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Economies Of Southeast Asia Facing Slower Growth

180px-Southeast_Asia_(orthographic_projection).svg (2)If the 11 countries of Southeast Asia comprised one country, it would rank between the eight and ninth largest economy globally. It would also be the most dependent on trade, with a trade to GDP (Gross Domestic Product) ratio in excess of 150%. Over the past decade taken as a whole, the region has averaged an economic growth rate of more than 5% annually. It has also benefited enormously from foreign investment.

Southeast Asia has a combined GDP of $2.5 trillion USD (United States Dollar). The region is the second fastest growing in Asia and has consistently outpaced many other areas of the world as well as the global average.

The area known as ASEAN (Association of Southeast Asian Nations) excluding Timor-Leste, has economically grown over 300% since the beginning of the 21st century.

ASEAN members' flags in Jakarta.

ASEAN members’ flags in Jakarta, capital of Indonesia.

Southeast Asia has a combined population of nearly 640 million inhabitants with a GDP per capita in excess of $4,000 USD. Economic growth is forecast at 4.5% this year and 4.8% in 2017.

Last year growth for the region settled at 4.4%. However, these predictions are based on a number of assumptions that are now proving to be far too optimistic.

As the global economy continues to slow in the face of declining demand, it will place additional challenges on trade for the countries of ASEAN. The unsteady Chinese economy, is a further hindrance to growth for the region as a whole.

There is also the continuing uncertainty over what the monetary policy of the United States (U.S.) will be in 2016 and 2017. When will the Federal Reserve Bank (Fed) finally raise interest rates again?

Chinese export goods

Chinese export goods

If world markets tumble due to financial instability, there will be an outflow of foreign capital that will be immensely damaging to the local economy.

Central banks globally continue to pump more liquidity into the system, in a desperate attempt to maintain market equilibrium and economic growth.

It is destabilizing many leading world currencies. This is already reverberating throughout Southeast Asia.

The reduced demand for raw materials from China is also having a detrimental effect on growth, particularly in Indonesia and Malaysia.

Commodities account for more than 60% of all Indonesian exports. The demand for coal, natural gas, nickel, rubber and palm oil have all plummeted. The income derived from these sources, cannot be made up by the government. The collection of taxes is not efficient enough to permit it.

The government of Indonesia is currently focused on the establishment of downstream processing industries, to deliver more value added products. It is seen as a way to further diversify the domestic economy. It is not occurring at a fast enough pace to maintain a higher level of growth.

Joko Widodo

Joko Widodo

Indonesia is expected to grow by 5.2% this year and 5.5% next year. As the largest economy in Southeast Asia and ranked 16th globally, economic expansion here will impact the rest of the region the most. The country at 256 million inhabitants, is the 4th largest by population in the world.

The political leadership in Indonesia is hoping to foster more investment by dropping the corporate tax rate from 25% to 20% as is Thailand.

President Joko Widodo came to office in 2014, promising to return the country to 7% growth. This will not happen, despite the effort to vastly expand infrastructure spending. The surge in government spending, was unable to stop the sharp slowdown in private consumption and an even faster decline in exports.

Najib Razak, Prime Minister of Malaysia since 2009.

Najib Razak, Prime Minister of Malaysia since 2009.

Malaysia remains the biggest oil exporter not only in the region, but for all of Asia. The importance of crude sales to the domestic economy, cannot be underestimated. At least 20% of all Malaysian exports, derive from this one sector and prices have plunged by some 60%.

Although the continued strength of the electronics industry has cushioned the blow in the energy sector, it will still keep Malaysian GDP growing at a slower rate of 4.2% this year and 4.4% in 2017.

Brunei a nation almost totally dependent on the energy industry and oil exports, is near recession. The ongoing imbalance in the oil market, will keep this small country’s economy in despairing straits. The country will be lucky to grow 1% this year and is only forecast to expand by 2.5% in 2017.

The countries that are still doing rather well in the present global economy are the Philippines and Vietnam. Neither of them are overly dependent on trade with China, or the international depressed market for commodities.

Ho Chi Minh City, capital of Vietnam

Ho Chi Minh City, capital of Vietnam

Economic expansion in Vietnam reached 6.7% last year and is expected to grown 6.7% in 2016. However if global trade continues to slow down, it will have an adverse effect on the Vietnamese economy.

In addition, as a command economy there are many state owned concerns, that are no longer productive. These are kept in operation to preserve jobs and political patronage. The communist government will need to continue restructuring the economy, in order to maintain growth which is expected to slow to 6.5% next year.

Manila, capital of the Philippines

Manila, capital of the Philippines

The Philippines grew by 6.1% in 2014 and 5.8% in 2015. Expansion there was fueled by a rebound in the agricultural sector and growth in industry, even as the service sector slowed somewhat.

