8% in June, just below May’s 2.9%. Lower price pressures in the Philippines and Thailand drove the result, while inflation edged higher in regional-giant Indonesia. Despite rather weak price pressures, rising interest rates in the U.S. have eroded space for most of the ASEAN region’s central banks to cut rates. Policy makers in the Philippines, and Malaysia held rates unchanged in recent weeks. However, in a surprising move, Vietnam’s Central Bank cut its main policy rate for the first time in three years in July. The unexpected move was designed to spur loan demand and consumption.
Our panelists see price pressures rising this year, after benign inflation of 2.1% in 2016. Our panel expects inflation to average 3.2% in 2017, which is down 0.1 percentage points from last month’s forecast, and 3.3% in 2018.
Written by: Angela Bouzanis, Senior Economist