DENTED by China’s slowing economic growth, Southeast Asian countries had a torrid year in 2015. With some uncertainty, many of them are anticipating a better 2016 and are hoping for a boost from the launch of the Asean Economic Community (AEC).
Uncertainty over China, the biggest export market for resources and commodities from the region, and downside pressure from declining commodity prices are still casting shadows on the 10 members of Asean. This is despite the fact that the launch of the AEC on December 31, after years of planning, may give them a positive boost.
The Asian Development Bank (ADB) has cut Southeast Asia’s growth rate, but still expects it to be a bit stronger in 2016 at 4.9 per cent compared with the 4.4 per cent estimated for 2015.
Lower exports were the main culprit behind the slowdown across most Asean countries last year.
The biggest commodity exporters, such as Indonesia, Malaysia and Brunei, have been hit particularly hard by declines in commodity prices – oil prices dropped below US$35 a barrel at one point last month.
Despite various layers of pressure on regional economic growth, not all news is bad.
“One bright light for Asean countries is the widely expected AEC,” said Francis Tan, senior economist at Singapore-based United Overseas Bank (UOB). “And this will not be a one-year good story, but will benefit the region for the next couple of years.”
The AEC – with an ambitious goal of developing Asean into a single market and production base with free flow of goods, services and investments, as well as free flow of capital and skilled labour – should first be visible in the manufacturing sector, Tan said.
Emerging markets in the region are expected to see high growth this year. Myanmar tops the list, projected by the International Monetary Fund (IMF) to grow 8.4 per cent in 2016, followed by Laos with an expansion rate of 8 per cent and Cambodia with 7.2 per cent.
Although widely expected to rebound after a string of economic issues following the military coup in May 2014, there are concerns that Thailand’s household debt-to-GDP ratio is too high and that it could lead to curbs in domestic consumption.
In the past 10 years, household debt in Thailand has increased by 13.4 per cent annually and the ratio of household debt to nominal |GDP has risen above 80 per cent. In comparison, the number in the more developed Singapore is 75 per cent.
“And the quality of debt raises more concerns as the purchasing |is not mainly for houses,” Tan said. “Instead, a large proportion of |the debt is created by purchasing vehicles, which depreciate easily. This means Thailand’s economy remains fragile.” Higher levels of debt make households more vulnerable to macroeconomic weakness, which poses a red signal for Southeast Asia’s second-largest economy.
Thailand’s economic growth should accelerate to 3.5 per cent in 2016 from 2.9-3 per cent in 2015, Deputy Prime Minister Somkid Jatusripitak said last month. The IMF forecasts a growth rate of 3.2 per cent for 2016.
As the sole net energy exporter in the region, Malaysia, which is also a major commodity exporter, is expected to see a slower pace of economic expansion in 2016.
The World Bank forecast the country’s real gross domestic product to grow 4.7 per cent in 2015 and dropped its projections for 2016 to 4.5 per cent, to reflect “some slowdown in domestic demand in the course of 2015 from tighter fiscal conditions”.
One key factor behind the projected slowdown is “that with lower oil prices around the world, obviously there are lower export revenues from oil”, said Ulrich Zachau, World Bank country director for Southeast Asia.
“The second impact is that private consumption is falling because of households having less money due to the indirect impact of the GST,” or goods and services tax, he said during the launch of the bank’s “Malaysia Economic Monitor” on December 18.
Still, the World Bank is confident in the ability of Malaysia’s government to maintain a relatively good revenue base.
Along with Malaysia, Indonesia accounts for 85-90 per cent of global palm-oil production. And that is just one of the many commodities produced by the country, a member of the Organisation of the Petroleum Exporting Countries.
Although Indonesia’s petro-leum production has declined |over the past two decades, the country continues to export crude and condensate (light oil) within the region.
This is likely to make Southeast Asia’s largest economy another victim of plunging commodity and oil prices. Bank Indonesia set the country’s new GDP growth rate for 2015 at a range of 4.7-5.1 per cent, down from earlier projections of 5-5.4 per cent.
The central bank is predicting something of a recovery in 2016, and expects to see economic growth of between 5.2 and 5.6 per cent, a bit more bullish than the 5.1-per-cent projection by the IMF.
Even based on the lower projections, Indonesia’s economy should expand at a reasonably stable pace in the year ahead, although an underlying problem remains.
“What I am worried more about is Indonesia’s high inflation rate,” said UOB’s Tan.
“The consensus estimates for …  is already no less than 6 per cent, which is much higher |than other countries in the region. This will in turn have a negative impact on Indonesia’s rupiah |and may lead to further capital flows.”
The ADB said Indonesia’s inflation would touch 6.4 per cent in 2015, while the World Bank’s outlook report put the rate at 6.3 per cent.
That contrasts with relatively low rates in neighbouring coun-tries such as the Philippines, which is expected to experience inflation of around 1.6 per cent, and Vietnam, where the projection is 0.9 per cent.
Singapore, the most advanced economy in the region, is likely |to outperform its peers. But with |a high exposure to China’s trade and sluggish growth in manufacturing, analysts have also cut the city-state’s GDP growth for 2016.