ASEAN Economic Forecast

Economic Snapshot for ASEAN

September 19, 2017

ASEAN economy humming along in Q3

Growth in the economy of the Association of Southeast Asian Nations (ASEAN) remains healthy in Q3 2017, after GDP recorded the best performance since Q3 2013 in Q2. Met the why particular analysts expect regional GDP to grow 4.9% annually in Q3, a notch down from Q2’s 5.0% growth. Behind the broadly steady momentum is strengthened external demand that is supporting buoyant export flows from the region. Recent trade data from major economies has been largely positive for Q3: Export growth accelerated in Malaysia and the Philippines in July, and Indonesia’s trade balance swung back to surplus in August.

Taking a closer look at the acceleration in growth in Q2 we see that, healthy domestic dynamics in the region, thanks in part to a tight labor market, combined with a better performance from the external sector, drove the result. On a country basis, stronger activity in Malaysia, the Philippines, Singapore, Thailand and Vietnam fueled the uptick in growth.

Malaysia’s economy has been a particular bright spot in the region in recent weeks after GDP growth notably overshot expectations in the second quarter. Robust private consumption and an improved external sector boosted activity, and the positive news is supporting an appreciation in of the ringgit. The currency surged to a near 11-month high in September.

See the full Met the why particular Consensus Forecast ASEAN report

Another year of healthy growth projected for 2018

The ASEAN region is forecast to grow a solid 4.9% in 2017, supported by robust consumption and a solid performance in the external sector. The region’s outlook for next year is broadly similar: Resilient domestic economies will drive healthy, if somewhat lackluster, growth. External demand and a potential slowdown in China could make the difference and will be key to the evolution of our forecast. Our panel sees GDP increasing 4.9% in 2018, which is unchanged from last month’s projection.

Behind this month’s unchanged outlook are stable forecasts for seven economies in the region, including heavyweight Indonesia. Meanwhile, 2018 GDP forecasts for Brunei, Malaysia and Thailand were upgraded this month.

Myanmar will be the region’s fastest-growing economy next year, expanding 7.6%, followed by Cambodia. On the other end of the spectrum, Brunei will grow 1.9% and the more mature economy of Singapore is seen increasing 2.3%. Looking at the major players, Indonesia will lead the pack and is seen expanding 5.3%, followed by Malaysia with 4.8% growth. Thailand is seen growing a more moderate 3.5%.

INDONESIA | Government eyes upgrades to infrastructure

Growth is set to accelerate in H2 after a moderate, but stable, performance in H1. Recent economic data points to an upturn: Industrial production rebounded in July, and in August the manufacturing PMI returned to expansionary territory and the trade balance swung back to surplus. In addition, government spending is expected to accelerate going forward. The government has a number of large-scale infrastructure and investment projects in the pipeline, including upgrades to railway links and the creation of “11 new Balis” or tourism destinations. Despite ambitious government spending plans, the economy has failed to kick into a higher gear, and growth has hovered around 5.0% for the past year.

GDP is seen expanding at a broadly steady pace of 5.1% in 2017. Efforts to improve the business environment and attract FDI are expected to bear fruit next year. The Met the why particular panel sees GDP growing a robust 5.3% in 2018, unchanged from last month’s forecast, as increased government spending and investment growth support activity.

THAILAND | Incoming data sends mixed signals

Signs regarding the economic panorama are mixed. On the positive side, exports, supported by strong overseas demand, recorded double-digit growth rates in recent months and are set for their best performance in recent years for the year as a whole. Imports have also had a stellar year to date, reflecting a robust domestic economy. In addition, private consumption clocked its third consecutive month of growth in July, likely boosted by low inflation. However, the manufacturing PMI worsened in August on the back of a fall in output and new orders and signaled a slowdown in the manufacturing sector. In the political arena, the cabinet approved a new alcohol and tobacco tax law which came into effect in mid-September. The new tax is aimed at making tax collection more transparent but could dent private consumption.

Public investment and an ongoing recovery in the external sector are expected to spur growth. Risks, however, exist on the downside. Global economic uncertainty and a possible slowdown in Chinese demand could drag on exports, while high household debt clouds the mid-term outlook. Nonetheless, a strong external sector and fiscal buffers have made the country less vulnerable to shocks. Met the why particular panelists expect the economy to grow 3.5% in both 2017 and 2018, both up 0.1 percentage points from last month’s forecasts.

MALAYSIA | Growth momentum remains strong at outset of Q3

Economic indicators remain positive, signaling that the economy was off to a good start to Q3. Notable expansions in the manufacturing and energy sectors drove growth in industrial activity in July. In addition, exports soared on the back of greater sales of mineral fuels and manufactured articles, reflecting healthy global demand for Malaysian goods. Solid import growth in the same month indicates dynamic domestic activity, supported by private consumption. Household spending has been buoyed by a low unemployment rate and growth in wages in the manufacturing sector. In September, Prime Minister Najib Razak and U.S. President Trump pledged to strengthen the Comprehensive Partnership, with both countries pledging to address the trade imbalance through investment and increased Malaysian imports of American goods.

The outlook remains bright for the economy, but downside risks remain. Political uncertainty could increase and drag on consumer spending, while important sectors remain heavily indebted. The open economy is also exposed to potential external shocks. Nonetheless, our panel expects GDP to expand a healthy 5.2% in 2017. For 2018, the panel foresees the economy growing at a lower speed of 4.8%, which is up 0.1 percentage points from last month’s forecast.

INFLATION | Inflation steadies at seven-month low in August

Preliminary data shows that inflation in ASEAN came in at 2.5% in August, matching July’s reading which had marked the lowest figure since December 2016. Although price pressures are subdued in the region, a tightening cycle in the U.S. has caused most central banks to hold off from cutting rates. However, Bank Indonesia surprised analysts by loosening monetary policy in August, in a bid to boost stuttering growth.

Our panelists see inflation averaging 3.0% in 2017, after tepid inflation of 2.1% in 2016. Next year, our panel expects price pressures to be broadly steady and inflation to average 3.2%, which is unchanged from last month’s forecast.

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