FULL-year growth estimates for 2023 for the Asean+3 region have been cut to 4.3 per cent from the 4.6 per cent in an earlier July report to reflect weaker-than-expected growth in China in Q2, the Asean+3 Macroeconomic Research Office (Amro) said on Wednesday (Oct 4).

The macroeconomics surveillance organisation maintained its 2024 growth forecast from July for the 10 member states in Asean plus China, Japan and South Korea (Asean+3), expecting the region to grow by 4.5 per cent.

This reflects China’s improving growth momentum and the effects of its policy support measures, alongside the gradual pickup in durable goods consumption in the US and the anticipated recovery of the global technology cycle.

 In this report, Amro also included Hong Kong as a separate entity from China.

“Despite the gloomy headlines surrounding China’s economic performance, we must view things in perspective,” said Amro’s chief economist Khor Hoe Ee. “Beyond the real estate sector, manufacturing investment is holding up, and consumer spending is starting to get back on track – these should have positive spillover effects across the rest of Asean+3.”

Dr Khor highlighted booming travel during China’s Golden Week holiday from Sep 29 to Oct 8 this year as an example.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

“We can see, for instance, in this Golden Week, the travel industry has been completely full... We are actually quite confident that consumer spending is there, and it’s going to show up later this year,” he said in a virtual media briefing on the report.

Asean alone

China, Hong Kong, Japan, and South Korea aside, Asean is projected to grow at 5 per cent for 2024, down from July’s estimated 5.1 per cent; and at 4.4 per cent for 2023, down from the earlier 4.5 per cent.

“Asean’s aggregate growth estimate for 2023 remains largely unchanged, buttressed in part by strong private-sector spending and continuing recovery in tourism,” the report stated.

Growth driver

Domestic demand continues to be the main engine of growth in Asean+3.

The report raised strong employment conditions and improving household incomes as underpinning the strength of private consumption. Activities in domestic-oriented sectors including retail trade have been bolstered by robust recovery in travel and tourism.

Strong consumer spending has, in turn, boosted business sentiment across the region and investment activity has steadily expanded in some economies.

“Worst may soon be over” for goods exports

Although the region’s goods exports remained weak in the face of muted demand from major trading partners and the down cycle of the global electronics sector, the contraction appears to be easing.

Already, the July-August Purchasing Managers’ Index indicators on future export orders point to less pessimism among Asean+3 exporters.

Core inflation

Headline inflation for the Asean+3 region – excluding Laos and Myanmar, whose inflation is largely driven by exchange-rate depreciations – is forecast to moderate to 2.6 per cent in 2024, from this year’s estimate of 2.9 per cent.

The figure for 2023 has been cut from an earlier 3 per cent, while that for 2024 has been revised upwards from the previous 2.4 per cent.

Half of the Asean+3 region – namely Japan, South Korea, Brunei, Laos, Singapore, Thailand and Vietnam – is now expected to see higher inflation rates in 2024, compared with the July assessment.

This is due to the “upward trend in global commodity prices and still-elevated core inflation in several economies”, noted the report.

Downside risks

Among the risks to keep an eye out for is a potential spike in global commodity prices.

El Nino, which Dr Khor describes as the “wild card for inflation”, could further bump up prices in the global market, particularly if worse-than-expected conditions result in additional restrictive trade policies on key agricultural imports.

“The impact of commodity prices on Asean+3 inflation will be sharper, if the strength of the US dollar relative to the region’s currencies continues,” he added.

Moreover, further extensions of oil supply cuts into 2024 will keep energy prices elevated for longer.

A potential recession in the US and Europe could present another shock. Should both the US and Europe fall into recession in 2024, Amro projects that Asean+3 growth could fall below 3 per cent, the weakest growth since 1998 outside of 2020’s pandemic-induced slowdown.

The most pertinent risk to the region’s growth prospects is tensions between China and the US on trade and technology, the report raised. Further escalation would adversely impact Asean+3 trade and investment flows.