ICAEW.com works better with JavaScript enabled.

ICAEW: Vietnam will be ASEAN's fastest growing economy in 2016

Archived content

This page has been archived because it is no longer current information but is still relevant, or it is current but over 12 months old
  • Publish date: 18 March 2016
  • Archived on: 18 March 2017

Friday 18 March 2016, Vietnam’s economy will continue to roar ahead in the coming few years while ASEAN, with the exception of Malaysia, will experience moderate recovery, according to ICAEW’s latest Economic Insight: South East Asia report. Amongst the six major ASEAN economies reviewed by the report, Vietnam, the Philippines and Indonesia are expected to have the best growth prospects of 6.3%, 6.1% and 5.1% in 2016.

Vietnam remains the bright spark in the ASEAN economy with growth accelerating to 6.7% in 2015 as foreign direct investment (FDI) reached record levels and export growth stayed strong despite low commodity prices. GDP growth is expected to stay in the 6 to 7% range from 2016 to 2018 as improvement in trade access compensates for slowdowns in some key trade partners. The country’s economy has also diversified with the growth in non-textile industries. Malaysia should experience lower GDP growth this year, with some recovery due to occur in 2017. Singapore is not expected to hit long-run GDP growth trend rate of 3.3% till 2018.

'As ASEAN and global economies continue to struggle with the challenging backdrop, it is natural to question to what extend the rise of China and the commodity super-cycle were mistaken for structurally robust growth in some countries', said Tom Rogers, ICAEW Economic Advisor and Associate Director, Oxford Economics.

'The best performers in ASEAN-6 will be economies where growth is underpinned by strong domestic fundamentals and there is also room for policy support.  In this respect, we believe that Vietnam, the Philippines and Indonesia have the best growth prospects amongst the ASEAN-6 countries, reflecting healthy domestic factors such as low debt, macro-stability and wage competitiveness. These will help them to continue gaining market share in low-cost industries.'

The effect of slower growth in China will vary across the ASEAN nations. China is the largest trading partner for Singapore, Malaysia and Thailand, and the first two countries are most vulnerable to weakness in the Chinese economy because of their place in the regional supply chains for electronic goods. The declining demand and prices for commodities will also be a cause of concern.

Indonesia, the Philippines and Vietnam are less exposed to manufacturing sectors where China has excess capacity. Their wage competitiveness means that developments in China should not significantly constrain their continued industrialization.

'As ASEAN countries continue to reform their economies and experience moderate growth in the next few years, there will still be periods of financial market volatility as they adjust to China’s new growth trajectory,' said Mark Billington FCA, ICAEW Regional Director for South East Asia. 'A deeper-than-expected slowdown in China is the key threat to ASEAN economies, along with more acute financial market volatility and a tightening of financial conditions as industrialised countries normalize monetary policy, and this will be particularly painful for countries that have high debt levels.'

Other findings in the report include:

With substantial challenges facing the Malaysian government, the risk of a ratings downgrade is growing

The latest drop in oil price and the vulnerability of the currency to capital outflows mean that the government has limited policy room to boost growth. The country succumbed to the classic ‘resource curse’, whereby the commodities sector grows strongly during a boom period and the exchange rate appreciates, leading to a loss of competitiveness and under-investment in the non-commodities sector. As such, Malaysia is more exposed to the negative shock to prices from the commodity down-cycle.

Growth expected to remain strong in the Philippines

Recent surveys show healthy business and consumer confidence while loose fiscal policy should support activity. Efforts to overcome spending bottlenecks appear to be working, with government expenditure growing at a much faster pace in the last six months than in preceding years.

Services sector continues to be Singapore’s main growth engine

Domestic non-oil exports and manufacturing sector will continue to be subdued over the coming year. Stronger government investment and solid household spending will support service sector activity (which accounts for two-thirds of the economy) but services related to oil and re-exports will be vulnerable to continued weakness in regional trade.

Indonesia indicators are mixed

The protracted slowdown in commodity prices is dampening incomes while the labour market has lost momentum. This will weight on household spending and partly offset the boost from significantly lower inflation. However given suitable external circumstances, the central bank may cut rates further and along with an 8% projected increase in infrastructure spending this year, will provide an additional boost to domestic demand.

Vietnam will be fastest growing ASEAN-6 economy in 2016

Vietnam remains the bright spark in the ASEAN economy with growth accelerating to 6.7% in 2015 as foreign direct investment (FDI) reached record levels with export growth staying strong despite low commodity prices. GDP growth is expected to stay in the 6 to 7% range from 2016 to 2018 as improvement in trade access compensates for slowdowns in some key trade partners. The country’s economy has also diversified with the growth in non-textile industries.

Media enquiries

Please direct all media inquiries related to this article to:

Magdalena Andrzejewska - Media Relations Executive
Tel: +44 (0)20 7920 8616
Email: magdalena.andrzejewska@icaew.com