In general, as the year 2013, came to an end, economies in ASEAN (Association of South East Asian Nations) economic region were able to register slower economic growth hence have not yet to reach their full potential. Sub optimal regional economy, was largely attributable to the performance of Indonesia and Thailand in 2013, which are key players in the region, which fell below the level achieved in 2012. Based on year on year growth, in 2013, Indonesia and Indonesia registered economic growth of 5.8% and 2.9%, respectively, which was lower than 6.2% and 6.4%, in 2012, respectively. Such a situation is cause for concern considering the fact that one of the engines of growth in Asia, ASEAN only registered anaemic growth of 5% over the last decade, which falls far short of economic potential amidst formidable economic challenges associated with the formation of ASEAN Economic Community 2015.
Potential economic growth in the region faces both internal and external challenges. In addition to the global situation that continues to far below normal, volatile political stability in the region, is another major challenge facing ASEAN region. The latest challenges ASEAN nations face emanate from problems in Thailand and Myanmar and dynamics in the relations between Indonesia and Singapore. Moreover, another challenge ASEAN nations face today is internal in nature, and relates to the need to seize the economic opportunity which is being created by changing economic structure of economies in the region. Based on a publication released by ASEAN Secretariat in October 2013, there were indications of significant shifts in structures of economies in ASEAN region, especially with the decline in the contribution of agricultural sector to economies in the region and the development of service based economy. This is attributable to the emergence of large cities that are becoming metropolitan in nature with attendant growth and development of financial services in the region, as well as increasing tendency of some economies such as the Philippines to become important source of foreign workers. The Philippines will in the foreseeable future replace India as the largest supplier of foreign workers.
Governments in ASEAN nations still face stiff obstacles in creating sufficient job opportunities to meet the burgeoning unemployment which is attributable to demographic boom and inability to provide sufficient requisite infrastructure to support economic productivity. As an example, the Philippines, Malaysia, Vietnam, Indonesia, Myanmar and Cambodia, are countries that face high growth of productively active population while the dependency ratios are falling , which will translate into a boon for development the potential of their economies. Such economic capital, unless managed well, by ASEAN governments poses the danger of undermining the performance of economies in the region.
Table 7: GDP growth in ASEAN, Constant Price, 1998–2013 (y-o-y, %)
Philippines and CLMV are the main drivers of economic growth in the region
Note: Average growth for 1998-1999, 2000-2007, and 2008-2009
Source: IMF and CEIC (2014)
Philippines registered the highest growth in the region in 2013, posting a staggering 7.2% toward the end of 2013. Such a staggering growth was not only the highest in ASEAN region, but also the highest in ASIA in general. Philippines economy has achieved such rapid economic growth thanks to its success in being rated as Investment Grade by Moody’s in 2013, high proportion of private investment and government expenditure in the structure of the economy compared with other economies in the region, low proportion of exports and imports in GDP which makes it possible to mitigate adverse effect of global economic instability on the domestic economy.
The achievement of economies in ASEAN was also driven by growth in CLMV countries (Cambodia, Lao PDR, Myanmar, and Viet Nam). Members of CLMV countries were able to register higher economic growth than ASEAN+6 (initial ASEAN countries), which are considered to have economies that are more modern. In 2013, CLMV countries registered economic growth of 6.8% on average, which is higher than average growth of ASEAN+6 nations (Brunei Darussalam, Indonesia, Malaysia, The Philippines, Singapore, Thailand), which registered just 4.57%. High economic growth registered by CLMV nations is attributable to the fact the economies still have huge unexploited potential, which coupled with improvement in political stability and strong commitment of national governments to develop facilities and infrastructure networks, in fulfilment of their commitment to support regional Master Plan on ASEAN Connectivity 2015.
Figure 23: Consumer Price Index (CPI) in ASEAN Nations, 2000-2014* (y-o-y, %)
Inflation level that continues to be high poses a threat to economies in the region
*= Data for Brunei Darussalam, Cambodia, and Myanmar relate to December 2013 position (y-o-y). Data for Indonesia, Lao PDR. Malaysia, The Philippines, Singapore, Thailand, Viet Nam related to the position in January 2014 (y-o-y)
Source: Bloomberg (2014)
High inflation in ASEAN economies is one of the major obstacles the economies face in achieving optimal economic growth requisite for making significant improvement in social welfare of their citizenry. During 2013, Indonesia was the country that registered the highest inflation in the region, leading her to fall into the category of countries with high inflation in the region such as Lao PDR and Vietnam. Unlike other countries in the region which have succeeded in putting inflation under control (below 3%), the Indonesian government, Lao PDR and Vietnam have so far failed to emulate examples of their counterparts in redressing high inflation in their economies.
