The Asean region has made significant progress since the 1997 Asian Financial Crisis, which saw currency depreciation, stockmarket devaluation and increased private debt across East and Southeast Asia.
Fast forward to 2023, and the region is one of the fastest-growing in the world. Today, it is the fifth-largest economy in the world, with a combined GDP of around US$3.7 trillion ($4.97 trillion) and a population of over 680 million people.
Hailed as an economic “dark horse” by Arsjad Rasjid at the World Economic Forum in August, Asean Business Advisory Council chair noted that the region is set to be a “global centre of growth”, thanks to its feasible demographic of a growing working-age and growing middle-class population. The region’s overall GDP reached around an estimated 4.0% in 2023. While slower than the 4.7% figure in 2022, this remains ahead of the estimated global GDP growth of 3.0% in 2023.
In his opening speech at the UOB Gateway to Asean conference held in Jakarta, Indonesia, in October, Indonesia’s Coordinating Minister for Economic Affairs, Airlangga Hartarto, noted that the region is expected to grow through multiple channels such as trade and tourism from the spillover effects from the demand growth in its major partners.
He adds that at the Asean Chairmanship held in September, the region’s member states had pledged to make Southeast Asia the epicentre of global economic growth, with a potential goal of a combined GDP of US$20 trillion.
Asean’s GDP growth
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For the coming 2024, Maybank Securities economist Chua Hak Bin expects GDP growth for Asean-6 to recover to 4.7%, with a brighter outlook for trade-sensitive economies in Asean. He adds that green shoots will be seen in exports and manufacturing, although “revenge spending” in the services sector is expected to fade.
The Asean-6 consists of the bloc’s current chair Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The Asean-4 refers to Indonesia, Malaysia, Singapore and Thailand.
“The US appears to be headed for a soft landing, with recession risks and inflation receding. The Fed and other major central banks will likely cut interest rates by the second half, easing the pressure on Asean currencies and widening the space for policy easing,” Chua writes.
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He expects Asean’s export recovery to be supported by a slew of positive factors, including aggressive US fiscal spending and generous subsidies for semiconductors and electric vehicles; normalisation in global consumer spending towards goods as revenge spending in services dissipates; a replacement tech cycle; falling US inventories; and an artificial intelligence (AI) boom. “Rising foreign direct investments (FDIs) and added capacity from shifting supply chains will increase Asean’s leverage to a global trade recovery,” Chua adds.
Similarly, the team of economists at DBS Group Research led by chief economist Taimur Baig expects 2024 to be a better year for Asean.
“An exports and tourism-led pick-up in growth in parts of Asean is on the cards, even as G3 economies slow in 2024. Pockets of slowdown will be in the modest territory, with minimal recession risks,” the team writes. G3 economies refer to the US, Eurozone and Japan, which are among the biggest economies in the world.
DBS also expects Asean economies to generate additional GDP growth of 50 basis points due to a bottoming electronics export cycle and continued recovery in travel and tourism, although this will happen only with an “orderly financial sector”.
CGS-CIMB Research’s Nazmi Idrus expects the Asean-4 to fare better than the global economy, which he expects to remain slow and uneven in 2024.
“While we have priced in a possible reduction in global policy rates in mid-2024, the economic weakness may linger, keeping any expansion mundane and limited. On the positive side, we project global inflation to be more manageable in the wake of waning demand-side shocks, although the struggle to fully return to normalcy may only be achieved in 2025,” he says.
Idrus is, however, more sanguine on the Asean region, with exports expected to grow on the whole amid improvements in the electrical and electronics sector. He says China’s rebound and consumption-driven policy objective may have a positive spillover effect on the region, and sees resilience in domestic demand from country-specific events such as the recovery of tourism, elections and cash handouts.
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The team of economists at UOB sees that economic growth in the Asean region is likely to stabilise with the external trade cycle bottoming for the region, although any recovery may be lacklustre on the back of China’s slowdown. That said, the team remains positive on the region’s fundamentals and outlook in the medium and long term.
