As the incoming of ASEAN Economic Community (AEC) 2015, a pressure emanating from the global economy is still overshadowing economies in the region. Since The Fed considers the US economy already gain their momentum of stability, it then decided to implement the tapering off policy which constitutes a restrictive monetary policy. Consequently, the policy ‘dries up’ capital flow from the US to ASEAN economies, which in turn has led to deeper depreciation of local currencies that has been experienced over recently (Indonesian Rupiah exchange rate is expected to hover around a new equilibrium level). Meanwhile, European Union which has to a certain extent been able to overcome the worst part of the crisis is still accompanied by the variation of economy performance among economies in the region. Economic growth in European Union has yet in turn support domestic consumer demand growth for global goods, including ASEAN products. While China, as the prominent trading partner for ASEAN economies is currently undergoing ‘cooling’ phase of growth, impacting on the performance of international trade of ASEAN economies.
National Instability is becoming formidable challenge in affecting economic performance in ASEAN economies. Instability that happened in ASEAN economies takes into various forms such as political challenges, economic challenges and security challenges. The impact of natural disaster that struck the Philippines in 2013, the removal of various subsidy schemes and adoption of various social security policies in region economies, political transitions that is underway in Indonesia, political crisis that occur in Thailand, implementation of sharia law in Brunei Darussalam, open military conflicts between Viet Nam and China, disputes over Islands in South China Sea between China and six member nations of ASEAN and the slow pace of infrastructure development are some of the examples. Some of the examples cited above attest to the fact that the region’s uncertainty will be a future serious challenge that ASEAN economies will face if they are seriously aiming to maintain the economic momentum that is currently underway. National stability is an essential aspect for ASEAN economies to keep global investor interest in investing into the national manufacturing sector. Nurturing political stability, economic stability and global public confidence is an important paperworks for ASEAN economies amidst various challenges that are rooted in the increasingly intensive national instability.
Maintaining competitiveness amidst global uncertainty and domestic instability is crucial for the region toward AEC 2015. Competitiveness is vital to ensure that economies in the region have requisite readiness to enter AEC 2015. Amidst various challenges, both external and internal,  the government must have the ability to enhance and even building their economies competitiveness so that when the AEC 2015 take into force, every parts of the society have the ability and capacity to reap the attendant benefits.

 

Table 1: GDP Growth in ASEAN Economies, Constant Price, 1998–Q1 2014 (y-o-y, %)
Growth recorded in the lower level than what it has achieved in previous years

 

Note:

average growth for 1998-1999, 2000-20007, and 2008-2009 periods
Data for Q1-2014: Brunei Darussalam, Cambodia, Laos and Myanmar were not available
Source: IMF, CEIC (2014)

 

ASEAN economies have yet register optimal economic growth. During quarter I-2014, ASEAN economies registered slower growth than expected. This is due to the fact that the level of economic growth recorded is far below its potential. Indonesia as the largest economy in ASEAN region registered slower economic growth. Thailand as the second largest economy in the region is the only economies in ASEAN that registered economic contraction for quarter I-2014 (-2.10%), largely because of political dynamics that have been roiling the country.  Singapore and Viet Nam, despite registering sound economic growth, are still having growth below their target.  In general, Malaysia and Philippines continues to be the key drivers of economies in ASEAN.  
Indonesia as “engine” of economies in ASEAN region registered slower economic growth. In quarter I-2014, Indonesia registered economic growth of 5.21% (y-o-y) or 5.56% without take into account Petroleum and Gas sector. Nonetheless, economic growth in Indonesia in quarter IV-2013 (5.72%), fell short of the government target (5.8%). Slower economic growth based on y-o-y is largely attributable to the adverse impact of the implementation of the new Law on Minerals which affected mineral trades with key partners such as United States and Japan. In fact, the adverse impact of exports could not be offsetted by the democracy euphoria, i.e. legislative elections in April 2014.  Nonetheless strong domestic consumer consumption which is shored up by rising middle income class has so far shielded Indonesian economy from experiencing even deeper contraction.
Philippines continues to register the highest economic growth in the region. Despite having to deal with the effects of a devastating earthquake and Haiyan super typhoon in 2013, which have undermined the performance of Philippines economy from attaining its potential, Philippines was able to register economic growth of 5.7% (y-o-y) in quarter I-2014. Economic growth which Philippines registered in quarter I-2014, ranked the economy as the third fastest growing in Asia, behind China and Malaysia, which posted economic growth of 7.4% and 6.2%, respectively. The success of the Philippines in maintaining the momentum of the economy in the aftermath of the disaster, that specially devastated a lot into their infrastructure and their prominent coconut industry, lay in its ability to emphasize the development on their services sector. According to Philippines National Statistics Coordination (NSC), the growth of the services sector in quarter I-2014 succeeded to recorded growth of 3.8%, which was higher than growth rates in industry and agriculture consecutively of 1.8% and 0.1%.

