Investment, infrastructure, digital economy to drive Asean prospects: EY

Singapore

A NEW report has given an upbeat reading of Asean's prospects: investment interest in the region in the next five years will be high, as will be infrastructure spending on regional transport connectivity, energy security and digital connectivity.

The report by EY, "Rediscover Asean: A growth story of 10 countries", projected that 87 per cent of US companies expect to increase trade and investment in the regional bloc in the next five years, followed by 86 per cent of Australian companies, 85 per cent of European companies and 55 per cent of Japanese companies.

By 2020, China's business focus in Asean is projected to go up to US$1 trillion in trade and US$150 billion in investments, it added.

Asean is home to more than 630 million people, and the economies of its 10 member countries are expected to grow at between 3 per cent and 8 per cent from 2017 to 2021.

The report estimated that infrastructure spending in Asean would hit US$110 billion a year until 2025, as the region undergoes rapid urbanisation and industrialisation as a result of economic and population growth. Key investments will be made in land, air, rail and sea transport, connectivity for logistics efficiency, utilities, and information communications technology (ICT) infrastructure.

Equally sanguine about Asean's growth prospects is the Asean+3 Macroeconomic Research Office (Amro), which released its inaugural flagship report on Thursday. It said that the economic outlook of the Asean+3 region has improved with the recovery of global trade and investments.

Amro, the regional macroeconomic surveillance unit of the Chiang Mai Initiative Multilateralisation (CMIM), projected that the Asean+3 region would grow at 5.2 per cent this year and 5.1 per cent next year. CMIM is a multilateral currency swap arrangement among members of Asean+3 - the 10 Asean countries plus China (including Hong Kong), Japan and South Korea.

The report, "Asean+3 Regional Economic Outlook", said that China and Japan, the grouping's largest economies, would anchor growth in Asean+3.

Meanwhile, the emerging markets of South Korea, Malaysia, Indonesia, the Philippines, Singapore, Thailand and Vietnam remain resilient; the developing Asean economies of Cambodia, Laos and Myanmar continue to grow and reap benefits from regional integration, it said.

The report, which assesses Asean+3's economic outlook, growth momentum and financial stability, also analyses its downside risks.

With rising trade protectionism, tightening global financial conditions and rising inflation, room for monetary and fiscal policy is now generallyless than what it was last year, said the Amro report.

It noted that buffers in foreign exchange reserves remain high, but that the risks of capital outflows from the region are significant amid global policy uncertainty. Thus, growth continues to be driven primarily by domestic demand.

Amro chief economist Khor Hoe Ee said: "It's encouraging to see the Asean+3 region has been resilient going into 2017. In the current global environment, the region should prioritise financial stability while supporting growth with an appropriate policy mix, including targeted macroprudential policy measures and sustained structural reform."

The publication also examines the state of the Asean+3 grouping 20 years after the Asian financial crisis.

Meanwhile, Max Loh, EY managing partner for Asean and Singapore, foresees higher upside for trade growth among Asean members, with the Asean Economic Community policy thrusts encouraging regional economic integration. "In the longer term, the Regional Comprehensive Economic Partnership involving Asean, Australia, China, India, New Zealand, Japan and South Korea will help to drive further regional trade growth."

Over the last decade, Asean's total trade rose by a compound annual growth rate (CAGR) of 6.4 per cent to US$2.3 trillion in 2015. From 2010 to 2016, Singapore companies registered 109 cross-border deals within Asean valued at US$10 billion, with key deals in the consumer, mining and financial services sectors.

Foreign direct investment inflow into Asean grew by a CAGR of 11.5 per cent from 2005 to 2015.

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