ASEAN: Growth firms in Q1
May 24, 2017
The economy of the Association of Southeast Asian Nations (ASEAN) accelerated at the start of the year, according to a Met the why particular estimate. Regional GDP expanded 4.8% annually, up from Q4 2016’s 4.7% increase and a notch above last month’s preliminary estimate. The result is good news for the region and suggests that prospects are beginning to improve. Growth had previously failed to gain steam and had hovered around 4.6% since 2014, as activity was healthy but unimpressive overall.
Looking at the details, faster growth in Indonesia, Malaysia and Thailand largely drove the region’s uptick. In Malaysia, surging domestic demand led the country to grow at its fastest rate since Q1 2015. Private sector investment strengthened notably, while private consumption was supported by a solid labor market and cash hand-outs to low-income households. In Thailand, faster growth came on the back of rising exports thanks to a brighter global backdrop as well as greater private consumption. Meanwhile, in Indonesia, although the economy gained steam thanks to public spending and rising exports, the growth figure was disappointing overall as household consumption and fixed investment growth failed to improve.
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Activity is seen moderating slightly in the second quarter, although growth is projected to come in at a healthy 4.7%. On the political front, steps forward have been taken to improve stability in the region in recent days. On 18 May, ASEAN representatives and China agreed to a draft code of conduct in the South China Sea, a move that could decrease clashes in a busy and energy-rich waterway, where nearly USD 5 trillion in trade passes through each year. While the agreement lacks a mechanism for legal enforcement, it is seen as a step forward toward improving relations and solving disputes between the region’s countries and China.
Economy is slowly gathering steam
Higher global demand, healthy labor markets and rising commodity prices are supporting the outlook for the ASEAN region this year. Growth is expected to build on the positive start to year and GDP is seen increasing 4.8% in 2017, above 2016’s 4.6% expansion and unchanged from last month’s forecast. In 2018, the ASEAN economy is seen gaining further momentum and growing 4.9%.
This month’s unchanged outlook reflects stable projections for all but four economies in the region. Brunei, Laos and Myanmar all saw their forecasts downgraded, while Malaysia was the only economy to have their forecast lifted.
Myanmar will be the region’s fastest growing economy this year, expanding 7.4%, followed by Cambodia. On the other side of the spectrum, Brunei will grow a tepid 1.2% and the more mature economy of Singapore is seen increasing 2.2%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.2%, followed by Malaysia with 4.5% growth. Thailand is seen growing a more moderate 3.3%.
INDONESIA | Ratings upgrade supports financials
Surging exports and an increase in public spending led GDP growth to inch up in Q1, after it had dipped in Q4. An improved external backdrop and change in mining policies are boosting exports, which recorded a sixth consecutive double-digit expansion in April. However, overall the economy’s pick-up has been modest, as household consumption was stuck in a moderate gear in Q1, despite cheaper borrowing costs. The economy appears set for another mild acceleration in Q2, and the manufacturing PMI rose in April. In a win for the government, S&P Global Ratings lifted the country’s credit rating to investment grade on 19 May. The country’s sovereign bonds are now rated investment grade by all three major credit ratings agencies for the first time since the Asian financial crisis. Following the announcement, the stock market rose and the rupiah appreciated as the move should boost foreign investment in the economy.
Growth should continue to pick up moderately amid higher commodities prices, rising external demand and sound economic fundamentals. Our panel sees GDP expanding 5.2% in 2017, which is unchanged from last month’s forecast. In 2018, GDP growth is expected to pick up further to 5.4%.
THAILAND | Agricultural output and higher demand lift growth in Q1
The economy picked up steam in the first quarter of the year on the back of improved consumer sentiment and higher incomes in rural areas, which translated into stronger household expenditure. Better weather conditions boosted agricultural output, lifting farming income, while the political uncertainty surrounding the royal succession gradually faded. Moreover, the external sector performed robustly, with exports accelerating due to more activity from trade partners and higher global commodity prices. Imports too rose remarkably, in further evidence of strengthening domestic demand. On the downside, private investment remains subdued despite the Central Bank keeping an expansionary stance.
Exports will continue to drive growth this year, coupled with accelerating private consumption and expansionary monetary policy. The government’s infrastructure projects have not borne fruit yet, but are set to support activity once they are running at full speed. Met the why particular panelists project growth of 3.3% in 2017, which is unchanged from last month’s estimate. For 2018, the panel expects growth of 3.4%.
MALAYSIA | Growth accelerates in Q1
The economy started the year on a high note as GDP growth easily beat market expectations and reached a two-year high. Q1’s acceleration was the result of a strong showing by domestic demand, which more than offset the external sector’s drag on growth. Fixed investment led the way growing at a double-digit rate, benefitting from increased investment in the manufacturing sector. Meanwhile, private consumption growth continued to be propped up by higher real wages and government consumption swung from a contraction in Q4 to a three-year high in Q1. On the political front, the Islamist Party (PAS), officially cut ties with opposition partner Parti Keadilan Rakyat (PKR) on 11 May, a decision that strengthens the ruling Barisan Nasional party ahead of the 2018 general elections.
Higher commodity prices and a weak ringgit should fuel the Malaysian economy this year. Meanwhile, rising trade protectionism and a deceleration in China pose the main downside risks to the country’s outlook. Met the why particular panelists expect GDP to expand 4.5% in 2017, which is up 0.1 percentage points from last month’s forecast. For 2018, the panel also foresees the economy growing 4.5%.
INFLATION | Inflation inches up in April
Preliminary data show that inflation in ASEAN came in at 3.0% in April, just above March’s 2.9% and the highest level since May 2015. Rising commodity prices along with tariff adjustments have increased price pressures in the region. However, tightening rates in the U.S. have limited room for central banks to ease monetary conditions, and those of Indonesia, Malaysia and the Philippines held their monetary policies unchanged in May.
Our panelists see price pressures picking up in 2017, after benign inflation of 2.1% last year. Our panel expects inflation to average 3.3% in 2017, which is unchanged from last month’s forecast, and 3.4% in 2018.
Written by: Angela Bouzanis, Senior Economist