Cambodia: Economic Snapshot for ASEAN
Regional economy likely gained steam in the final quarter
According to a comprehensive estimate by FocusEconomics, ASEAN expanded 4.8% year-on-year in the fourth quarter of 2018, marking an uptick from Q3’s revised 4.6% expansion (previously reported: +4.7% year-on-year).
With Q4 GDP data for Singapore and Vietnam already released, over the last month it was the turn of most of ASEAN’s other big hitters. Indonesia—which accounts for over a third of the region’s nominal GDP—registered sturdy growth, supported by both domestic demand and an improvement in the external sector. Government social assistance in the build-up to April’s general elections likely underpinned consumer spending.
The Malaysian economy accelerated from the third quarter thanks to a marked recovery in the external sector. Moreover, private consu mption continued to rocket, spurred by wage growth, and minimal price pressures due to government tax changes and lower oil prices. Similar dynamics were at play in the Philippines, which also gathered some momentum from Q3. Robust private consumption was supported by lower unemployment and solid remittances growth, while a lower oil import bill caused the external sector to strengthen. In Thailand, healthy consumer spending and private investment supported economic activity.
Although quarterly figures are not yet available, on the whole the region’s smaller economies likely expanded at a robust pace in the final quarter, thanks to spillovers from dynamic growth in their larger neighbors and buoyant inward investment. Brunei is a possible exception, after weakness in the all-important energy sector dragged the economy into recession in Q2 and Q3.
Looking to the first quarter of 2019, ASEAN’s composite manufacturing PMI—which covers all the region’s economies except Brunei, Cambodia and Laos—slipped into contractionary territory in January amid lower new orders and slower output growth. Export demand was slack, which fits with less encouraging economic data emerging from key global players such as the EU, the U.S. and China.
On the political front, Singapore presented an expansionary FY 2019 budget on 18 February, which will boost spending on health and defense and aims to shore up growth in the face of rising external headwinds. After months of political wrangling, the Philippines finally approved its 2019 budget on 8 February. This will secure spending on infrastructure projects—a vital growth engine in recent years—and support the economy this year.
In Thailand, the government announced that general elections will be held on 24 March. A resulting potential increase in political uncertainty could weigh on business sentiment going forward, although the military is likely to maintain sway over policymaking following the vote.
Economic fundamentals are healthy, but downside risks are still present
Looking ahead, ASEAN should continue to expand at a healthy pace. Private consumption should be supported by wage gains and strong labor markets, while fixed investment ought to expand robustly thanks to infrastructure development and FDI inflows. Export growth is also likely to be brisk, albeit substantially lower than the stellar rates observed in 2017 and 2018. An escalation of the trade war between the U.S. and China and a faster-than-expected slowdown in the Asian giant are the key downside risks to growth. GDP growth for the region is expected to come in at 4.8% in 2019, which is unchanged from last month’s forecast, and 4.8% again in 2020.
Myanmar had its 2019 GDP growth projection downgraded from last month, while the region’s remaining economies saw their 2019 GDP forecasts unchanged.
Our panel projects that Cambodia, Laos and Myanmar will be the fastest-growing economies in the region this year, with an expected expansion of 6.7%. Among the major economies in the region, Vietnam and the Philippines should record the fastest growth. Conversely, high-income Singapore is expected to record the weakest expansion at 2.5%, reflecting a moderation of growth towards potential.
See the full FocusEconomics Consensus Forecast ASEAN report
INDONESIA | Economy performs well in the fourth quarter; early signs from Q1 are soft
The economy posted a healthy expansion in the fourth quarter according to recent figures. Private consumption growth was brisk, likely supported by social assistance programs ahead of the April elections, modest price pressures and a robust labor market. Moreover, fixed investment and government expenditure grew notably, while the external sector’s drag on the economy lessened on softer import growth. This came after a similarly robust outturn in Q3 on dynamic domestic demand. Turning to 2019, the economy has had a soft start. The manufacturing sector began the year on weak footing, with the PMI broadly stagnating in January due to lower new orders. Moreover, on the external front, exports shrank in the same month due to declines in the energy and non-energy sectors; although imports also fell—partly due to a tough base effect—the trade balance worsened in annual terms as a result.
Domestic demand should continue to support growth this year, with private consumption underpinned by a strong labor market and government consumption likely receiving a slight boost ahead of elections in April. However, potential delays to public infrastructure projects and cooling Chinese momentum could drag on the performance, while a possible resurgence of U.S.-China trade tensions poses a downside risk to the outlook. FocusEconomics panelists see GDP expanding 5.1% in 2019, which is unchanged from last month’s forecast, and 5.2% in 2020.
THAILAND | Private consumption underpins the economy in the fourth quarter
The economy shifted into a higher gear in the fourth quarter of last year on the back of a solid performance by the domestic economy and a softer drag on the economy from the external sector. Although the acceleration in the pace of growth had been anticipated due to robust monthly data, the tempo at which the economy grew exceeded market analysts’ expectations. Delving more deeply into the quarterly drivers, domestic demand was carried by private consumption and fixed investment, while the external sector benefited from a rebound in exports amid softer import growth. The new year also seemed to kick off on a good footing: Sentiment among businesses and firms rose in January while the manufacturing PMI continued to indicate improving operating conditions, albeit at a slightly softer pace than in December
Economic growth is expected to moderate somewhat this year despite stronger fixed investment and public consumption growth. Private consumption should remain robust on improving farm and non-farm incomes. However, a possible flare-up in the Sino-American trade spat following the end to the temporary truce on 1 March darkens the horizon. Increasing domestic tensions in the lead-up to the general elections is another downside risk. Our panel projects economic growth of 3.7% in 2019, which is unchanged from last month’s forecast, and 3.6% in 2020.
See the full FocusEconomics Consensus Forecast ASEAN report
MALAYSIA | The external sector and consumer spending support growth in Q4
The Malaysian economy accelerated in the final quarter of last year. The national accounts reading came on the back of strong growth in private consumption, which nonetheless moderated slightly from the previous quarter, and an improved performance from the external sector. Private consumption benefited from weak inflationary pressures amid strong income growth. On the external front, exports rebounded and, with growth in imports soft, net exports provided a strong and positive impulse to the economy. Looking at the start of the new year, the manufacturing PMI remained entrenched in contractionary territory for the fourth consecutive month in January, although the index did improve somewhat from the prior month.
Firm domestic demand should keep the economy on a robust growth path in 2019, although private consumption is seen moderating after last year’s stellar performance. An economic slowdown in China and a possible flare up in the U.S.-China trade spat, as well as financial-market volatility, are the main downside risks to the economy. FocusEconomics Consensus Forecast panelists expect the economy to grow 4.5% in 2019, which is unchanged from last month’s forecast, and 4.5% again in 2020.
MONETARY SECTOR | Inflation falls in January
A preliminary estimate by FocusEconomics suggested regional inflation fell from 2.3% in December to 2.0% in January. Inflation dimmed in Indonesia, the Philippines, Thailand and Vietnam, and was still outstanding for the region’s remaining economies at the time of writing. On the monetary policy front, all central banks which held meetings over the last month stayed put in the face of ebbing price pressures.
Going forward, regional inflation should remain moderate, dampened by the fall in global oil prices in Q4 last year. Our panelists expect regional inflation to average 2.8% in 2019, down 0.1 percentage points from last month’s forecast, and 3.0% in 2020.
See the full FocusEconomics Consensus Forecast ASEAN report
Oliver Reynolds
Economist