Philippines and Vietnam’s robust Q1 growth leaves Thailand in the dust

WITH strong first-quarter growth prints, the Philippines and Vietnam have continued to lead economic expansion in South-east Asia – leaving underperforming Thailand in the dust – even as their numbers fell short of most economists’ expectations.

The Philippines, Asean’s fastest-growing economy in 2023, continued to occupy the top spot with gross domestic product (GDP) growth of 5.7 per cent in the first three months of 2024.

Although it was shy of forecasts – 19 of 25 economists polled by Bloomberg predicted growth of between 5.8 and 6.6 per cent – growth still picked up from the previous quarter by 0.2 per cent.

Moody’s Analytics economist Sarah Tan said the Philippines maintained its growth momentum on the back of strong trade, in both merchandise and services exports.

“Shipments of electronic products, in particular semiconductors, buoyed receipts from goods exports, while services exports rocketed as international travel made headway,” she said.

However, private consumption – the top contributor to the nation’s GDP – and investment growth slowed this quarter, amid high borrowing costs and interest rates.

Economists broadly expect the year’s growth figure to miss the government’s target range of between 6 and 7 per cent, which was already revised downwards from an earlier projection of 6.5 to 7.5 per cent.

But even as the Philippines misses the moon, it is still expected to land among the stars.

Analysts remain sanguine over its growth prospects and reiterate that the nation will continue to outperform its regional counterparts, just as it has done in previous years.

The way Tan sees it, the Philippine economy will “continue to play catch-up” the rest of the year, following its deep downturn during the pandemic.

“Rebounding consumer spending, robust government consumption and a healthier global trade climate come the second half of the year should lead to full-year GDP of 5.9 per cent in 2024,” she said.

Vietnam: A rising star 

Vietnam is hot on the Philippines’ heels with growth of 5.66 per cent in the January-March quarter. 

While the country’s economic expansion outshone its regional peers, the figure still pales in comparison to its previous-quarter growth of 6.72 per cent, as its production of certain key industrial goods fell.

Overall growth in Vietnam’s industry and construction sector slowed to 6.28 per cent in the first quarter of 2024 from 7.35 per cent in the preceding quarter.

Notably, Vietnam’s Q1 mobile phone production fell by 13.3 per cent, automobile production by 11.3 per cent and television production by 11.1 per cent, compared to the same period last year, official data showed.

The nation’s service sector also slowed, charting growth of 6.12 per cent in Q1 2024, compared to 7.29 per cent in Q4 2023.

Nevertheless, like with the Philippines, economists remain upbeat about Vietnam’s growth prospects in the coming quarters.

Said OCBC senior Asean economist Lavanya Venkateswaran: “We expect growth momentum to pick up for the rest of the year as electronics export demand improves and domestic support for growth becomes stronger.”

Vishrut Rana, an economist at S&P Global Ratings, said: “Vietnam’s economy is the most sensitive to external demand in the region, and will likely see more growth impact depending on global electronics demand this year.”

Moderating growth

Indonesia came in third for the first quarter with growth of 5.11 per cent, beating the median estimate of 5.08 per cent in a Bloomberg poll of 31 economists.

The figure is also a shade rosier than the 5.04 per cent in Q4 2023 and 4.94 per cent in Q3 2023.

OCBC’s Venkateswaran, whose growth estimate for South-east Asia’s largest economy is 4.7 per cent, noted that Indonesia’s growth turned out stronger than the house had pencilled in on the back of the political cycle and resilient household consumption.

However, like other economists, she expects growth to moderate in the coming quarters as “the boost to spending from the February elections fades along with commodity price tailwinds”.

Climbing costs, cratering currencies 

While Asean remains one of the world’s fastest-growing economic blocs, the dark clouds of inflationary and currency depreciation pressures loom on the horizon.

Inflation is a serious concern, particularly for the Philippines.

Tan from Moody’s Analytics warns that “volatility is expected in coming months as high food inflation lingers” due to the El Nino effect. Higher transport charges and electricity rates are also key risks.

And until inflation settles firmly within the central bank’s target range for an extended period of time, high interest rates are here to stay.

Bangko Sentral ng Pilipinas, at its most recent mid-May policy meeting, kept its benchmark rate steady at a 17-year high of 6.5 per cent for a fifth consecutive session.

When it comes to currency depreciations, Vietnam and the Philippines happen to be among the hardest hit too.

The Philippine peso dropped past the key 58 threshold to register a fresh 18-month-low of 58.747 against the US dollar on May 30, recording a year-to-date depreciation against the greenback of about 6 per cent.

Meanwhile, the dong sank to a record low of 25,477 per US dollar on May 24, prompting Vietnam’s central bank to signal that it is ready to defend the beleaguered currency, which has fallen almost 5 per cent year-to-date.

That said, in the face of these challenges, economists still expect growth to remain resilient in these South-east Asian economies through the rest of the year.

In the shadow

But as the Philippines, Vietnam and Indonesia power on, Thailand continues to lag its regional counterparts.

The kingdom recorded growth of 1.5 per cent, which is lower than the 1.7 per cent charted in the preceding quarter, yet above the median estimate of 0.8 per cent in a Bloomberg survey of 20 economists.

OCBC’s Venkateswaran pointed to structural constraints such as the nation’s ageing population, slowing investment spending and limited growth of export-oriented industries in recent years, all of which she believes have led to its underperformance in the region.

S&P Global Ratings’ Rana pointed out that the relatively slower growth in the first quarter could be attributed to a delayed budget process that slowed public spending.

But this is subsequently expected to pick up and the house expects growth to improve in the coming quarters.

Said BofA Securities’ Thailand economist Pipat Luengnaruemitchai: “Tourism will remain the key engine and manufacturing activities should cyclically recover as inventory drawdown continues.”