ASEAN Sees Sustained Growth

Association of Southeast Asian Nations growth will continue to outperform from a regional and global perspective, a Fitch Group unit said.

The region’s “extremely large market potential,” BMI Research noted, stems from its reform prospects, integration initiatives, demographic trends and “relatively mild: economic imbalances, news outlets reported.

"This is particularly true as the global economy risks shifting towards greater trade protectionism, while weak productivity growth and deteriorating demographics are likely to limit the number of fast-growing profitable opportunities in developed markets,” it said in an economic analysis released late Friday.

Continued efforts to reduce trade and investment barriers are expected to spur investment flows, which BMI said would support average real gross domestic product growth of 5.1% over the next 10 years, higher than the 3.1% globally.

Myanmar and Vietnam will be the region’s outperformers but the Philippines was also tagged as a “bright spot” with GDP growth likely to average a solid 6.2% over the coming decade. It noted, however, that risks were weighted to the downside as the business environment has been weakening slightly.

More Integrated

ASEAN is also now more integrated than ever but further progress can be made, the research firm said. “The drive towards establishing the ASEAN Economic Community—promoting free movement of goods, services and skilled labor—has delivered another impetus for the region’s economies to roll back non-tariff barriers to trade and harmonize regulatory procedures,” it noted.

The proposed Regional Comprehensive Economic Partnership and China’s Belt and Road initiative are also expected to bring the region closer together and fuel growth in the coming years.

Political risks across ASEAN, meanwhile, are significant but manageable, BMI said. “From a regional perspective, the South China Sea issue is a potential stumbling block that could hold back regional economic integration, but we believe that the countries involved will manage to strike a balance between protecting national sovereignty and their economic interests,” it said.

On the whole, ASEAN’s short-term political risk indices hold up relatively well from a global perspective, with scores more comparable to developed market averages than emerging market and global averages.

Bright Forecasts

Citing the report, the Vietnam News Agency reported that aside from the ASEAN Economic Community, the proposed Regional Comprehensive Economic Partnership and China's Belt and Road Initiative are expected to bring the region closer together and fuel growth.

Myanmar and Vietnam will be the region's outperformers, the report said, noting that Myanmar is expected to grow at an average of 7.2% per annum over the next 10 years due to an increase in investment, aided by improvements to the business environment and greater political stability.

Vietnam's growth will be boosted by a stable political environment, reform momentum, an improving business climate and the manufacturing sector benefiting from multinational companies relocating to the country for lower production costs.

It also remains positive on Indonesia's growth prospects, due to its huge young population, saying the country will be one of the largest recipients of projects under the Belt and Road Initiative in ASEAN.

Meanwhile, Singapore and Brunei which already have much higher GDP per capita are likely to see much slower rates of expansion, according to the report.

Political risk is also likely in Thailand, Cambodia, Indonesia and Malaysia as the countries change leadership in the next few years.

ASEAN Can Overtake Germany

Myanmar and Vietnam are projected to be growth drivers. BMI report forecasts that with enhanced regional integration and continued reform momentum, ASEAN’s nominal GDP in dollar terms can easily overtake more mature economies like Germany by 2024 and Japan by 2026.

The region recorded an overall positive performance in the World Bank’s Ease of Doing Business index 2018 led by Thailand who went up 20 places, Indonesia with 19, Brunei with 16 and Vietnam with 14. The rest of the countries experienced little to no decline in rankings with the exception of the Philippines which fell 19 places.

BMI pointed out that the Philippines fell by 19 places to 113th in the WB report. Other Southeast Asian countries climbed an average of five places in the latest index, which BMI said affirmed a long-held view that reform prospects remain bright in the region.