 

Table 2: Consumer Price Index (CPI) ASEAN Economies, 2000-2014* (y-o-y, %)
The rise in prices of key public goods and obstruction on regional logistics was the major factors behind persisting high inflation in the region  

 

 

 

 

 

 

 

 

Note:

Data for Brunei Darussalam, Cambodia, Laos, and Myanmar, are as April 2014 (y-o-y).
Data for Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam are as May 2014 (y-o-y)
Source: Bloomberg (2014)

 

Reduction of various subsidy schemes has led into high inflation pressure in the region. The adverse impact of the reduction in government subsidies on energy fuels in Indonesia and also energy fuels and sugar in Malaysia in 2013, contributed to high inflation that the two nations at the beginning of 2014. Apparently the cutback on subsidies has not succeeded to prevent the growth of domestic consumer consumption which in turn leading to high inflation in a number of countries in ASEAN economies.
Political instability also contribute to the soaring of general prices in the region. The political crisis in Thailand, compounded by rising political tension in South China Sea are also contributing to the general increase in prices of goods. Thailand, which is one of the transit countries for many products from China in the region, is facing distribution problems, which are attributable to the need to avoid transportation via South China Sea as well as internal political stalemate that has bedeviled the nation over the last few months. The above situation has created obstacles in the regional logistics which in turn has stoked general rising prices of goods.

 

Table 3: Capital Markets Index in ASEAN Economies, 2009-2014 (y-o-y, %)
ASEAN economies continues to be a favorite destination for capital market inflow

 

 

 

 

 

 

 

 

Note:

Data for 2 January and 30 May 2014 are on year to date basis
Source: Bloomberg (2014)

 

Investment in forms of shares is still source of attraction for investors to ASEAN. Unlike other macroeconomic indicators, the performance of capital markets in ASEAN economies, continues to be buoyant. In quarter I-2014, capital markets indices in three ASEAN nations registered double digit growth: Indonesia (14.5%), Philippines (12.87%) and Viet Nam (11.37%), even Thailand  which is currently facing a political crisis was able to register 9.10% growth. Capital market portfolio in ASEAN member economies, which with the exception of Indo-China countries, which is dominated by private sector enterprises indirectly indicates that in general global investors perceive on ASEAN is still as a highly promising region for private business.

 

Table 4: Exchange Rate of ASEAN Currencies Against USD, 2009-2014 (y-o-y, %)
Appreciation of currencies in the region has not been as fast as expected

 

 

 

 

 

 

 

Note:

Data for 30 May 2014 is Year to Date growth

The sign (+) depicts appreciation of currency, while (-) depicts depreciation of currency
* = in 2012 Myanmar experienced revaluation of her currency

Source: Bloomberg (2014)

 

As quarter I-2014, the pace of appreciation of currencies in the region has been below expectations. The pace of currency appreciation in the region has not been able to offset the steep depreciation that affected the values of currencies during the whole year of 2013. Even further for currencies of Cambodia, Laos and Viet Nam the value continue to deteriorate. This situation is an indication that investors perceive economic prospects in ASEAN economies are not yet as promising as necessary to provide the required return on investment in foreign exchange market in the region.
The tapering off policy by the US and trade deficits which some economies in the region have experienced, have had negative impact on exchange rates of currencies in the region. The tapering off policy which is being implemented by The Fed in the US, has increased positive sentiments toward holding United States Dollars, which as a result has undermined values of currencies in the ASEAN economies. The plan to raise interest rate in the banking sector in the US, which is an element in the tapering off policy, has induced various investors to transfer their investment portfolios out from developing economies. The situation has been exacerbated by persisting weakness in international trade. Consequently, many economies in region continue to suffer from rising trade deficits. Thus, various issues and condition affecting the global economy lately, have contributed much too undermining value of currencies of ASEAN economies.