Meanwhile, the team of equity macro research analysts led by Rajiv Batra at JP Morgan is less upbeat on the region’s prospects. For 2024, the JP Morgan team expects several headwinds to continue, including the restrictive domestic policy stances that may further drag the region’s growth. Tight global financial conditions, moderating external demand from the slowdown in China’s growth, the possibility of a recession in the US and a significant slowdown in FDIs are other factors named by the team. In addition, the team is uncertain about the risks of El Nino on agriculture output and prices, as well as the geopolitical uncertainties that the region may face.
“While it is difficult to pin down the start date and depth of a recession ahead of time, we think it is a real risk for next year even though investors are not pricing it in… We believe that stepped-up policy support will be necessary to keep domestic growth afloat and offset an external slowdown,” the team writes.
Demographic divide
Relative to other economic blocs, Asean is seen to enjoy a demographic advantage because of its younger population, whose size of working population will overtake China in 2025. However, the team at HSBC Global Research acknowledges the demographic divide among the countries.
Singapore and Thailand have been facing a decline in their working-age population since 2018, while Malaysia is seeing a slowdown in the growth of its working-age population. Meanwhile, Vietnam, Indonesia and the Philippines have booming younger populations, although the team asks how the region’s policymakers can make the most of this “demographic dividend”.
“While those in the first camp are becoming magnets for skilled foreign workers, politically they have to perform a delicate balancing act to address talent shortages in critical sectors while at the same time supporting the domestic labour force,” says the team. “The priority for the second camp is to continue to improve labour productivity and invest in human resources through better-quality education and vocational training,” it adds.
Year of transitions
In 2024, Indonesia and Singapore will be undergoing major political transitions. Indonesia will be holding its presidential elections in February 2024, while Singapore’s Prime Minister Lee Hsien Loong has indicated that he will hand the reins to Deputy Prime Minister Lawrence Wong by November 2024, before the country’s next general election, which has to be called by November 2025.
“We expect Indonesia’s GDP growth to remain resilient at 5.1% in 2024, despite the political uncertainty,” says Maybank’s Chua, although he sees business investments as likely to cool off as firms wait for potential major changes in policies and the business
landscape after the elections.
Meanwhile, Indonesia’s household expenditure will likely remain stable with a resilient labour market, pre-election spending and policy support.
“Consumption may see a boost in 1Q2024, driven by election campaign spending and pre-election festivities. Net exports should improve in 2H2024, as global demand recovers with easier monetary policies,” says Chua.
The DBS team estimates Indonesia’s GDP to grow by 5% y-o-y in 2024, partly due to the upcoming 3% to 4% increase in the country’s minimum wages, election campaign spending and seasonal religious festivals.
Despite the change in leadership, the team is also expecting to see policy continuity. “We expect better economic growth and bumpy inflation moderation, barring large shocks from lingering global uncertainties. 2024 will also be an important year of leadership transition to the 4G leaders, with expected policy continuity,” says the DBS team.
CGS-CIMB’s Idrus estimates Malaysia’s GDP to grow by 4.6% y-o-y in 2024 from a potential recovery in external demand, in addition to sustained domestic demand.
Thailand is expected to see a GDP growth of 4.0% y-o-y in 2024, supported by the arrival of tourists, improving nominal exports, and enhancement to domestic demand with the boost from the government’s Digital Wallet cash handout, says Idrus.
Despite the relatively upbeat views all around, there are still reminders to stay guarded, lest another crisis hits, says Khor Hoe Ee, chief economist at the Asean+3 Macroeconomic Research Office.
“Amid these turbulent times, the internal and external macro-financial conditions surrounding the Asean+3 region are still subject to high uncertainty and volatility,” says Khor, who has held senior roles at other institutions such as the Monetary Authority of Singapore and the International Monetary Fund. Asean+3 includes China (including Hong Kong), Japan and South Korea.
“The financial landscape is swiftly changing into a new normal with potentially higher inflation and higher interest rates. In this situation, the region must come together as one and strive for macroeconomic and financial resilience and stability,” says Khor.