The latest developments which are based on inflation figures for January 2014, released recently, show that Indonesia continues to have the highest year on year inflation in the region. Indonesia registered CPI of 8.22% which is significantly higher than LAO PDR, with the second highest inflation of (5.99%) and Viet Nam (5.45%). Inflationary pressure on economies in the region should therefore assume more importance among ASEAN nations as it significantly affects collective preparations leading to the formation of ASEAN Economic Community 2015.
Thus, demographic boon phenomenon puts ASEAN Nations in a position to register high economic growth. High growth of actively productive population coupled with improvement in social welfare have the potential to promote high industrial and household consumption. Nonetheless, it is regrettable that most of the consumption constitutes of imported which do not only pose potential danger to stoke exchange rate fluctuation but also increase the likelihood of imported inflation.
Table 8: Growth in Capital Market Indices in ASEAN, 2009 – 2014 (y-o-y, %)
The Performance of Capital Markets in ASEAN is mixed
Note: Data for the position on 28 February 2014 is growth based on year-to-Date
Source: Bloomberg (2014)
Capital markets in region show mixed results. Some countries registered drastic decline in 2013 for example Cambodia (-17.74%) and Thailand (-11.58%), others registered drastic growth for example the Philippines (62.30%) and Viet Nam (23.06%), while others recorded slight gains such as Indonesia, Lao PDR and Singapore.
Capital market growth in the region reflect optimism of market practitioners about the ASEAN economies but also are wary of the potential vulnerability of the financial systems in the region. The deluge of foreign capital inflow which falls into what pundits describe as hot money poses the danger of an almost instantaneous drastic withdrawal of funds from economies which in turn can undermine stability of financial systems in the region at a time when they are facing growth momentum. Another potential danger to financial systems of ASEAN member nations is the increase in household debt which is attributable to rising consumption of luxuries and contemporary goods by the middle class. The increase in flow capital flows to ASEAN region, which hovered around USD 144 billion in 2013, which is not significantly higher than China that received USD 121 billion.
Some investment analysts and market practitioners expressed optimism that the inflow of foreign capital into ASEAN economies will not reverse course in the near future. Such optimism is based on the belief that investors have yet to find a better investment destination that can offer as an attractive and safe an environment for their funds as long as high uncertainty in global economy persists. Moreover, analysts content even if investors were to withdrawal their funds in an instant in large amounts, the effect on the economies in the region will not be as devastating as was the case during Asia financial crisis in 1998 as the experience in 1998 have since led to improvement in financial system regulation as well as the relatively high level of international reserves which can avert the drastic plunge in the value of currencies in the region.
Table 9: Exchange rate of ASEAN currencies against USD, 2009 – 2014 (y-o-y, %)
During 2013, all ASEAN currencies depreciated against USD
*= in 2012 Myanmar revalued its currency
Note: Data for the position on 28 February 2014 are based on Year-to-Date growth
Source: Bloomberg (2014)
Balance of trade in ASEAN region is facing pressure from various angles. This has much to do with the impact of economic recession that continues to affect Western European nations and weakening economic growth in China over the last few years, which have led to a decline in exports as global demand took a hit. In fact trade among developing countries which often offsets decline in demand in developed nations, seems impotent at the moment given weakening economic growth in Brazil-the largest economy in the South as well as problems that are bedevilling other developing countries.
The decline in the balance of trade in the region has in turn led to the weakening of exchange rates of all currencies in the region against United States Dollar (USD). Moreover, with the ongoing tapering of the quantitative easing program, the potential for even deeper depreciation of currencies in the region is even higher due to rising instability in the financial markets and capital markets in the region.
Capital markets in ASEAN registered slight increase, as has been discussed in an earlier section. Nonetheless, the same can be said about financial markets. This is reflected in the depreciation that currently affects almost all currencies in the region during 2013. Indonesia, Rupiah suffered the deepest depreciation of the magnitude of 26.92% and Myanmar “Kyat” which depreciated by 14.93% , which are two key economies in the region that have not been able to prevent the depreciation of their currencies from hitting the under 10 % threshold , as has been achieved by other countries in the region in 2013.