Domestic demand bolsters Southeast Asia
In the Seri Kempangan district on the southern edge of Kuala Lumpur, US carmaker Ford has just opened a showroom.
The dealer in charge, who gives his name as Raymond, seems unfazed by the economic slowdown in China and the eurozone crisis. “Our people have got money and they are only interested in new models,” he says.
The dealer in charge, who gives his name as Raymond, seems unfazed by the economic slowdown in China and the eurozone crisis. “Our people have got money and they are only interested in new models,” he says.
Raymond’s optimism is typical across the region, where rising wages, strong consumer spending and an increasingly sturdy banking system are all fuelling hopes that the 10-nation Association of Southeast Asian Nations (Asean) may be able to avoid any serious spillover effects of falling growth in China, India and Europe.
Asean’s population of 622m is about half that of India’s, yet enjoys gross domestic product per head at purchasing power parity of $5,500, compared with India’s $3,700, according to the International Monetary Fund.
Economists say that while domestic demand will not save the region from a severe downturn – and certainly not a catastrophic worsening of the eurozone crisis – it does provide a cushion amid the current economic uncertainty.
“The slowdown is clearly going to be negative for Asean, but we’re not too concerned about it because after years of deleveraging, they are very competitive and we see strong domestic demand in these economies,” says Frederic Neumann, co-head of Asian economic research at HSBC.
“The impact on Asian growth from another eurozone crisis, while severe, would also be temporary, with local banks able to ultimately make up the shortfall from departing Europeans,” Mr Neumann argues.
In a report published this week on Asian economies, the World Bank forecast that growth in Asean, including Mongolia, would rise about 1 percentage point to an average of 5.2 per cent this year, compared with 4.2 per cent last year. Much of that would reflect Thailand’s post-flood rebound, with other countries seeing rates slightly lower or unchanged from last year.
Yet, at a time when Chinese and Indian growth is falling, the bank said these projected growth rates were “still fairly robust”.
In Thailand, growing consumer demand was a key factor in an 11 per cent jump in GDP in the first quarter, as the economy rebounded from the devastation caused by flooding last year. Thailand in April also raised the daily minimum wage by an average of 40 per cent to Bt300 ($9.56).
In Malaysia, where the economy grew 4.7 per cent in the first quarter according to data released on Wednesday, domestic demand helped offset weaker exports. Consumption has been boosted by the introduction in March of the country’s first minimum wage, amounting to 900 ringgit ($297) a month.
Indonesia, the region’s largest economy, is the best insulated against external shocks because of its large domestic market, extensive natural resources and its relatively limited reliance on demand in Europe and the US.
Household consumption has been driving growth in Indonesia, where it represents just over 50 per cent of GDP, according to Standard Chartered. Although it is exposed to China’s hunger for commodities such as coal, iron ore and natural gas, economists say it would take a sharp drop-off to cause alarm.
“As long as the domestic economy in China is still relatively strong, the impact on Indonesia of a global slowdown will not be very big,” says Anton Gunawan, Jakarta-based chief economist at Bank Danamon, an Indonesian bank.
Investors have taken note. In the past six months, Thailand’s stock market has risen 14 per cent, Malaysia’s 9 per cent and Indonesia’s 6.5 per cent. Over the same period, shares in both India and China have fallen.
Nonetheless, there is still some nervousness. The World Bank urged Asean countries to rely more on domestic demand and less on exports as external demand was likely to remain weak. “Already, many countries are moving in this direction, but there is further scope for rebalancing,” it said.
Copyright The Financial Times Limited 2012.
Asean’s population of 622m is about half that of India’s, yet enjoys gross domestic product per head at purchasing power parity of $5,500, compared with India’s $3,700, according to the International Monetary Fund.
Economists say that while domestic demand will not save the region from a severe downturn – and certainly not a catastrophic worsening of the eurozone crisis – it does provide a cushion amid the current economic uncertainty.
“The slowdown is clearly going to be negative for Asean, but we’re not too concerned about it because after years of deleveraging, they are very competitive and we see strong domestic demand in these economies,” says Frederic Neumann, co-head of Asian economic research at HSBC.
“The impact on Asian growth from another eurozone crisis, while severe, would also be temporary, with local banks able to ultimately make up the shortfall from departing Europeans,” Mr Neumann argues.
In a report published this week on Asian economies, the World Bank forecast that growth in Asean, including Mongolia, would rise about 1 percentage point to an average of 5.2 per cent this year, compared with 4.2 per cent last year. Much of that would reflect Thailand’s post-flood rebound, with other countries seeing rates slightly lower or unchanged from last year.
Yet, at a time when Chinese and Indian growth is falling, the bank said these projected growth rates were “still fairly robust”.
In Thailand, growing consumer demand was a key factor in an 11 per cent jump in GDP in the first quarter, as the economy rebounded from the devastation caused by flooding last year. Thailand in April also raised the daily minimum wage by an average of 40 per cent to Bt300 ($9.56).
In Malaysia, where the economy grew 4.7 per cent in the first quarter according to data released on Wednesday, domestic demand helped offset weaker exports. Consumption has been boosted by the introduction in March of the country’s first minimum wage, amounting to 900 ringgit ($297) a month.
Indonesia, the region’s largest economy, is the best insulated against external shocks because of its large domestic market, extensive natural resources and its relatively limited reliance on demand in Europe and the US.
Household consumption has been driving growth in Indonesia, where it represents just over 50 per cent of GDP, according to Standard Chartered. Although it is exposed to China’s hunger for commodities such as coal, iron ore and natural gas, economists say it would take a sharp drop-off to cause alarm.
“As long as the domestic economy in China is still relatively strong, the impact on Indonesia of a global slowdown will not be very big,” says Anton Gunawan, Jakarta-based chief economist at Bank Danamon, an Indonesian bank.
Investors have taken note. In the past six months, Thailand’s stock market has risen 14 per cent, Malaysia’s 9 per cent and Indonesia’s 6.5 per cent. Over the same period, shares in both India and China have fallen.
Nonetheless, there is still some nervousness. The World Bank urged Asean countries to rely more on domestic demand and less on exports as external demand was likely to remain weak. “Already, many countries are moving in this direction, but there is further scope for rebalancing,” it said.
Copyright The Financial Times Limited 2012.
Comments
Post a Comment