ASEAN: Growth wanes in Q1
A preliminary set of data suggest that growth in the Association of Southeast Asian Nations (ASEAN) inched down in the first quarter of 2016. GDP expanded 4.5% annually in Q1, which was just below Q4 2015’s 4.6% growth. The slight slowdown partly reflects a significant deceleration in Vietnam. Vietnam’s economy tallied the smallest expansion since Q2 2014 amid sustained weakness in exports and on the back of the ongoing drought that hit the agriculture sector.
Meanwhile, economic growth stalled in Singapore in the first three months of the year, underscoring the challenges facing the country. Weak external demand is weighing on Singapore’s trade-reliant economy and is likely to keep the manufacturing sector in the doldrums this year. Against this backdrop, the government unveiled a slightly-expansionary budget for fiscal year 2016, which aims to boost investment and support small and medium-sized companies while maintaining fiscal prudence. In addition to the government’s actions, the Monetary Authority of Singapore (MAS) eased its policy stance in April and decided to set the rate of appreciation of the Singapore dollar nominal effective exchange rate policy band at zero percent. These measures are designed to shore up economic growth in the island’s economy, however, our panelists are skeptical if they will achieve the desired result.
Elsewhere in the region, politics took center stage in April. In Malaysia, a missed payment by government investment fund 1Malaysia Development Berhad (1MDB) has raised fears of a potential default and thus thrust corruption allegations against Prime Minister Najib Razak into the spotlight. In the Philippines, polls point to a dead heat ahead of the 9 May presidential elections. Despite all the political noise in the region, FocusEconomics Consensus Forecast panelists see a slight pick-up in the second quarter of 2016 and project a 4.6% expansion for the ASEAN region.
ASEAN’s growth outlook deteriorates
The outlook for ASEAN deteriorated this month after having been stable in April. Analysts polled by FocusEconomics cut their growth projections for 2016 by 0.1 percentage points to 4.6%. This month’s forecast reflected downward revisions to 5 of the 10 countries surveyed, including Thailand and Vietnam. The forecasts for four countries were left unchanged, including major player Indonesia, while Myanmar was the only country for which the forecast 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 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 6.5% and 6.0%, respectively. Regarding Indonesia—the largest economy in the region—our panel of economists sees GDP expanding 5.1%.
INDONESIA | Government unveils latest stimulus package amid weak economic data
Indonesia’s economy lost steam last year as rising government spending failed to compensate for falling exports and lackluster private consumption. While surging government consumption should boost growth this year, high-frequency data suggests other economic drivers are stuck in the doldrums. The trade surplus more than halved in March and growth in real retail sales moderated in February. Meanwhile, the government unveiled its 11th economic stimulus package at the end of March. The latest measures to boost growth include lower taxes on real estate investment and measures to cut red tape at Indonesian ports.
The government’s efforts to kick-start the economy should bear fruit this year and 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 | New controversial constitution to be put to referendum in August
Thailand’s economy accelerated markedly last year and more recent data show that it likely grew at a strong rate in the first quarter of this year. In March, exports expanded again after 13 consecutive months of contractions and business confidence reached the highest level in a year. Earlier this month, the military government unveiled another draft of the new constitution after the one that was prepared in September of last year was rejected. The new draft calls for a Senate that is fully appointed by the military-led National Council for Peace and Order and may allow for the nomination of a non-elected Prime Minister. The controversial draft will be voted on in a referendum on 7 August. A rejection of it would translate into a continuation of the political deadlock and the postponement of the elections.
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, which is down 0.1 percentage points from last month’s estimate. The panel projects growth of 3.3% in 2017.
MALAYSIA | Fresh allegations of government corruption surface in April
Malaysia’s economy is performing well despite recent uncertainty over certain aspects of the political and financial landscape. The export sector benefits from a diversified manufactured goods component that remains resilient amid a contraction in petroleum-related exports, which still make up a large share of Malaysia export profile. Growth in the manufactured goods sector is helping fuel consumption, which ended on a strong note in Q4. As the sector accounts for roughly 17% of total employment, its buoyancy is reflected in the labor market. Wage growth is stable, and although Malaysia has elevated household debt levels, non-performing loans are falling. However, fresh allegations of corruption and abuse of power were directed at the Prime Minister in April as an investigation yielded new details regarding his connection with the troubled 1MDB development fund, which caused default concerns when it missed a sizable interest payment in mid-March. Although these allegations have had a muted economic impact thus far, the potential for political instability has increased.
Malaysia’s economic momentum is solid in the face of a challenging external environment. Stronger-than-expected growth in 2016 is balanced by risks to stability that stem from the changing of the Central Bank Governor, the 1MDB crisis and high household debt levels. FocusEconomics panelists expect GDP to expand 4.4% in 2016, which is unchanged from last month’s forecast. For 2017, the panel sees GDP growing 4.6%.
INFLATION | Regional price pressures ease in March
Preliminary data show that inflation in ASEAN fell from 2.2% in February to 2.0% in March. The print largely reflected decreases in price pressures in Malaysia and Singapore, which more than offset higher inflation in the Philippines 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.
Our panelists see price pressures rising slightly in the coming months, albeit modestly. Our panelists project regional inflation to average 2.7% in 2016, which is down 0.1 percentage points from last month’s estimate. This month’s ASEAN forecast reflects downward revisions to the inflation outlook for 6 of the 10 economies surveyed, including the region’s largest economy, Indonesia. In contrast, the inflation projection was raised for Brunei and Cambodia, while the remaining two countries saw no change to their forecasts. Next year, inflation is expected to pick up to 3.5%.
Written by: Angela Bouzanis, Senior Economist
April 27, 2016
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