World Economy

SE Asia Can Outperform Developed Asian Economies

SE Asia Can Outperform  Developed Asian EconomiesSE Asia Can Outperform  Developed Asian Economies

Economists are optimistic that Southeast Asia will continue to outperform more developed Asian economies, such as South Korea and Japan, although the region's economies are all slowing down.

Southeast Asia will improve slightly next year on expectations of government spending and a rebound in prices of commodities. The economies of this region, once emerging-market stars, are slowing due to a slump in demand from China, rising household debts and political instability, AsiaFirst reported.

On average, the region's largest economies–including Indonesia, the Philippines and Singapore–are expected to grow 4.1% this year, down from 4.3% a year earlier, based on estimates by the Credit Suisse Group AG.

The region’s struggle is further evidence that China’s own deceleration is ricocheting across Asia, pushing governments to rely on other sources of growth such as stimulus spending to support their economies.

This past week, Singapore’s manufacturing sector reported its fifth-straight month of contraction and Malaysia production slowed the most in November since mid-2012. The Asian Development Bank, meanwhile, cut its growth forecasts for Indonesia, the Philippines and Singapore.

On average, the region’s largest economies are expected to grow 4.1% this year, down from 4.3% a year earlier, according to Credit Suisse Group AG estimates. That is below the 5.3% average for the region during the last quarter-century through 2015 and the slowest annual pace since the financial crisis six years ago.

Spending Should Increase

To be sure, Southeast Asia is still on track to outperform more developed Asian economies such as South Korea and Japan. And economists say next year will improve slightly, but not from better fundamentals such as wage growth and exports. Rather, these people expect government spending to increase and the prices of commodities such as sugar and palm oil, which are vital to the economies of Malaysia, Indonesia and Thailand to rebound.

But with exports likely to remain weak, any recovery in Southeast Asia in 2016 is contingent on the role of the state, many economists say.

Instability, Uncertainty

Political uncertainty, meanwhile, is weighing on the region’s growth and investment. Thailand’s military government, which seized power in a coup last year and which most economists do not think is managing the economy well, shows no signs of yielding power to a civilian government. Consumer confidence in the country is fragile, rising for the first time in 10 months in October, while household debt hit a record high of more than 80% last year. Bank loan data indicate rising debt.

In Malaysia, a political crisis surrounding a state-investment fund has shaken investor confidence, making the country’s currency one of Asia’s weakest this year. The ringgit has lost more than a quarter of its value against the US dollar since January. Falling oil prices have hurt revenue at Malaysia’s state-run energy companies, knocking a hole in government coffers. Household debt was around 85% of GDP last year and shows few signs of improving this year.

Even the Philippines, one of Asia’s fastest-growing economies and a popular foreign investment target, is facing uncertainty next year as the country heads into an election and the business-friendly policies of outgoing President Benigno Aquino hang in balance. Economic growth in the Philippines is expected to slow to 5.9% this year, from 6.1% a year earlier and 7.1% in 2013, the Asian Development Bank said this past week.

Overlaying the domestic troubles in Southeast Asia is weakness in China, a major buyer of goods from the region and a significant driver of global growth. Chinese imports from the world have shrunk every month since October 2014, official data show.

Exports Fall

A tepid economic recovery in the US and the eurozone, also big consumers of raw materials and manufactured goods from Southeast Asia, hasn’t filled the void left by the dip in demand from China, as the world’s second-largest economy shifts to a slower but more sustainable pace of growth.

Exports from Indonesia to the world fell nearly 21% on year in October, official statistics showed last month, the 13th straight-month of decline. In Singapore, a small city-state dependent on external demand for its goods and services, exports shrank 1.9% in October, the 14th month in a row, the most recent statistics show.

If there is a bright spot next year, economists say, it will be Indonesia, Southeast Asia’s largest economy and most populous country.