Rajiv Biswas, Asia Pacific Chief Economist, IHS Global Insight
Key Points:
- The ASEAN region is forecast to be one of the fastest-growing regions of the global economy in 2017, growing at a pace of 4.6%, according to IHS Global Insight projections.
- The combined GDP of the ASEAN ten member countries is projected to rise from USD2.5 trillion in 2016 to USD2.6 trillion in 2017, exceeding the threshold of USD3 trillion by 2019.
- On a global scale, the ASEAN regional economy is becoming an increasingly important economic force, with ASEAN GDP forecast to exceed UK GDP in 2017, reflecting continued rapid ASEAN economic growth as well as the impact of the slumping UK pound following the Brexit referendum in June 2016. UK GDP is forecast to fall from USD2.6 trillion in 2016 to USD2.4 trillion in 2017.
- ASEAN GDP is also forecast to exceed the GDP of France in 2017.
- Compared to other major Asia-Pacific countries, ASEAN GDP in 2017 is forecast to be larger than India and more than twice the size of Australian GDP.
- With ASEAN economic growth expected to remain strong over the next decade, ASEAN GDP is expected to surpass Japan by 2027, with ASEAN GDP projected to reach USD 6.4 trillion in 2027.
ASEAN GDP in 2017 Compared to Other Countries
ASEAN USD 2.6 trillion
India USD 2.4 trillion
UK USD 2.4 trillion
France USD 2.3 trillion
Brazil USD 1.7 trillion
Russia USD 1.5 trillion
Australia USD 1.2 trillion
Source: IHS Global Insight world economic forecast
The ASEAN region is expected to benefit from a moderate improvement in global GDP growth from 2.4% in 2016 to 2.8% in 2017, with the US economy forecast to strengthen in 2017, supported by the incoming Trump Administration’s plans for deep corporate tax cuts and a boost to infrastructure spending. This should provide a boost to ASEAN exporters as the US remains a key export market for many Asian nations, including Singapore, Malaysia and Thailand.
ASEAN tourism sector exports should also continue to benefit from strong growth in Chinese tourism visits, with Chinese tourist visits to Thailand having risen from 7.9 million in 2015 to an estimated 8.8 million in 2016, while Chinese tourist visits to Cambodia were estimated to have risen by 20% in 2016. Chinese tourism visits to Malaysia are also expected to strengthen, helped by the e-visa (electronic visa) scheme introduced since March 2016. Chinese tourism visits to Malaysia have surged in 2016, rising by 26% in the first eight months of 2016, with further strong growth expected in 2017, helped by the extension of the e-visa scheme as well as the significant increase in direct flights between Malaysia and China by Chinese airlines as well as Malaysia Airlines and AirAsia.
Overall economic growth momentum in Southeast Asia is expected to remain strong, with ASEAN’s largest economy, Indonesia, forecast to grow at a pace of around 5.1% in 2017 after an estimated 5.0% growth rate in 2016. Indonesian domestic demand is expected to be supported by the transmission effects of significant monetary easing in 2016.
After achieving five successive years of rapid economic growth, the Philippines is also expected to maintain strong economic growth of around 6.3% in 2017, underpinned by robust domestic demand and the continued expansion of the IT-BPO industry. Private consumption growth has remained strong, supported by large annual inward remittance flows from workers abroad, which are equivalent to around 10% of GDP. Worker remittances reached around USD29 billion in 2015, with a similar level of remittances estimated for 2016, as remittances totalling USD24.4 billion for the first ten months of 2016.
The Malaysian economy is forecast to grow at a pace of 4% in 2017, strengthening to 4.4% in 2018. Improving global growth and the competitive ringgit should provide some support for Malaysia’s export-driven economy, with exports of petroleum products benefitting from higher average world oil prices. The average price of Brent crude is expected to rise from USD44 in 2016 to USD 58 in 2017, according to IHS Energy estimates. Malaysian manufacturing exports grew by 2.6% year-on-year in the first eleven months of 2016, with electrical and electronic products up 3% and chemical products up 5.8%. A positive factor for the Malaysian export sector in 2017 is that the US economy, which is Malaysia’s third largest export market, is expected to grow more rapidly. Malaysian merchandise exports to the US measured in ringgit terms showed positive growth in 2016, up 9.7% year-on-year in the first eleven months of 2016.
The ASEAN frontier economies of Cambodia, Laos, Vietnam and Myanmar are also expected to show continued strong growth. The medium term outlook for Vietnam looks bright, with average annual GDP growth of 6.4% per year forecast over 2017-2020. The Vietnamese economic outlook has been helped by the recent EU-Vietnam Free Trade Agreement. This FTA, once implemented, will give Vietnamese garments and electronics exports better access to the EU market, which is one of the most important export markets for Vietnam.
Many countries in Southeast Asia are expected to benefit from China’s ‘One Belt, One Road’ initiative over the medium term, which will help to accelerate infrastructure development and regional transport connectivity, facilitating the development of the Greater Mekong Sub-region as a new global manufacturing hub. China has also made significant bilateral trade and investment deals with a number of Asian developing countries, including Malaysia and the Philippines.