Philippines Economic Growth the Fastest among ASEAN Big Six

Indonesia remains the largest economy in the bloc

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JAKARTA (TheInsiderStories) – The Philippines’ economic growth in the second quarter of this year was the fastest among the six biggest members of the Association of Southeast Asian Nation (ASEAN), representing more than 95 percent of gross domestic product (GDP) in the regional bloc.

Meanwhile, Indonesia remains the largest economy in the bloc, contributing about 35 percent of the total ASEAN GDP. The other key members of the bloc are Vietnam, Thailand, Malaysia, and Singapore.

Last year, the bloc grew by 4.6 percent, with a total GDP registered at $2.6 trillion. An IHS Markit research note showed that this figure is expected to reach $8 trillion by 2030.

Philippines

Philippines’ GDP expanded by 6.5 percent in the second quarter of this year from a corresponding period of last year. It accelerated after posting 6.4 percent growth in the first quarter, thanks to robust private consumption.

At the end of this year, the Philippines economy is expected to maintain the rapid growth of 6.4 percent and 6.3 percent in 2018.

Philippines rapid growth in private consumption spending has been a key engine for the Philippines economy in recent years. Private consumption spending growth in Q2 2017 was underpinned by a buoyant 5.3 percent. Strong private consumption has been boosted by continued expansion of overseas worker remittances, which rose by 6.8 percent in June, as well as rapid growth in household credit.

Amongst major sectors of the economy, manufacturing led economic growth in Q2 2017, with industrial output rising by 7.3 percent while agriculture also grew strongly, at a pace of 6.3 percent. The services sector grew at a healthy pace of 6.1 percent, led by rapid growth of real estate and trade.

The real estate sector has been buoyed by strong growth in household incomes and overseas worker remittances, as well as rapid growth in bank mortgage lending, which has supported overall expansion of residential construction spending. Meanwhile, the rapid growth of the Information Technology-Business Process Outsourcing sector, as well as the manufacturing sector, has helped to support commercial and office construction development.

However, the rapid increase in domestic demand has driven strong growth in imports, which has resulted in a certain degree of deterioration of the current account, which is expected to record a small deficit this year. It has contributed to depreciation of the peso, with a risk of further weakening against the USD during the remainder of 2017.

Over the next 12 months, the economic growth outlook will be supported by significant increases in infrastructure spending, with a total of 1.13 trillion Pesos targeted for 2018, with transport and social infrastructure being key priorities.

Improving infrastructure is very important for boosting the nation’s industrial and export competitiveness, as the Philippines is competing for foreign direct investment with other ASEAN countries like Malaysia, Thailand, and Singapore, all of which have invested heavily in high-quality infrastructure.

The ability of the Duterte administration to deliver such large increases in infrastructure spending has been helped by the tremendous progress made by successive Philippines governments since 2004 in the task of implementing fiscal consolidation, helped by the rapid pace of GDP growth and prudent fiscal management.

Vietnam

Source : World Bank

The Vietnamese economy bounced back in Q2 2017, posting 6.17 percent growth, or faster than the 5.1 percent reported in the previous quarter of the same year, driven by gains in the industrial and services sectors despite the mining sector dragging slightly.

Vietnam’s full-year GDP is expected to grow 6.5 percent, or below the initial target 6.7 percent.

The export-driven economy saw growth slow last year, as the country struggled to recover from a major drought and mass fish kill along its central coast. Growth in the first three months of this year hit a three-year low of 5.15 percent as the result of a slump in exports from Samsung, the country’s leading investor.

Vietnam has enjoyed a reputation as one of the best-performing economies in Southeast Asia in recent years, with growth hitting more than 6 percent over the past two years, though 2016 figures were down from those of the previous year.

Overall growth for the first half of 2017 is at 5.73 percent, up from the same period last year as exports surged 18.9 percent, compared to the first half of 2016. Growth has been mostly driven by exports of cheaply-made goods, from Nike shoes to smartphones.

Indonesia

Indonesia’s growth was steady in Q2 2017, despite being below market expectations due to slight acceleration. The GDP expanded 5.0 percent over the same period of the previous year, matching that of Q1 2017. Indonesia’s GDP is expected to grow 5.1 percent by the end of this year.

Rising investment offset a notable drop in government spending and disappointing performance from the external sector. While overall results for the Indonesian economy are a bit disappointing, the timing of Eid Mubarak likely skewed the data and the economy’s outlook actually remains bright. Government consumption swung from a notable 2.7 percent expansion in Q1 to a 1.9 percent contraction in Q2, holding back the economy’s momentum.

However, household spending was resilient, despite higher electricity tariffs dampening purchasing power, and came in at a robust 4.9 percent in Q2 2017, mirroring previous quarter increase. Fixed investment was a bright spot in the data and growth picked up from 4.8 percent to 5.4 percent as the best result since Q4 2015.

The external sector’s contribution to growth was steady, as slower growth of exports was balanced out by a deceleration in imports. Exports grew a lackluster 3.4 percent in Q2-2017, down from 8.2% in Q1.

While a better external environment is supporting overseas sales, mixed performance for commodity prices during the period and a distortion in trade flows due to the earlier timing of Eid weighed on results. Import growth also slowed, from 5.1 percent in Q1 to 0.5 percent in Q2 2017.

Despite the underwhelming GDP print, Indonesia’s growth prospects remain bright. Indonesia’s GDP growth is expected to accelerate in the second half of the year, as the government makes headway on their ambitious infrastructure program, and the reform agenda should help stimulate the business environment and private investment as well. Moreover, upbeat consumer confidence and a healthy global backdrop also bode well for the country’s growth.