The famous call centers are another advantage that the country possesses, but will face increasing competition from automation software.

The economy of the Philippines is expected to grow 6% in 2016 and 6.1% in 2017.

Thailand has seen growth decline dramatically. Last year it was just 2.8% after a dismal 1% in 2014. This was a result of political instability and unrest. General Parayuth Chan-ocha had orchestrated an overthrow of the government two years ago and had himself made Prime Minister.

These actions have led to reduced national and foreign investment, even as domestic demand has since recovered.

United Front for Democracy Against Dictatorship, Red Shirts, protest on Ratchaprasong intersection in 2010.

United Front for Democracy Against Dictatorship, Red Shirts, protest on Ratchaprasong intersection in 2010.

Further growth for Thailand this year is projected to be just 3% and the 2017 forecast at 3.5%, is dependent on the continuing development of infrastructure. A number of these projects will only proceed if political order is maintained.

Chinese foreign investment one of the largest for the country, is contingent upon working with a government that has the authority to make decisions.

Malaysia is also suffering from an uncertain political system. Najib Razak the Prime Minister has lost credibility with much of the populace, in a corruption scandal that will not go away. It deals with hundreds of millions of dollars and he is personally involved with the situation.

His oppression of political opponents and engagement in racial politics, will not end the controversy. It will also not prevent the downward pressure it is putting on the domestic currency the ringgit, and investor confidence in the country.

Angkor Wat in Cambodia

Angkor Wat in Cambodia

The GDP in Cambodia expanded by 6.90% in 2015, the preceding four years witnessed growth above 7%. The economy is still dependent on agriculture.

In more recent times, the importance of manufacturing has grown. The establishment of a textile and shoe industry for the export market has developed, because of the low wage base in the country.

The tourist industry in Cambodia is developing rapidly, as part of a services industry that represents 38% of the total GDP. The extraction of natural resources including minerals and oil will slowly reshape the economy in the years ahead. The country is forecast to grow 7% this year and 7.1% in 2017.

About 80% of the Laotian population practices subsistence agriculture.

About 80% of the Laotian population practices subsistence agriculture.

Laos has averaged 7.10% growth in GDP from 1989 to 2015. Last year it came in at 7% even. The high growth rate is partly due to the fact of how poor the country still is.

Like Cambodia, the Laotian economy is heavily dependent on agriculture, which comprises 33% of GDP. This sector alone, employs roughly 80% of the population.

Tourism is the second largest earner of foreign currency at 11% of GDP and is growing rapidly. In recent years, the country has opened the domestic economy for foreign investment.

The country remains under communist control and despite rapid growth, the government relies extensively on foreign aid to fund the central budget and most infrastructure development.

Myanmar formerly known as Burma, is the poorest country in Southeast Asia. The country was under a military dictatorship for decades. Since 2011, there has been a slow transition to democracy. The new civilian led government has opened the country up to direct foreign investment.

Cyclone In Myanmar

Cyclone In Myanmar

The most important sector in the economy is services, which has been growing steadily over the past few years. It now comprises 38% of GDP. Agriculture which contributes 36% of GDP, has seen its share decline during the same period.

The economy of Myanmar expanded by 8.70% in 2014, with an average of 8.97% in the preceding twenty years. The country grew by an estimated 7.2% in 2015 and is forecast to enlarge by an additional 8.4% in 2016.

This will be the result of a recovery in agriculture hit by disasters in 2015 and increased investments. The forecast for 2017 is now 8.3%.

It is calculated that Myanmar will need $60 billion USD in new investments through 2030 alone, just for transportation infrastructure needs.

The Keppel Container Terminal in the Port of Singapore. The Port of Singapore is the busiest transshipment and container port in the world, and is an important transportation and shipping hub in Southeast Asia.

The Port of Singapore is the busiest transshipment and container port in the world, and is an important transportation and shipping hub in Southeast Asia.

Singapore has seen growth slow in recent years. The forecast for this year is 1.9% and next year is 2.5%. This is the weakest expansion of the economy since 2009. Manufacturing is expected to shrink by 2.7% this year alone.

As a fully developed economy, very rapid rates of economic growth for this city-state are probably no longer possible.

In addition to short term hindrances to growth, there are also long term problems for the region as a whole. These would include declining birth rates and shrinking work forces. This will especially be the case for Thailand and wealthy Singapore.

Productivity will be an issue across the region. The easy economic gains made when millions of people moved to the cities, to take lower skilled jobs in the service industries are now becoming more difficult.

The next phase will be higher skilled jobs, which will require more education and longer terms of training for the youth of the country. More intensive use of technology instead of cheap labor, is the next step the region will need to make as wages begin to increase.

Lastly, there will be a need for more progressive and intelligent policy making at both the industrial and governmental level. Aspirations of a rising middle class will need to be met. It will be the only way to continue development towards a more advanced regional economy.

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