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Last updated: Tuesday, March 26, 2019


ICAEW: Moderate growth forecast of 5% for ASEAN economies

Posted: Thursday, March 29, 2018

Economic growth in South-East Asia is expected to moderate this year, as it is unlikely to match the exceptional momentum in 2017, according to ICAEW’s latest Economic Insight: South-East Asia report. For ASEAN, growth is forecast to come in at 5%, underpinned by drivers like private sector investment and domestic demand.

Given the large export-orientated manufacturing base of most Asian economies, the recent resurgence in global trade has largely benefitted the region in 2017.

With firms ramping up production and investment to accommodate rising external demand, import growth has nonetheless accelerated over the last 12 months, making net exports’ contribution to growth insignificant. Instead, exports’ most important contribution to growth is their indirect impact on domestic demand through spill-over effects on investment and consumption.

At the aggregate level, most open economies in Asia have been experiencing an increase in private sector investment, as a result of a pick-up in external demand. For example, South Korea, Malaysia and Thailand all registered a notable acceleration in investment expenditure in 2017. In Malaysia, as well as Indonesia, the pick-up in investment is driven by the recovery in commodity prices. In Indonesia, in particular, domestic direct investment in the primary sector increased by nearly 62% in nominal IDR terms in the first three quarters of 2017.

Looking ahead, fundamentals remain encouraging for continued private sector investment and growth in Asia. Firstly, world trade growth is expected to remain robust, rising by 5.2% in 2018, down from 6.2% in 2017.

Secondly, business sentiment is high and firms are upbeat about the opportunities provided by China’s One Belt One Road initiative and the resurrected Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP), and finally, owing to a relatively muted outlook for inflation and FX, interest rates are unlikely to rise significantly over the next 12 months.

Sian Fenner, ICAEW Economic Advisor & Oxford Economics Lead Asia Economist, said: “Buoyed by the recent cyclical upturn in world trade, most Asian economies registered faster-than-expected growth in 2017. We expect the same trends to persist this year, though growth is expected to moderate. As a whole, ASEAN economies are still set to experience GDP growth exceeding that of 2012-2016.”

Mark Billington, ICAEW Regional Director, South-East Asia, said: “With all factors considered, the current outlook still paints a relatively promising picture for the region this year. We maintain our forecast of a moderate growth for the region at 5%, as the momentum from 2017 will extend into this year and growth will be underpinned by the same drivers that have made last year such a success.”

Thu Ha

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