Global economic stabilisation likely to ease pressure on regional growth

KUCHING: As many major economies have been underperforming lately and industrialised countries struggling, stabilisation is more likely than an immediate return to fast growth.

According to the Institute of Chartered Accountants of England and Wales (ICAEW) report ‘Economic Insight: South East Asia’, at a country-by-country level, this was evident for the major five Association of South East Asian Nations (Asean) economies that account for 90 per cent of regional output.

Looking at it country by country, the fall in mineral commodity prices was affecting Malaysia’s industrial output, but manufacturing was still performing fairly well according to the report.

It noted that, “In addition, an increase in government spending ahead of a general election is supporting the economy, leading to expected growth of 4.4 per cent this year.

“Domestic demand should stay strong next year regardless of a comparatively weak export performance projected next year. The economy should expand by about 3.8 per cent in 2013 followed by four per cent in 2014,” the report stated.

Malaysia’s neighbour Indonesia, which after more than a decade of economic developments, including an upgrading of its credit rating to investment grade, and significant foreign investment inflows, the regional giant was now facing headwinds.

A sharp fall in the price of important export commodities had reduced exports and lead to a 6.1 per cent depreciation of the rupiah against the US dollar this year. Nevertheless, the report noted that the economy has such strong momentum that it should grow by about 6.1 per cent this year.

A reduction in the growth of business investment and the difficult export position were projected to reduce gross domestic product (GDP) growth in 2013 to 5.5 per cent, but this should rise to six per cent in 2014 as investment and exports pick up again.

The Philippines on the other hand, was making great progress, both economically and politically.

The clear victory of Benign Aquino promises stability that might support business investment and consumer spending. An agreement to end a long-standing conflict on Mindanao was another sign that the country was moving towards a predictable and reliable system of governance throughout.

“In this context, GDP is expected to rise by five per cent in 2012, due to anticipated healthy consumer spending. Even if industrial production and investment come in lower than this year, the population’s rising prosperity is anticipated to drive output up by 4.1 per cent in 2013 and 4.5 per cent in 2014,” noted the report.

Thailand’s growth was expected to be robust this year due to strong rebound from flood damages, suggesting a rise on GDP of 5.8 per cent.

The ICAEW report also stated that, “the expansion of social protection policies and more support to farmers are supporting domestic consumption, but weak manufacturing activity is likely to affect 2013 growth, holding it down to 4.4 per cent.”

However, it opined that with strong domestic demand thanks to low unemployment, the economy should grow by about 4.8 per cent in 2014 as export growth picked up.

Trade dependent Singapore was registering the effects of weak trade growth that reduced opportunities in the shipping and business services sector and had also hit the manufacturing sector hard.

As a result, growth this year was predicted to fall to just 1.4 per cent, down from 4.9 per cent last year. Given that the first half of next year was still likely to see muted global economic growth, an improvement to just 2.5 per cent was expected.

Further ahead, Singapore would continue to benefit from offering a convenient regional base for international firms looking to expand in prospering South East Asia.

In addition, the expansion of the financial sector due to expertise in wealth management and strong, stable governance should boost services. Given these factors, a growth of 3.3 per cent is expected for 2014.

The report highlighted that the regional economic outlook continued to be strong even as other emerging markets had been struggling and the industrialised economies underperformed their long term growth potential.

Although forecast remained largely upbeat for South East Asia, the GDP estimates were somewhat lower than the latest estimates of the International Monetary Fund.