Southeast Asian Economies: Towards Recovery and Deeper Integration

Southeast Asian Affairs 2005 SOUTHEAST ASIAN ECONOMIES Towards Recovery and Deeper Integration Denis Hew The year 2004 was very good for Southeast Asian economies. The region was well underway towards economic recovery, underpinned by robust growth in the global economy. In 2004, the global economy achieved a growth rate of 5.1 per cent — the highest in three decades — while world trade volume (goods and services) expanded 9.9 per cent.1 Stronger global growth was driven by economic rebounds in the United States, Japan and the European Union as well as rapid economic expansion in China. Southeast Asia registered a strong GDP growth rate of 6.3 per cent in 2004 while the whole of East Asia grew by 7.8 per cent.2 Robust growth in regional economies had been underpinned by strong export performance and continued strengthening of domestic demand. Singapore, Malaysia andVietnam were the star performers in 2004. Singapore's economy grew strongly by 8.4 per cent compared to the previous year's lacklustre growth of 1.4 per cent when the city-state was affected by the SARS epidemic. Like Singapore, 2004 was a good year for Malaysia's economy. Although the Malaysian economy showed some signs of easing in the fourth quarter of 2004, strong growth in the first three quarters (averaging 7.6 per cent) delivered a robust GDP growth of 7.1 per cent for the full year. Both countries' economic performance was driven by strong domestic and external demand. Vietnam's economy grew by a robust 7.5 per cent in 2004 supported by buoyant exports and strong consumer demand. Other Southeast Asian countries such as Thailand and Laos were also expected to report solid GDP growth rates. Table 1 shows real GDP growth rates for the ten member countries oftheAssociation of Southeast Asian Nations (ASEAN) from 2000 to 2004. Figure 1 shows the real Denis Hew is a Fellow at the Institute of Southeast Asian Studies, Singapore. 46 Denis Hew TABLE 1 ASEAN real GDP growth (percentage, year-on-year) 2000 2001 2002 2003 2004 Brunei Indonesia Malaysia Philippines Singapore Thailand Cambodia Laos Myanmar Vietnam 2.8 4.9 8.9 6.0 10.1 4.8 5.8 5.8 5.8 6.1 3.1 3.8 0.3 1.8 -1.8 2.2 5.5 5.8 5.5 5.8 2.8 4.3 4.1 4.3 3.2 5.3 4.0 5.9 5.0 6.4 3.1 4.5 5.3 4.7 1.4 6.9 4.5 5.8 4.5 7.1 1.1? 5.6 7.1 6.1 8.4 6.2# 5.0* 6.7* 3.2* 7.5 ? estimates (IMF) # estimate (Bank of Thailand) * estimate, ISEAS Regional Outlook, Southeast Asia 2005-2006 Sources: Economist Intelligence Unit (EIU); CEIC; Bank Negara Malaysia (BNM); ISEAS Regional Outlook, Southeast Asia 2005-2006; Asian Development Bank, Bank of Thailand; IMF. FIGURE 1 ASEAN-5 real GDP growth, 2001-04 Note: Thailand's GDP growth rates are only up to the third quarter of 2004. Source: CEIC Southeast Asian Economies: Towards Recovery and Deeper Integration 47 GDP quarterly growth for the ASEAN-5 countries (i.e. Indonesia, Malaysia, Philippines, Thailand and Singapore) over the same period. The favourable external economic environment over the past year led to a rapid expansion of merchandise exports in Southeast Asia with many countries enjoying double-digit growth rates. For the first three quarters of 2004, Southeast Asia's merchandise exports grew by 12.2 per cent, 17.1 per cent and 23 per centrespectively.3 See also Figure 2, which shows ASEAN-5 countries' quarterly merchandise exports growth from 2002-04. Consumer spending remained robust in many Southeast Asian countries with private consumption contributing over 50 per cent of2004 GDP growth in Indonesia, Malaysia, the Philippines and Thailand. (Figure 3 shows the private consumption growth rates of the ASEAN-5 countries.) The continued buoyancy of private consumption in these countries had been supported by lower interest rates, easier access to consumer finance and higher incomes particularly in the rural areas.4 Fixed investment was also picking up in SoutheastAsia after years...