ASEAN: Growth steady in Q1
May 25, 2016
A complete set of data reveal that growth in the Association of Southeast Asian Nations (ASEAN) remained steady in the first quarter of 2016. GDP expanded 4.6% annually in Q1, which was just a notch above the preliminary estimate and matched Q4 2015’s result. The reading partly reflects that accelerations in Thailand and the Philippines’ economies, were offset by slower growth in Indonesia, Malaysia and Vietnam.
Sluggish global demand, which has dominated ASEAN’s growth story in recent months, continued to weigh on many economies in the region. The effects of subdued external demand, combined with still-low prices for key export goods, were pronounced in Malaysia’s economy, which expanded at the slowest pace seen since the global financial crisis in 2009. In Indonesia, while the external sector continued to perform poorly, the economy’s downturn was surprisingly driven by weak government spending and slow growth in fixed investment. The result marked a setback to President Joko Widodo’s efforts to push the economy into a higher gear through government stimulus. On the bright side, Thailand’s economy grew at the fastest pace since Q1 2013 in the first three months of the year on surging net exports. However, the improvement is likely to be short lived as exports were boosted by temporary factors and a sharp contraction in imports amid weak domestic demand.
In the Philippines, economic data remain bright and GDP grew at the fastest pace in three years in Q1 on the back of robust domestic demand. Provisional unofficial results from the 9 May presidential election show that controversial Rodrigo Duterte will take over one of ASEAN’s hottest economies on 30 June. While Duterte campaigned on a platform of reducing corruption and taking a tough stance on crime, little is known about his economic agenda and a series of controversial comments during the campaign sparked concerns over his ability to maintain good relationships with the business and international communities. In addition, it appears that Duterte will have low support in Congress which could hinder his ability to steer legislation. Despite the political uncertainty, solid fundamentals should continue to support the Philippines robust growth story. Looking forward, FocusEconomics Consensus Forecast panelists see growth remaining steady in the second quarter of 2016 and project a 4.6% expansion for the ASEAN region.
ASEAN 2016 growth outlook stabilizes
The outlook for ASEAN was unchanged this month after having deteriorated in the previous period. Analysts polled by FocusEconomics see growth for 2016 at 4.6%. This month’s forecast reflected stable forecasts for 7 of the 10 countries surveyed, including major players Indonesia and Thailand. The forecasts for Brunei and Malaysia were revised downward, while the Philippines was the only country which the outlook was revised up. 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 7.0% and higher. At the other end of the spectrum, Brunei andSingapore 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 6.5% and 6.1%, respectively. Regarding Indonesia—the largest economy in the region—our panel of economists sees GDP expanding 5.1%.
INDONESIA | Economy decelerates in Q1
Indonesia’s economy slowed in the first quarter of the year amid weak fixed investment and a deceleration in government spending. The result marks a setback for President Joko Widodo—who has enacted a number of stimulus plans to push the economy into a higher gear—and increases pressure on the government to speed up spending and economic reforms. However, weak fiscal revenues are threatening the government’s plans and a critical tax amnesty bill, which the government is relying on to boost revenues, has been delayed in parliament. On a bright note, data for the start of Q2 is positive: the manufacturing PMI improved and the trade surplus rose in April.
GDP growth should gain steam this year as the government’s efforts to kick-start the economy bear fruit. However, slow reform implementation and delays in government spending represent downside risks to the outlook. 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 | Growth picks up in Q1 but prospects remain subdued
The Thai economy accelerated notably in the first quarter of this year, thus providing some relief to the military government which is struggling to revive the economy since it took power two years ago. In Q1, GDP expanded at the fastest pace in nearly four years on an annual basis. This came mainly on the back of an improvement in the external sector’s contribution to overall growth as exports accelerated markedly and imports tallied a steeper contraction compared to Q4’s figures. In addition, growth in government spending almost doubled the previous quarter’s reading amid an aggressive fiscal stimulus. Conversely, high household debt weighed on private consumption and the recent severe droughts did the economy no favors. While Q1’s acceleration is a sign of improvement, the economy’s prospects remain dismal asexports and private consumption—the two main growth drivers—remain sluggish.
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. Moreover, political uncertainty will weigh on growth this year. FocusEconomics panelists expect the economy to grow 3.0% in 2016 and 3.3% in 2017.
MALAYSIA | Political uncertainties persist amidst slowing economic growth
Malaysia’s economy expanded at the slowest pace since the financial crisis in the first quarter of the year, growing 4.2% annually. Although the result is the latest in a series of quarterly decelerations, the figure beat market expectations and indicates still-robust growth despite a broad slowdown across emerging economies. Malaysia has also proven resilient amid a protracted period of low energy prices which have impacted export revenues. The Prime Minister, who has been implicated in a number of graft allegations associated with the 1MDB investment fund, has so far managed to maintain his position amid growing calls for his resignation from opposition members. Although financial stability issues related to the high profile 1MDB scandal have recovered somewhat, a number of international investigations are still pending which have the potential to jeopardize the Prime Minister’s standing.
Malaysia’s growth is being weighed on by reduced external demand and still-low energy prices. However, strong domestic dynamics stemming from a robust labor market and a growing manufacturing industry will support growth in 2016. FocusEconomics panelists expect GDP to expand 4.3% in 2016, which is down 0.1 percentage points from last month’s forecast. For 2017, the panel sees GDP growing 4.6%.
INFLATION | Inflation falls to a four-month low in April
Preliminary data show that inflation in ASEAN fell from 2.0% in March to 1.8% in April. The print, which hit the lowest reading so far this year, largely reflected reduced price pressures in Indonesia and Malaysia, which more than offset higher inflation in Thailand and Vietnam. Subdued commodity prices are expected to keep inflationary pressures in ASEAN in check this year and have given a number of Central Banks in the region the flexibility to ease monetary policies. In addition, some Central Banks have been tweaking with their monetary policy framework in order to improve the effectiveness of monetary policy. In Indonesia, the Central Bank will change its policy rate to the BI seven-day (reverse repo) rate as of 19 August and, in the Philippines, the Central Bank will introduce a new, narrow, interest rate corridor in June.
Our panelists see inflation rising moderately in the coming months. They project regional inflation to average 2.7% in 2016, which is unchanged from last month’s estimate. This month’s ASEAN forecast reflects stable inflation outlooks for 4 of the 10 economies surveyed, including the region’s largest economy Indonesia. In contrast, the inflation outlook was cut for 4 of the countries surveyed, including Malaysia. While, Thailand and Vietnam’s inflation forecasts were revised up. Next year, inflation is expected to pick up to 3.4%.
Written by: Angela Bouzanis, Senior Economist
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