Brighter prospects for 2014 seen
December 6, 2013
The return to growth in the Eurozone and stronger expansion in the US will offer ASEAN nations space to enact necessary economic and social reforms, according to the latest report from ICAEW.
This, in conjunction with China’s soft landing, will mean countries like Vietnam can put in place initiatives to further strengthen international trade and investment links.
However, demonstrating sound financial management will be crucial to maintaining investor confidence.
The ICAEW report Economic Insight: South East Asia is produced by Cebr, ICAEW’s partner and economic forecaster.
Commissioned by ICAEW, the report provides its 140,000 members with a current snapshot of the region’s economic performance.
The report undertakes a quarterly review of South East Asian economies, with a focus on the five largest countries; Indonesia, Malaysia, the Philippines, Singapore and Thailand.
According to the report, the increase in Eurozone and US demand for ASEAN exports will help offset lower demand from China and Japan. While the nascent recovery will not dramatically increase ASEAN export levels, it will help ease the drag on export growth the region has been feeling over the past few years.
Douglas McWilliams, ICAEW chief economist and executive chairman of Cebr said the establishment of the ASEAN Economic Community will encourage free trade and improve competition, and should therefore lead to countries becoming more efficient and productive – meaning another boost to export growth over the coming years.
“However, rising debt levels in South East Asian countries like Malaysia and the Philippines are a concern,” he said.
“High debt levels are usually viewed negatively by investors, regardless of the underlying state of the country’s economic health. If investors’ fears of losing their returns become strong enough to cause large increases in the cost of borrowing, then those expectations will become self-fulfilling. Furthermore, the cost of servicing and repaying a high level of debt would have significant implications for future government spending, investment, and household consumption. It would also make countries less attractive to foreign investors.”
The report also warns that if Janet Yellen, incumbent Chairman of the US Federal reserves, is less eager than expected to maintain a loose monetary policy investors may overreact.
In ASEAN, this could result in selling assets including domestic ASEAN currencies which would cause depreciation.
This would almost certainly weaken investor confidence, affecting external financing and investments and rapidly transforming the credit environment in the region. Such an outcome would have a significant impact on countries – particularly Indonesia and Thailand – that have experienced high capital inflows since the financial crisis.
Mark Billington, Regional Director, ICAEW South East Asia, said: “ASEAN central banks have steadily increased their reserves over the previous decade, which should allow them to weather currency depreciations.
“These measures were implemented after the ASEAN Financial Crisis, which saw unexpectedly high capital outflows take governments by surprise, and will help the regional governments react better to global volatility,” he added.