ASEAN Economic Outlook September 2017

Growth hits nearly four year high in Q2

ASEAN: Growth hits nearly four-year high in Q2

August 23, 2017

A more complete set of data revealed that the economy of the Association of Southeast Asian Nations (ASEAN) picked up pace in Q2 2017, recording the best performance since Q3 2013. According to an estimate of regional GDP compiled by Met the why particular, growth came in at 5.0% annually in Q2, above Q1’s 4.8% expansion and better than last month’s preliminary estimate of a 4.8% increase. The result comes as good news for the region, which had seen healthy but lackluster growth in recent years, and is largely due to a resurgence in global trade along with robust domestic demand.   

The regional acceleration was driven by better-than-expected performance in Malaysia, which grew at the fastest rate since Q2 2014. An upturn in Malaysia’s external sector as a slowdown in import growth outpaced that of exports drove the result, while private consumption was also robust. Singapore’s economy also gained steam and contributed positively to the Q2 result, as rising shipments of electronics gave a boost to activity. In addition, Thailand’s GDP result outshot expectations and growth clocked in at the best result since Q1 2013. 

Elsewhere in the region, growth stalled in major-player Indonesia and was steady at Q1’s 5.0% annually. A sharp drop in public spending and subdued export performance dampened the economy’s momentum, however, the data is likely skewered by the timing of Eid. In the Philippines, growth inched up marginally in Q2. 

Outside of the overall positive economic news, the region celebrated a milestone this month as ASEAN turned 50 years old on 8 August. The region has come a long way since the inauguration of the community, which has helped to deepen trade and economic links among the countries. This progress is expected to continue in the coming years as the largest economies have pledged to increase infrastructure investment in the region, especially focusing on transportation initiatives to boost trade, tourism and development.  

See the full Met the why particular Consensus Forecast ASEAN report

Exports fuel stronger activity in 2017 

Met the why particular analysts held ASEAN’s outlook unchanged this month, after upgrading it last month. After a 4.6% expansion in 2016, our panel sees GDP increasing 4.9% this year on the back of a solid performance in the external sector and healthy domestic activity. Growth is seen holding stable at 4.9% in 2018. 

Behind this month’s unchanged outlook are stable forecasts for all 11 economies in the region.


Myanmar will be the region’s fastest-growing economy this year, expanding 7.4%, followed by Cambodia. On the other end of the spectrum, Brunei will grow a tepid 1.1% and the more mature economy of Singapore is seen increasing 2.4%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.2%, followed by Malaysia with 4.9% growth. Thailand is seen growing a more moderate 3.4%.

INDONESIA | 2018 draft budget aims to kick economy into higher gear

Economic activity was disappointing in the second quarter, as growth stalled at Q1’s 5.0% year-on-year, contrasting expectations of an acceleration. Plummeting government consumption limited the economy’s momentum, while the external sector’s performance was lackluster. However, investment was a bright spot in the data and gained speed. Early data for the third quarter suggests subdued activity: the manufacturing PMI pointed to a sharper contraction in July and the trade balance recorded the first deficit since December 2015. On 16 August, President Joko Widodo presented a draft budget for 2018 to Parliament. The budget aims to increase spending to USD 165 billion to jumpstart growth and projects the fiscal deficit to narrow to 2.19% of GDP on the back of higher revenues. 

Growth is expected to accelerate in H2 on the back of rising investment and government efforts to boost the business environment and FDI inflows. 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 5.3%. 

THAILAND | Exports overcome strong baht and fuel robust growth in Q2

The Thai economy defied expectations and picked up steam in the second quarter, growing at the fastest pace in over four years, chiefly driven by a buoyant external sector. Exports grew at a double-digit rate throughout Q2 on the back of healthy global demand, with firms brushing off fears about a strong baht harming competitiveness. Imports also grew strongly over the same period, signaling a fairly robust domestic market, with consumer spending likely boosted by lower inflation. However, the third quarter seems to have gotten off to a slightly less auspicious start. The PMI dipped below the crucial 50-point mark in July due to falls in output and employment, indicating a deterioration in business conditions, while business confidence also declined marginally in the same month. 

The strong external sector ought to buttress growth, although the sector could take a hit if global protectionary risks materialize, while structural problems cloud the outlook. In addition, any delay in elections scheduled for next year could dent already lackluster private domestic investment by negatively impacting business confidence. Met the why particular panelists expect the economy to grow 3.4% in 2017, which is unchanged from last month’s forecast, and also 3.4% in 2018. 

MALAYSIA | Economy gains steam ahead of general elections

The economy surprised on the upside in Q2, accelerating thanks to a notable expansion in private consumption. A healthy manufacturing sector and solid momentum in services supported growth in the quarter, along with a positive push from the external sector. On the political front, while the recent positive economic momentum had led analysts to speculate that elections could be brought forward, the July-August session of Parliament came to an end without having taken any steps toward calling a vote. A delay in approving new electoral boundaries for the state Sabah are likely impeding the government’s ability to call early elections, as typically the state’s vote is held at the same time as the national vote for cost reasons. The country is scheduled to hold a general election by August 2018 at the latest. 

A strong start to the year bodes well for Malaysia’s outlook this year and our panel expects GDP to expand 4.9% in 2017, which is unchanged from last month’s forecast. For 2018, the panel foresees the economy growing 4.7%.  

INFLATION | Inflation falls to seven-month low

Preliminary data show that inflation in ASEAN came in at 2.5% in July, below June’s 2.7% and the lowest reading since December. A drop in inflation in Indonesia was chiefly behind the result. Although price pressures are rather subdued in the region, a tightening cycle in the U.S. has caused most central banks to hold off from cutting rates. In recent weeks, policy makers in Indonesia, the Philippines and Thailand all kept their monetary policies unchanged.

Our panelists see price pressures rising this year, after benign inflation of 2.1% in 2016. Our panel expects inflation to average 3.1% in 2017, which is down 0.1 percentage points from last month’s forecast, and 3.2% in 2018.

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