Southeast Asian Economies: Striving for Growth

Growth prospects for Southeast Asia in 2014 turned out to be less than what many expected earlier in the year. The International Monetary Fund (IMF) and the Asian Development Bank (ADB) lowered the growth forecast for regional economies in their fourth quarter 2014 flagship publications by 0.2 and 0.4 percentage points respectively relative to what they had perceived earlier in the year (see Table 1). These changes imply more pessimistic perceptions about how the region’s economies will fare in terms of their growth as more data became available. As a consequence, according to ADB estimates, aggregate GDP growth for all Southeast Asian economies in 2014 moderated to 4.6 per cent relative to 5.0 per cent in 2013, marking the second consecutive slowdown in economic activities of the region. Inflation, however, is projected to be relatively stable at slightly above 4 per cent.

Despite the trend of general slowdown, there are differences in the performance of each individual country (Table 1). Downward corrections for the projection of 2014 growth rate were obvious in the case of Indonesia, Philippines, Singapore and Thailand. Malaysia, on the contrary, is marked with an upward correction, an improvement in economic growth performance relative to the previous year. This paper provides a discussion on what is behind the general slowdown in growth of the region and a glimpse at the prospects going forward.

Table 1.

Southeast Asia’s GDP Growth Rates: 2013–14

Source: ADB’s Asian Development Outlook Update 2014 and IMF’s Asia and Pacific Economic Outlook: October 2014 Update.

Large Economies Dominated the Slowdown

Aggregate GDP growth rate in the ten Southeast Asian economies decelerated for a second year in a row, to 4.6 per cent in 2014 from 5.0 per cent in 2013 and 5.7 per cent in 2012. The softer growth rate was primarily driven by slower growth in the region’s four biggest economies, which occupy about 76 per cent of the Southeast Asia’s total output (see Figure 1). Indonesia and Thailand, the two largest economies in Southeast Asia, have dragged down the region’s growth over the past two years. In particular, the regional growth performance in 2014 was affected by political instability in Thailand that saw a contraction of the economy in the first half of the year and an unexpectedly sharp slowdown in Indonesia that brought growth to its weakest in five years. By contrast, Malaysia, the third largest economy in the region, was performing much better than expected and was forecast to expand at its strongest pace in four years.

Figure 1.

Average GDP Share 2009–12

Source: Processed from CEIC database.

Figure 2 displays the trends in economic growth rate and its private domestic demand components by focusing on Southeast Asia’s five largest economies: Indonesia, Malaysia, the Philippines, Singapore and Thailand — the Southeast Asia-5. The declines in growth momentum of these economies were generally accompanied by declines in the total growth of domestic private consumption and investment. Worse still, growth in domestic demand components for the Southeast Asia-5 was generally showing an even more persistent declining trend than GDP growth since 2012. Fixed investment decelerated in Indonesia,

Figure 2.

Growth of GDP and Private Domestic Demand in Southeast Asia-5: 2012–14

Source: Processed from CEIC database.

Malaysia, and the Philippines in the first half of 2014 and actually fell in Singapore and Thailand. Growth in private consumption in these economies also tended to moderate throughout 2014. Dimmer growth momentum in private consumption and investment, which played a major role in supporting the region’s growth during the global financial crisis, means less support for the aggregate economic activity recently.

Thailand seems to differ from other cases as growth in domestic demand components picked up in 2014. The pick-up, however, took place after an interruption in the growth of domestic demand following political disruptions and government paralysis...