ASEAN: External headwinds likely to persist in 2016
March 23, 2016
A more complete set of data corroborate that growth in the Association of Southeast Asian Nations (ASEAN) inched up in the final quarter of 2015. The economy accelerated from a 4.5% expansion in Q3 to a 4.6% increase in Q4. The pick-up partly reflected strong momentum in Indonesia fueled by government stimulus, as well as solid expansions in the Philippines and Vietnam. In the Philippines, President Benigno Aquino has taken steps to unclog bottlenecks in spending and boost investment, which has supported the economy’s strong performance. The economy has grown robustly under Aquino and whether his successor will be able to keep up the economy’s momentum is a concern in the run-up to May’s presidential election.
Despite the slight acceleration in Q4, growth in the ASEAN region stalled in 2015 at the lowest level since 2009. The economic story was dominated by external headwinds, especially weak demand from China and the low-commodity-price environment. At the outset of 2016, these factors look likely to linger and weigh on growth prospects again this year. To boost growth, some governments in the region have turned to stimulus, such as Indonesia and Thailand. However, in Thailand, although the government’s measures seem promising, implementation has been slow. In Indonesia, the low-oil-price environment, along with a delay in an important tax bill, are squeezing the government’s revenues, which could affect stimulus measures going forward. The government is set to review the budget in May and these realities will likely be taken into account. Meanwhile, Singapore’s new government will unveil the 2016 budget on 24 March. While many market analysts have argued that the economy’s weak growth in 2015 suggests it needs a boost, Finance Minister Heng Swee Keat has stated that the budget will be ‘prudent’. Against this backdrop, FocusEconomics Consensus Forecast panelists see a deceleration in the first quarter of 2016 and project a 4.5% expansion for the ASEAN region.
ASEAN’s growth outlook stable for second consecutive month
The outlook for ASEAN was stable this period for the second consecutive month. Analysts polled by FocusEconomics maintained their growth projections for 2016 at 4.7%, the same as last month. This month’s forecast reflected stable projections for the majority of the countries surveyed, with no change made to the forecast for 6 of the 10 countries. However, Malaysia’s outlook was revised down as low oil prices constrain government stimulus efforts and domestic as well as external uncertainties will likely hit investment. In addition, the projections for Cambodia and Singapore were also revised down. Next year, our panel of analysts expects the ASEAN economy to expand 4.9%.
Myanmar, Laos and Cambodia, in that order, are expected to be the best performers in 2016, with expansion rates of over 7.0%. At the other end of the spectrum, Brunei and Singapore are likely to be the worst performers, followed by Thailand. Among the rest of the region’s major economies, Vietnam and the Philippines will grow the fastest, with a projected expansion of 6.7% and 6.0%, respectively. Regarding Indonesia—the largest economy in the region—our panel of economists sees GDP expanding 5.1%.
INDONESIA | Government to review state budget against backdrop of subdued revenues
Indonesia’s economy kicked into a higher gear in the fourth quarter of last year as government stimulus began to bear fruit. However, lackluster private consumption and falling exports continue to limit the economy’s momentum and data for the first quarter of 2016 is soft. The manufacturing PMI edged down and consumer confidence decreased in February. Looking forward, the low-oil-price environment is weighing on government revenues and threatening to interfere with the government’s stimulus plans. In addition, a tax amnesty bill that was supposed to boost government revenue by over USD 4 billion has been delayed in Parliament. These new realities will likely be reflected in the review of the state budget which is set for May.
GDP growth is likely to gain steam this year, largely driven by the government’s efforts. FocusEconomics panelists see GDP accelerating to a 5.1% expansion in 2016, which is unchanged from last month’s forecast. For 2017, the panel sees GDP expanding 5.3%.
THAILAND | Government spending drives pickup in 2015
The Thai economy slowed slightly in Q4 2015 although growth improved markedly for the whole year. Last year’s expansion was much better than the weak increase recorded in 2014, when the country suffered the consequences of a military coup. In 2015, the economy was broadly supported by higher government spending, which was dispersed to farmers in particular as they have taken a hit from lower commodity prices, as well as an increase in household spending. Recent data show that the economy likely lost momentum in the first quarter. Both manufacturing production and exports disappointed in January while business and consumer confidence levels were relatively low in February. Earlier this month, the military government set 7 August as the date for a referendum on the controversial constitution it drafted after taking power.
The fiscal stimulus measures undertaken by the government are welcomed by businesses, however, there is uncertainty regarding whether this will be enough to shore up a recovery amidst a weak external sector. FocusEconomics panelists expect the economy to grow 3.1% in 2016, which is unchanged from last month’s estimate. The panel projects growth of 3.4% in 2017.
MALAYSIA | Strong demand for electrical and manufacturing products supports current account surplus
Malaysia, a key petroleum and liquefied gas exporter, has seen uninterrupted export contractions in USD terms since October 2014, as prices for petroleum products and palm oils remain stuck at historical lows. Despite this, Malaysia is not likely in danger of losing its current account surplus as the country’s export sector continues to be buoyed by electrical and manufacturing products bound for the U.S. and China. Furthermore, despite political instability and uncertainty surrounding the replacement of Central Bank Governor Zeti Akhtar Aziz at the end of April, Malaysia’s economy is well diversified and looks to be able to hold up during the current period of heightened financial volatility.
As China faces an uncertain 2016, so too will its major trading partners. This includes Malaysia, whose government will be hoping that China refrains from devaluing its currency again and avoids any financial market hiccups that have already had a destabilizing effect on the region so far this year. FocusEconomics panelists expect GDP to expand 4.4% in 2016, which is down 0.1 percentage points from last month’s forecast. For 2017, the panel sees GDP growing 4.6%.
INFLATION | Regional price pressures build slowly
Preliminary data show that inflation in ASEAN inched up from 2.0% in January to 2.1% in February, which marked the highest reading since October. The print largely reflected an increase in inflationary pressures in Indonesia, while other countries in the region continue to see subdued price pressures. Subdued commodity prices has kept inflationary pressures in the ASEAN region in check over the past year.
Our panelists see price pressures building in the coming months, partly due to increased public spending and changes in administered prices. However, the low-global-inflationary environment will likely keep inflation contained overall and give some flexibility to central banks going forward. Our panelists project regional inflation to average 2.8% in 2016, which is down 0.2 percentage points from last month’s estimate. This month’s ASEAN forecast reflects downward revisions to the inflation outlook for 8 of the 10 economies surveyed, while Cambodia’s forecast was left unchanged. Myanmar was the only country for which the forecast was revised up. Next year, inflation is expected to pick up to 3.5%.
Written by: Angela Bouzanis, Senior Economist
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