Southeast Asian Economies: Waiting for a Rebound

According to the estimates of the International Monetary Fund (IMF), the growth momentum of the Southeast Asian economies moderated to around 5.2 per cent in 2013 compared to 5.4 per cent in 2012. Private consumption was strong and investment, albeit weak, benefited from increased public infrastructure outlays. Subdued exports due to significant external headwinds continue to hold back economic growth in the region. Among the Southeast Asian economies, the Philippines is estimated to have maintained an impressive growth rate of 6.8 per cent in 2013, while Indonesia, Malaysia and Thailand were the laggards with growth rates of 5.3 per cent, 4.7 per cent and 3.1 per cent respectively. Myanmar gained investors’ confidence all through 2013 following progress in domestic reforms, and Cambodia and Laos rode high on increased construction activities.

As each of the Southeast Asian nations have some distinct economic characteristics, aggregate figures may mask the diversity in performances and challenges being faced at country levels. This chapter gives a simultaneous account of macroeconomic performance and policy challenges at the regional and country level.

Mixed Global Trends Affecting the Region

In 2013, growth slowdown in two of the biggest economies of Asia — China and India — hampered the GDP growth of the smaller economies of Southeast Asia (see Figure 1). In 2013, growth in China was estimated to hover around 7.6 per cent and in India around 3.8 per cent. Such lukewarm growth rates are a significant change from the rates of the past decade, when China averaged 10.2 per cent growth and India 7.2 per cent. The slower growth rate in China is attributed to government policy to enter into a more sustainable growth path, while deceleration in India is on the back of poor infrastructure and lack of structural reforms.

Figure 1.

GDP Growth in Southeast Asia versus Growth in China and India

Source: IMF WEO, October 2013.

The growth slowdown in China adds noticeably to the already softening regional export trends. This is because China, in addition to being a global economic heavyweight also rose as a global trading power. China has become increasingly important for Southeast Asian countries, both as an exporter and importer. The share of exports to China in the region’s total exports rose from 5.1 per cent in 2002 to 9.3 per cent in 2012 (see Table 1). As a share of GDP, exports to China increased from 3.4 per cent to 5.9 per cent over the same period. Individually, Singapore, Thailand and Malaysia will be most affected from any shocks emanating from China. According to an estimate of the Asian Development Bank (ADB, October 2013), a one percentage point slowdown in China’s growth from 2007–12 led to an average 0.17 percentage point slowdown in Southeast Asia. This impact was profound after the global financial crisis, when the growth in advanced economies decelerated and intra-regional trade in Asia picked up (see Figure 2). However, these same growing intra-regional linkages may aggravate adverse impacts when a big Asian economy like China decides to leash its high growth momentum and pursue a more sustainable growth pattern.

Table 1.

Southeast Asia’s Exports to China, 2002 and 2012

Source: CEIC Database and author’s estimate.

The advanced economies of the US, the EU and Japan showed signs of recovery in 2013 (see Table 2), although it was too early to visualize any trickle down effect on the region’s renewed orders for exports. The talk of the US Federal Reserve’s Quantitative Easing (QE) tapering, debates on the US government’s fiscal policy and interim measures to avoid government shutdown were unsettling for Southeast Asian economies all through the year. In the euro area, despite France and Germany leading the recovery, industrial production was shaky and unemployment remained high. The loose monetary policy of the European Central Bank had limited impact and loans to non-financial corporations continued to contract. Japan, with its “three arrows...