South East Asian economies are expected to continue strong growth despite global uncertainties, according to ICAEW Quarterly Economic Insight Report. Lower-middle income countries Indonesia, Laos, the Philippines and Vietnam lead the bloc with highest growth rates, expected at 5.4% and 6.1% in 2013 while high income ASEAN countries Singapore and Brunei will have weaker growth owing to greater exposure to global conditions 1.
The ICAEW report Economic Insight: South East Asia, is produced by Cebr (The Centre for Economics and Business Research), ICAEW’s partner and forecaster. The report undertakes a quarterly review of South East Asian economies, with a focus on the six largest countries; Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
By comparison, the report predicts that the United States will avoid a recession but will take a long time to get back to sustained high economic growth. The US housing bust has indirectly influenced the Eurozone sovereign debt crisis – exposing weak economies which previously sheltered behind the solid euro. However, though troubles in Europe are expected to have some effect on the ASEAN region, they should not derail the train of prosperity.
“We expect the general world economy to slow thanks to the travails of the West and an easing of Chinese growth,” said Douglas McWilliams, ICAEW chief economic advisor and chief executive of Cebr. “This is likely to have a dampening effect on commodity prices, meaning commodity producers, industrialised economies, and the Asian giants of China and India are predicted to slow in 2012.”
He continued: “We believe that ASEAN should keep growing owing to the strength of its domestic demand and growing economic integration, and GDP growth will pick up in 2012, driven by Indonesia which makes up 40% of regional output.”
Strong economic growth will bring elevated inflation in its wake, with various factors pointing to structural price increases in the future. A major factor influencing inflation in the region is the Chinese labour market which has seen nominal rural wages increasing over 20% this year. With wage increases still accelerating, the supply of cheap Chinese labour has dwindled and the deflationary pressure of inexpensive Chinese products is likely to become a thing of the past.
“China is likely to turn from a deflationary factor for the world economy into an inflationary one as Chinese appetite for commodities continues to send prices soaring,” said Mark Billington FCA, ICAEW Regional Director for South East Asia. “Though commodity prices should dip in 2012, it will take a long time before production can meet surging demand, and structurally higher prices are the logical outcome.”
Healthy growth in Malaysia and Indonesia is expected to fuel inflation despite falling commodity prices. Significant factors include the introduction of a value-added tax and a reduction in food and fuel subsidies in Malaysia, and strong growth coupled with strong investment spending and rising domestic demand – along with underdeveloped infrastructure – in Indonesia. Inflation of 5.0% in 2012 and 5.9% in 2012 is expected in Indonesia, but it is a reasonable rate for a fast-growing emerging market.
Other key findings of the report
- New perspectives for Myanmar
An unexpected and sudden thawing of the political environment in Myanmar is opening new perspectives in the country. If current engagement with the political opposition continues, an increase in tourism as well as foreign investment is likely to give a boost to the economy, particularly in light of China’s desire to grow ties which may prompt other countries to step up their interest.
- Lack of investment in infrastructure holding the Philippines back
The Philippines was hit by weak exports this year, after a healthy growth in the first quarter. Strong private demand held up the economy but a bump in imports is expected to bring annual growth for 2011 to just 4.3%. However, infrastructure remains limited in the country, and the success of an announced public-private partnership scheme is essential for the country’s future prospects.
- Some good news in aftermath of Thailand floods
GDP forecast for Bangkok in 2011 has been revised down sharply due to devastating floods. However, though destructive, natural disasters often boost growth in their wake due to reconstruction efforts. This should allow the kingdom to partially substitute for weaker export markets next year, with strong consumption due to public transfers expected to lift growth in 2012 to 4.4%. A global recovery and strong growth in neighbouring countries should result in a further growth increase of 0.2 percentage points in 2013.
1 ASEAN members are divided into country groups based on income levels – as defined by the World Bank. The division provides an opportunity to compare the different growth rates between the different economies of South East Asia and in addition to the high income and lower-middle income groups; there are also low income countries including Myanmar and Cambodia and an upper-middle income group consisting of Malaysia and Thailand.
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