Thailand

Thailand economic growth in Q2 2017 strengthened to a pace of 3.7 percent, or significantly above market expectations and improving on the 3.3 percent in Q1 2017. The GDP growth in Q2 2017 was the fastest growth rate in 17 quarters, driven by stronger government consumption spending and stronger exports. Thai GDP is expected to grow by 3.5 percent in 2017.

Despite the strong outturn, there were significant pockets of weakness, including a severe contraction in construction output of 6.2 percent while manufacturing output growth was also feeble, up just 1.0 percent. Another area of concern was that investment expenditures grew by just 0.4 percent. Despite the significant public infrastructure mega-projects that have been planned, public investment contracted by 7.0 percent.

The rebound in Thailand’s exports in Q2 2017 was an important factor contributing to the GDP growth upturn, with total exports of goods and services up 6.0 percent. Exports of services were up 8.8 percent buoyed by the strength of tourism.

Thailand merchandise exports also strengthened, rising 5.2 percent in Q2 2017. A key factor underpinning strong overall growth in Thai exports in Q2 was the rapid growth in electronic exports, which rose by 16.5 percent in Q2 2017 in US dollar terms. Electronics account for around 15 percent of total Thai exports of goods and strong global electronics demand has helped to boost Thai electronics exports in first half of 2017.

However, automotive exports were weak, with exports of passenger cars falling by 9.8 percent in US dollar terms. Agricultural exports were strong, growing by 19.2 percent in US dollar terms, with exports of rice up 19.3 percent year on year (y/y) and exports of rubber up 37.9 percent. Due to the strength of exports, Thailand posted a large trade surplus of $6.6 billion in Q2 2017, bringing the total first half of 2017 trade surplus to $15.4 billion.

A key factor supporting the strong Q2-2017 GDP outturn has been the strength of foreign tourist visits, driven by the rapid growth of Chinese tourism visits. In 2016, the total number of foreign tourist arrivals to Thailand rose to 32.6 million, up by 9 percent with total tourism expenditure estimated to have risen by 13 percent.

The total number of Chinese tourists in 2016 reached 8.87 million, accounting for around 27 percent of total foreign tourists and up 11.8 percent. Total foreign tourist arrivals in the first six months of 2017 reached 17.3 million, up 4.4 percent on the same period a year ago, with tourism spending up to an estimated 6 percent.

Malaysia

The pace of Malaysia economic growth strengthened further in Q2 2017 to 5.8 percent, improving on the already strong rebound recording 5.6 percent in Q1 2017.

While some pullback in growth momentum is expected in the second half of 2017 after such rapid growth in first half of 2017, economic growth is still expected to remain robust in the second half of the year, boosted by continued strong construction spending and rapid growth in manufacturing output. Therefore, the Malaysian economy is expected grow by 5.5 percent at the end of 2017.

In Q2 2017, the pace of economic growth moderated to 1.3 percent quarter-on-quarter (q/q), on a seasonally adjusted basis, compared with a pace of 1.8 percent q/q in Q1. Domestic demand moderated to a pace of 5.7 percent in Q2 2017, compared with 7.7 percent in Q1 2017.

However, net exports posted a strong turnaround, growing by 1.4 percent in Q2 2017, after posting negative growth of -14.5 percent in Q1 2017. The sharp turnaround in net exports reflected a moderation in the pace of import growth, to 10.7 percent in Q2 2017, compared with 12.9 percent growth in Q1 2017.

An important positive factor in the Q2 2017 GDP results was the continued robust growth of private consumption, which strengthened to 7.1 percent growth in Q2 2017, compared with 6.6 percent growth in Q1 2017.

However, public sector consumption slowed from 7.5 percent growth in Q1 2017 to just 3.3 percent growth in Q2 2017, while government investment weakened from positive growth of 3.2 percent in Q1 2017 to a negative growth of 5.0 percent in Q2 2017.

Malaysia’s rapid pace of economic growth in Q2 2017 was driven by strong growth in construction, manufacturing, services, and agriculture. The manufacturing sector grew at a rapid pace of 6.0 percent growth rate in Q2 2017, propelled by buoyant growth in global demand for Malaysia electronics production.

Malaysian exports of electrical and electronic products rose by 15.1 percent in June 2017, accounting for 38 percent of total merchandise exports. For the first half of 2017, electrical and electronic exports rose by 20.5 percent, reflecting buoyant global electronics demand.

Growth in the services sector output growth was also very strong, rising 7.3 percent in Q2-2017, boosted by the rapid growth of wholesale and retail trade, as well as the ICT sector.

A key growth driver for Q2 2017 GDP was the rapid pace of construction sector growth, which rose by 8.3 percent, boosted by construction spending on public sector infrastructure mega-projects, affordable residential housing, and the construction of the Petronas RAPID petrochemicals project.

The agricultural sector also posted strong growth of 5.9 percent, helped by higher output of palm oil and palm oil products. The only weak sector was mining, which showed a modest expansion of just 0.2 percent, due to declining crude oil output and slow growth in output of natural gas.

Singapore

The Singapore economy expanded by 2.9 percent in the Q2 2017, beating expectations and faster than 2.5 percent growth in Q1 2017, helped by stronger-performing manufacturing and services sectors. By the end of 2017, Singapore GDP is expected to grow by 2.5 percent.

The strong GDP emerges from the manufacturing sector that continues to drive growth as global demand for semiconductors and semiconductor-related equipment boosted the electronics and precision engineering clusters. However, construction remains the weakest link or contracting in the second quarter, weighed down by fewer public and private sector contracts.

Looking beyond the manufacturing sector, which has been the key propeller of growth for the past few quarters, certain services sectors such as wholesale & retail trade, finance & insurance, as well as business services, all recorded accelerated growth in the second quarter.

(Writing by Rahmat Fiansyah, Email : rahmatfiansyah@gmail.com)

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