Vietnam’s economy will continue to roar ahead in the coming few years while the rest of ASEAN, with the exception of Malaysia, will experience moderate recovery, according to ICAEW’s latest Economic Insight: South East Asia report. In 2016, among six major ASEAN economies, Vietnam, the Philippines and Indonesia are expected to have the best growth prospects of 6.3 per cent, 6.1 per cent and 5.1 per cent, respectively.
The country remains the bright spark in the ASEAN economy with growth accelerating to 6.7 per cent in 2015 as foreign direct investment (FDI) reached record levels and export growth stayed strong despite low commodity prices. GDP growth is expected to stay in the 6-7 per cent range from 2016 to 2018 as improvements in trade access compensate for slowdowns in some key trade partners. Vietnam’s economy has also diversified with the growth in non-textile industries.
However, Vietnam’s ratio of private debt-to-GDP has risen by 40 percentage points over the last decade, the highest in the region. ICAEW experts warn that Vietnam must put appropriate policies in place to ensure that its private debt to GDP ratio remains under the ceiling of 65 per cent after reaching 60 per cent in 2015.
Tom Rogers, ICAEW Economic Advisor and Associate Director at Oxford Economics, said that “As ASEAN and global economies continue to struggle with the challenging backdrop, it is natural to question to what extent the rise of China and the commodity super-cycle were mistaken for structurally robust growth in some countries.”
“The best performers in the ASEAN-6 will be economies where growth is underpinned by strong domestic fundamentals and where there is room for policy support. In this respect, we believe that Indonesia, the Philippines, and Vietnam have the best growth prospects among the ASEAN-6 countries, reflecting healthy domestic factors such as low debt, macro-stability and wage competitiveness. These factors will help them continue to gain market share in low-cost industries.”
The effect of slower growth in China will vary across the ASEAN nations. China is the largest trading partner for Malaysia, Singapore, and Thailand, and the former two countries are the most vulnerable to weaknesses in the Chinese economy due to their place in the regional supply chains for electronic goods. The declining demand and prices for commodities will also be a cause for concern.
Indonesia, the Philippines and Vietnam are less exposed to manufacturing sectors where China has excess capacity. Their wage competitiveness also means that developments in China should not significantly constrain their continued industrialisation.
Mr Mark Billington FCA, ICAEW Regional Director for South East Asia, said, “As ASEAN countries continue to reform their economies and experience moderate growth in the next few years, there will still be periods of financial market volatility as they adjust to China’s new growth trajectory. A deeper-than-expected slowdown in China will be the key threat to ASEAN economies, along with more acute financial market volatility and a tightening of financial conditions as industrialised countries normalise monetary policy. This will be particularly painful for countries with high debt levels.”
Other findings in the report include key economic assessments of Indonesia, Malaysia, the Philippines, and Singapore.
The full report “Economic Insight: South East Asia” is available at
www.icaew.com/en/about-icaew/where-we-are/south-east-asia/economic-insight-south-east-asia
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