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  • Economic Overview of Southeast Asia
  • Manu Bhaskaran (bio)

This chapter provides an overarching view of macroeconomic trends in Southeast Asia in 2019.

The current state of the regional economies is first assessed. In general, the regional economies had to face a troubled global environment but demonstrated an encouraging degree of resilience in doing so.

The cyclical prospects are then considered. Two key factors will drive the outlook for next year. The first is how the global economy pans out—especially whether an improvement in the trade picture allows a recovery in business confidence and capital spending. A second factor is the impact of supportive monetary and fiscal policies.

Finally, a review of developments this year that shaped key drivers of the secular regional outlook is conducted. Four key drivers are identified and are likely to be supportive of an improved growth outlook in the medium term—infrastructure spending, synergies from economic integration initiatives, production relocation out of China and an improved business ecosystem.

Section 1: Recent Trends in the Regional Economies

Two contrasting themes characterized economic developments in Southeast Asia in 2019—growing challenges and a surprising degree of resilience. The regional economies had to contend with a turbulent global environment in 2019. Global demand for Asian exports was subdued, depressing economic growth and commodity prices in a region that remains heavily trade-dependent. Nevertheless, the region [End Page 19] demonstrated a degree of resilience: economic growth continued, albeit modestly, while external stability was maintained. This relatively benign outcome was partly the payoff to the improved capacity for policy response in the region—and it builds a good base for future economic performance.

A confluence of disturbances hurt the global economy in 2019. Global economic activity began to weaken from around the middle of 2018 onwards and the decline persisted through 2019. As a result, global economic growth eased, from 3.8 per cent in 2017 to 3.6 per cent in 2018 and then to an estimated 3.0 per cent in 2019 according to the International Monetary Fund (Figure 1).1 In parallel, the world economy saw a pronounced slowing in export demand (Figure 2). Not surprisingly, the World Trade Organization (WTO) became more cautious about world trade prospects. It revised down its expected growth of global trade flows in 2019 to 1.2 per cent from the earlier forecast of 2.6 per cent. It further concluded that the risks were to the downside given the headwinds created by more trade restrictions as well as the likelihood of slower growth in the developed economies.2

The Trade War, among Other Factors, Depressed Global Business Confidence

The most prominent disturbance was the trade friction between the United States and China, which grew in intensity as the year progressed. The tariffs imposed by each side on the other aroused concerns that the delicate supply chains throughout the region that exposed China's neighbouring economies to stresses in its economy could be damaged. Moreover, the United States also imposed restrictions on China's access to American technology, causing some anxiety over how disruptive a potential bifurcation of the technology world into separate American and Chinese spheres could be for regional countries caught between two contending superpowers.

Compounding the aggressive trade actions by the United States was the uncertainty over how and when this trade friction might be resolved. There were also concerns whether such a resolution would simply result in an increasingly aggressive American trade policy switching the focus of its trade to other Asian economies, many of which run large trade surpluses with the United States, and which the current American administration finds unacceptable. This concern was reinforced by the Trump administration's identification, during the course of the year, of certain Southeast Asian economies as potential "currency manipulators".

It was not only trade friction that depressed global business confidence. Many other factors also played a role. In the Middle East, a proliferation of political [End Page 20]

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Figure 1.

Slowing global growth…

Source: IMF, CPB World Trade Monitor, Centennial Asia Advisors.

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Figure 2.

…led to weaker global trade

[End Page 21] hot spots raised...


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pp. 19-41
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