Economy stalls in 2015, despite slight acceleration in Q4
February 24, 2016
A more complete set of data reveal that growth in the Association of Southeast Asian Nations (ASEAN) inched up in the final months of last year. GDP expanded 4.6% in the final quarter of 2015, which is just a notch above the 4.5% expansion tallied in Q3. Highlights include an acceleration in Indonesia’s economy as the government’s stimulus economic agenda began to bear fruit and pick-ups in both Singapore’s and Vietnam’s economies. On the flip side, growth in Thailand inched down as weak global demand dragged on exports and Malaysia’s economy decelerated—although it did still beat expectations—on slower investment growth and reduced public spending.
For the full year 2015, growth in the ASEAN region stalled at 2014’s 4.5%, which represented the lowest level since 2009. Economic dynamics in ASEAN, with the notable exception of Vietnam, have been plagued by external headwinds especially soft demand from China, which has hit the all-important export sector. Moreover, the low commodity price environment combined with volatile financial markets and external risks, have put pressure on many of the region’s currencies. While some signs of stabilization have emerged in recent weeks and some currencies have seen gains in value, adverse external conditions are likely to continue to impact growth prospects in the coming months. However, greater public spending in many countries, particularly Indonesia and Thailand, should support the domestic economies going forward. In addition, Vietnam’s prospects remain bright and analysts expect the country to continue on the path of economic modernization after the reelection of Nguyen Phu Trong as the Communist Party General Secretary at the end of January. Against this backdrop, FocusEconomics Consensus Forecast panelists project a 4.5% expansion for the ASEAN region in Q1 2016.
For more recent news on this region, check out our ASEAN regional summary page
ASEAN’s growth outlook stabilizes
The outlook for ASEAN stabilized this month after having deteriorated in February. Analysts polled by FocusEconomics held their growth projections for 2016 at 4.7%. This month’s projection reflected stable outlooks for the majority of countries surveyed, with no change made to the forecast for 7 of the 10 countries. However, Thailand’s outlook was revised down as doubts linger over whether government efforts can sufficiently offset a weak external sector. On a positive note, Vietnam’s outlook was revised up as the country continues to be a bright spot in the region and the Philippines’ prospects were also raised. 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 loosens FDI regulation to jump-start struggling economy
Indonesia’s economy expanded at the slowest pace in six years in 2015 as tepid domestic demand and plunging exports restrained growth. However, the economy ended the year on a high note—GDP growth picked up to a one-year high in Q4—as President Joko Widodo’s stimulus plan began to bear fruit. Higher frequency indicators point to an ongoing improvement at the outset of 2016: the trade balance swung to surplus in January and the manufacturing PMI improved. Meanwhile, the government continues its push to kick the economy into a higher gear. On 11 February, the details of the Widodo administration’s tenth stimulus plan were unveiled. The package focuses on boosting FDI by opening up over 30 sectors to foreign ownership and increasing foreign stakes allotments in others.
Growth should pick up in 2016 as infrastructure projects and the government’s spending plan move forward. 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 5.4%.
THAILAND | Government unveils new constitution to resolve political woes
Thailand’s economy accelerated notably last year, even though GDP growth decelerated slightly in the final quarter. GDP expanded 2.8% in Q4, thus slowing down from Q3’s increase and bringing the annual expansion to 2.8%—the strongest in three years. Last year, the economy benefited from an accommodative monetary policy and the government’s stimulus measures. Budget spending accelerated in an effort to help both farmers and businesses and to boost private consumption. Conversely, the external sector was a drag on growth as weak global demand harmed exports. Meanwhile, in late January, the military government unveiled a new draft constitution, which intends to replace the one scrapped after the military coup in 2014 and aims at resolving long-running political troubles. The government is expected to put the draft to a referendum this July.
While the fiscal stimulus measures undertaken by the government are welcomed by businesses, there is uncertainty regarding whether this will be enough to compensate for a weak external sector. FocusEconomics panelists expect the economy to grow 3.1% in 2016, which is down 0.1 percentage points from last month’s estimate. The panel projects growth of 3.4% in 2017.
MALAYSIA | Robust private consumption drives growth in 2015, Government revises budget to take into account low oil price
Malaysia’s economy beat expectations by growing 4.5% annually in the fourth quarter, bringing full year 2015 growth to 5.0%. The economy was propelled by robust consumer expenditure, which saw a sharp expansion in Q4 despite contending with unfavorable base effects. Analysts had predicted that front-loaded expenditure in the run up to the Goods and Service Tax implemented in April last year would drag on growth, however, those concerns now appear to have been overblown. The increase in spending is also good news for the Government, which had counted on a substantial amount of tax revenue to cover the 2016 budget and limit the fiscal deficit to the government’s target of 3.1% of GDP. On 28 January, Prime Minister Najib Razak released the revised 2016 budget, which significantly reduced the assumed benchmark oil price from USD 45 per barrel, to USD 30-35 per barrel, while still maintaining fiscal consolidation targets.
Although strong momentum coming into 2016 should keep growth within the government target of 4.0-4.5%, the revised budget has been stripped of excess government expenditure which could present a downside risk to growth. FocusEconomics panelists expect GDP to expand 4.5% in 2016, which is unchanged from last month’s forecast. For 2017, the panel sees GDP growing 4.7%.
INFLATION | Regional inflation rises from over-six-year low in January
Preliminary data show that inflation in ASEAN rose from 1.5% in December, which had marked the lowest reading in over six-years, to 1.9% in January. The print largely reflected an increase in inflationary pressures in Indonesia after the country tallied the lowest inflation level in six years in December due to a base effect.
Inflationary pressures are likely to build moderately in the coming months, largely due to increased public spending and changes in administered prices. However, the low-global-inflationary environment will likely keep price pressures subdued overall and give some flexibility to central banks going forward.
Our panelists project regional inflation to average 3.0% in 2016, which is down 0.1 percentage points from last month’s estimate and would mark a slight acceleration from 2015’s 2.8% figure. This month’s ASEAN forecast reflects downward revisions to the inflation outlook for 6 of the 10 economies surveyed, while the remaining 4 were left unchanged. Next year, inflation is expected to pick up to 3.5%.
Written by: Angela Bouzanis, Senior Economist
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