Growth-blessed South-east Asia has more to cheer about in 2018

The Philippines and Vietnam will remain the star performers in 2018, with economic growth projected to exceed 6 per cent again, according to the median forecasts of economists surveyed by Bloomberg.
DECEMBER 18, 2017 - 10:35 AM

[SINGAPORE] South-east Asian nations are riding a global trade boom that's set to underpin solid economic growth next year, supporting the region as it embarks on monetary policy tightening and braces for a spate of elections.

The Philippines and Vietnam will remain the star performers in 2018, with economic growth projected to exceed 6 per cent again, according to the median forecasts of economists surveyed by Bloomberg.

Most of the region's top six economies are set to sustain 2017 momentum, with growth in Indonesia seen mildly firmer at 5.3 per cent next year, while Singapore and Malaysia will probably moderate.

Export-reliant South-east Asia is ending 2017 on a high note, counter to fears at the start of the year that a US-China trade war could blow up supply chains and send the region into disarray.

Malaysia, Thailand and Singapore all posted third-quarter gross domestic product growth that was faster than at any time since 2014 and earlier.

While growth may ease from this year's breakneck pace, the expansion that's been concentrated in trade-dominated industries, such as manufacturing, should broaden out to other sectors in the economy. Combined with a benign inflation outlook, that's set to support a gradual pace of monetary policy tightening across the region.


Central banks in the Philippines and Malaysia are seen as the two most likely to raise interest rates next year, while Singapore may also move away from its neutral policy stance. It's less clear what Indonesia and Thailand will do.

Morgan Stanley economists predict the Bank of Thailand will probably stay on hold in 2018, with Bank Indonesia raising rates. It's vice versa for Credit Suisse Group AG economists, who predict Indonesia will stay on hold and turn to macroprudential measures to spur lending, while Thailand is seen hiking.


Governments across the region - particularly in the Philippines and Indonesia where economies are more reliant on domestic sources of growth than exports - are spending more on road, rail and port projects to expand capacity, helping to underpin growth.

To keep their budget deficits in check, authorities are pushing to boost revenue from taxes. Philippine lawmakers last week ratified a tax bill that cuts some income taxes while raising levies on coal, vehicles and other goods. Indonesia is clamping down on tax dodgers, while Singapore is considering adjustments in its budget next year.


Household debt in parts of the region could hold back faster consumption and the broadening out of expansion, according to Taimur Baig, chief economist at DBS Group Holdings Ltd in Singapore.

"The worst case is, there are some macro shocks and these households already saddled with high debt stop consuming in an exuberant manner, so you have a drag on consumption," he said.

Consumers in Singapore, Malaysia and Thailand have higher debt burdens compared to others in the region, with central banks in the latter two countries citing financial stability risks as a factor in deciding policy.


Business investment will be the bigger story in 2018, said Chua Hak Bin, an economist at Maybank Kim Eng Research in Singapore. While this year's big surprise was the upturn in trade, that trend typically means a boon for investment that's been languishing, as executives change their minds about global demand prospects. Fledgling projects under China's Belt and Road Initiative could help boost those figures, he said.


The threat of further North Korean military provocations and a series of elections add to uncertainty in the region.

Malaysia is gearing up for a vote next year, with speculation mounting it will happen before the end of May. Prime Minister Najib Razak is facing a tough contest, but has bolstered his chances of re-election with a stimulus-packed budget in October. The timing may also have a bearing on when the central bank raises interest rates for the first time since 2014, with some economists suggesting a pre-vote hike is unlikely.

Thailand's military, which has held power since a coup in 2014, said it's on course for an election in November, although doubts remain. That may influence investment decisions, with businesses remaining on the sidelines in recent years.

Indonesia is set to hold regional elections next year, which may help to boost consumers' purchasing power and provide a lift to overall spending in the economy, which has disappointed this year.