The growth outlook of the 10 Association of Southeast Asian Nations (ASEAN) economies is likely to diverge in 2016 and 2017 against the backdrop of subdued global demand, according to the latest assessment by Moody’s.
The five founding members of ASEAN, which was formed in 1967, are Indonesia, Malaysia, the Philippines, Singapore and Thailand. They were subsequently joined by Brunei, Vietnam, Laos, Myanmar and Cambodia.
“The growth prospects of ASEAN’s major export-orientated economies – Singapore, Malaysia and Thailand – will remain weaker than those of more domestic demand-driven economies, Indonesia and the Philippines, in 2016 and 2017,” said Rahul Ghosh, a Moody’s vice president and senior research analyst.
However, the credit ratings agency (CRA) predicts that Vietnam, meanwhile, will remain a regional growth outperformer on the back of robust manufacturing activity and strong foreign direct investment flows.
Moody’s reports that export growth is slumping across the ASEAN region; however, the overall economic impact will vary based on the relative importance of trade to gross domestic product (GDP).
Total trade – the sum of exports and imports – accounts for 346%, 131% and 130% of GDP in Singapore, Malaysia and Thailand respectively, which is much higher than the 41% recorded for Indonesia and 58% for the Philippines.
“Singapore, Malaysia and Thailand are susceptible to a prolonged period of subdued global demand via both the export channel and weaker investment demand,” said Ghosh. “We forecast G20 GDP growth at 2.6% in 2016, similar to last year and rising to only 2.9% in 2017. And downside risks to global growth are increasing.”
Ghosh was commenting on Moody’s just-released edition of Inside ASEAN, which also examines the implementation of major policy reforms in Malaysia. It believes that these have mitigated the negative impact of lower oil prices on the government’s fiscal position.
The CRA notes that external pressures – including increased capital flow volatility and consequent exchange rate depreciation – have led to a deterioration in Malaysia’s growth and external metrics. Moody’s has already downgraded its sovereign rating outlook for Malaysia to stable from positive.
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