Southeast Asia’s solid economic growth rides over global woes
JAKARTA, June 1 — Southeast Asia is showing stronger signs of resilience to global turbulence than the rest of Asia as buoyant domestic spending offsets struggling exports, while low debt levels give governments more room to deliver stimulus than their cash-strapped counterparts in the West.
Yesterday, the Philippines became the latest economy in the region to post impressive first-quarter numbers, growing at its strongest in two years at 2.5 per cent in January-March, though some analysts questioned whether the pace can be maintained as Europe’s debt crisis rages.
The region of about 600 million people, rich in natural resources, is benefiting from a commodity boom, greater foreign investment and increased trade with China that have lifted consumer spending by a rapidly expanding middle class.
“Stronger-than-expected growth (regional) numbers have been largely driven by strong domestic demand,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp in Singapore. “Private consumption growth has been quite resilient.”
Indonesia’s economy, the largest in the region, grew 6.3 per cent in the first quarter from a year earlier, enviable by Western standards though its slowest pace in six quarters. At the same time, foreign direct investment surged 30 per cent as Jakarta regained coveted investment grade credit status.
To be sure, Southeast Asia’s combined US$1.5 trillion (RM4.5 trillion) economy is still likely to slow this year as China’s cooling economy and Europe’s crisis dampen export demand, though the investment picture for the region may hinge on how long global financial markets remain volatile.
A pullback from emerging markets hammered Indonesia’s rupiah this week, taking its losses to five per cent in 2012, but other regional currencies have held up better and its stock markets are all still in the black for the year.
“We haven’t really seen any sign of contagion yet ... the recent outflows of investment from this region were not really big,” said Rahul Bajoria, economist at Barclays in Singapore.
“They (foreign investors) want to stay engaged ... If we get a credible plan from Europe on containing the crisis we will probably see a much more positive response in capital markets across Southeast Asia.”
For the year to date and despite recent selling, Thailand has racked up US$2.3 billion worth of net foreign inflows, the Philippines US$814 million and Indonesia US$513 million. Vietnam is the world’s best performing stock market with a rise of 22 per cent.
Central banks hanging loose
Some regional central banks started cutting interest rates late last year to support growth, while governments across the region have boosted spending to counter the export slowdown.
Government spending surged 24 per cent in the Philippines in the first quarter from a year earlier and nearly six per cent in Malaysia.
“Balance sheet positioning in both the public and private sectors is also relatively better in Southeast Asia, compared to Korea for example, and this would mean that there is a bigger room in terms of fiscal stimulus in the region,” Cahyadi said.
“From the current account perspective, it is very heartening that even the two most export-dependent economies in the region — Singapore and Malaysia — are still expected to see huge surpluses as a percentage of GDP in 2012 despite the still lacklustre condition of global growth.”
Sacks of cash
In the Philippines, household final consumption picked up to 6.6 per cent in the first quarter and exports recovered from a slump in late 2011, adding to expectations it may soon be promoted to investment grade credit status like Indonesia.
Evidence of still robust demand in Indonesia, which accounts for over half of the G20 economy, is shown by cement sales growing 12 per cent and car sales surging 43 per cent in April.
New convenience stores, colourful budget hotels and mobile phone shops are springing up across the country as investors seek to tap youthful spenders. Consumers in countries such as Thailand also remain confident.
“These countries are getting richer, so their domestic economies are becoming a magnet for consumer goods” and boosting regional trade opportunities, said Philippine economic planning secretary Arsenio Balisacan.
Telecom equipment maker Alcatel-Lucent said yesterday it is looking at opportunities in Myanmar and elsewhere in the region, which it expects to play a bigger role in its future growth.
The Franco-American company saw strong growth potential in Cambodia, Laos and Vietnam, where mobile phone penetration rates remain low, Rajeev Singh-Molares, its president for the Asia-Pacific region, told Reuters. Asia already contributes about 20 per cent of the firm’s revenue.
Thailand’s central bank said this month there was a chance it would raise its economic growth forecast for 2012 from a current six per cent, after the economy grew a record 11 per cent in the first quarter from the previous three months. The economy rebounded after severe flooding last year, on a jump in consumption and investment after the disaster.
And Myanmar, the region’s laggard after decades of military rule, could see GDP growth of 5.5 per cent to six per cent over the next two years, according to the International Monetary Fund.
Banks are aiming to tap an expected boom in trade and investment by opening up the country’s first automated teller machines to citizens used to hauling around bags of cash. — Reuters