What is the outlook of South East Asia and Malaysia looking forward?

SOUTHEAST Asia is emerging resilient from a period of global turmoil, with rising investment and domestic consumption that will propel growth in coming years, the Organisation for Economic Cooperation and Development (OECD) said.

Indonesia’s growth will average 6.4 per cent from 2013 to 2017, the OECD estimated in a report yesterday, equal to that recorded in the two decades before the 1997 Asian financial crisis. The Philippines will expand about 5.5 per cent a year, the OECD said, up from five percent in the decade through 2012, according to International Monetary Fund (IMF) data.

Malaysia and Thailand will see gains of about 5.1 per cent, the OECD predicted.

The outlook underscores President Barack Obama’s aim to strengthen US trade ties with the region as its middle class swells. Obama yesterday makes the first visit by a sitting American leader to Myanmar, a nation of 55 million people whose economic opening also shows the potential for companies from more industrial Southeast Asian nations to build scale within the region.

“Policy makers have been very active in providing support to boost domestic demand to counter subpar growth in the region’s bigger export markets,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. “We’re also seeing fiscal policy being used aggressively as stimulus.”

After Myanmar, Obama is meeting leaders of the Association of Southeast Asian Nations (Asean) in Cambodia for a summit to discuss economic and security issues. Asean leaders are set to start talks on a regional trade agreement with China, Japan, India, South Korea, Australia and New Zealand, an area with more than three billion people representing a quarter of the world
Thailand’s growth in the third quarter matched the median of economists’ estimates. Gross domestic product increased three per cent in the three months through September from a year earlier, after a revised 4.4 per cent expansion in the previous quarter, the National Economic and Social Development Board said in Bangkok yesterday. Prime Minister Yingluck Shinawatra has boosted spending and raised salaries as the nation recovers from the worst floods in almost 70 years.

Asian stocks increased, with the MSCI Asia Pacific Index 1.1 per cent higher at 12:48pm in Tokyo. Oil increased 0.8 per cent in New York, and South Korea’s won strengthened 0.5 per cent against the dollar.

Europe’s sovereign debt crisis and a slowdown in advanced economies have had a “limited” impact on Southeast Asian nations with most of the effect experienced through trade, the Paris-based OECD said in its report released in Phnom Penh on Sunday. The region, along with China, may face risks stemming from volatility of capital inflows in the medium term, it said.

The prospects for developing Asian nations contrast with the fiscal and demographic challenges faced by more advanced economies, as higher public spending and younger populations support domestic demand and lure investment even as global expansion weakens.

Increased government expenditures on social safety nets and health will encourage household spending and reduce the need for precautionary savings in emerging Asia, according to the report.

“A combination of cyclical factors, government policies, and longer-term shifts in economic structure that have supported consumption growth over the past several years are likely to continue to underpin its growth over the medium term in Southeast Asia, China and India,” the OECD said in its 2013 outlook for the region.

Governments in Southeast Asia have loosened fiscal policies to spur growth. Philippine President Benigno Aquino is increasing spending to a record and seeking more than US$16 billion of investments in roads and airports, while Malaysian Prime Minister Datuk Seri Najib Razak is also boosting outlays.

The region’s growth prospects are helping attract overseas companies, with Japan’s foreign-direct investment in Southeast Asia surpassing that in China, according to the Japan External Trade Organisation’s figures using finance ministry data. Japan’s investment in the Association of Southeast Asian Nations more than doubled to US$19.6 billion in 2011 from the previous year, while that in China was US$12.6 billion, according to the organisation.

Fiscal deficits in most Southeast Asian nations will narrow through 2017, leading to an improvement in public debt levels as a percentage of gross domestic product, the OECD said.

Indonesian President Susilo Bambang Yudhoyono is increasing spending on roads, seaports and airports as he woos investment to spur Southeast Asia’s largest economy. Growth held above 6 percent for an eighth quarter in the three months through September, a report showed this month.

More than a decade after the Asian financial crisis forced Indonesia to seek an IMF bailout, Fitch Ratings and Moody’s Investors Service have raised their ratings on the nation’s debt to investment grade and growth is among the fastest in the Group of 20 nations.

Slower projected growth for Thailand, Malaysia and Singapore compared with Indonesia “highlights the fact that they are now in the stage where further rapid gains in productivity become more difficult to achieve”, the OECD said.

Singapore’s economy is seen expanding an average 3.1 per cent a year over the coming half decade, the OECD said.

For the region’s less-developed economies, Myanmar’s growth outlook has improved “substantially” amid political reforms, which are expected to lead to a large influx of foreign investment, the OECD said. High inflation partly due to a weak macroeconomic management framework is a “major downside risk” for Vietnam, it said.

Elsewhere, Italy, a nation mired in recession and implementing fiscal austerity measures, may report industrial orders contracted for the first time in three months, according to a Bloomberg survey of economists.

In the US day ahead, the lowest mortgage rates on record probably helped keep sales of previously owned homes close to a two-year high in October. Purchases of existing dwellings probably held at a 4.75 million annual rate last month, according to the median forecast in a Bloomberg survey before today’s report from the National Association of Realtors. Bloomberg

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