(CPV) - In 2012, the open economies of South-East Asia are expected to be hit by the spillover effects of global uncertainties and growth moderation in China. Weaker external demand is likely to be felt particularly in the electronics cluster, but less so in low-end goods like garments.
Commodity exports are also likely to be affected, but not only by a significant degree given that commodity prices are expected to remain elevated. Meanwhile, demand for certain goods and services exports, such as business process outsourcing, may increase as consumers and businesses try to operate with a tighter budget.
In addition, given the subregion’s competitiveness and rising wages in China, foreign investment inflows are expected to continue to be strong.
Growth is expected to be led domestic demand, particularly consumption, which has held up well in previous downturns and may benefit further from monetary easing made possible by less inflationary pressure.
The contribution from investment is expected to be lower given its sensitivity to business cycles and expectations, but there could be some positive spillover effects from large public investment projects in the pipeline in a number of countries in the subregion.
Domestic demand may receive a further boost from the implementation of additional fiscal stimulus measures, for which most countries have the capacity. From the supply side, economic growth is expected to be driven by the services sector, which tends to benefit from solid domestic demand and is less affected than manufacturing from the global slowdown. Assuming stable weather conditions, agriculture output is expected to remain at similar levels as in 2011.
Taking into account these factors, the subregion is expected to grow slightly faster, at 5.2 percent in 2012 compared to 4.4 percent in 2011. Export-led Singapore and Malaysia are expected to grow by a slower 3 percent and 4.5 percent respectively.
Although experiencing a similar fall in exports, Thailand and the Philippines are expected to grow faster, at 5.8 percent and 4.8 percent, respectively, given their weaker-than-expected performance in 2011 and thus the base effect but also due to large public investments set to take off in post-flood reconstruction and infrastructure projects.
Indonesia is expected to grow steadily by a strong 6.5 percent, as it large domestic market continues to drive the economy even as exports may be effected.
Vietnam is expected to grow at a similar rate of 5.8 percent, as inflation will likely fall back to a single digit by the second half of the year, which would help stimulate consumption and improve investor confidence.
Cambodia is expected to grow slightly slower at 6.7 percent, given its heavy reliance on the United States and European markets, although garment exports would only be marginally affected.
The Lao People’s Democratic Republic is expected to grow by 8.4 percent similar to 2011, with declines in copper and gold exports offset by higher foreign investment in infrastructure.
Myanmar is expected to grow faster at 6.2 percent, as recent economic and political reforms help attract greater foreign investment and lead to the lifting of sanctions.
Timor-Leste is expected to grow faster, at 10 percent, as public spending continues to rise, and Brunei Darussalam slightly slower, at 2.5 percent.
South-East Asia is a rapidly growing subregion with a population of more than 600 million and sophisticated production network. The subregion remains largely export-driven, but domestic markets are also becoming increasingly buoyant on the back of rising incomes.
At the same time, however, income inequalities and urban-rural gaps are on the rise. This has led to a slower reduction of income poverty but also to higher rates of perceived or self-rated poverty.
For instance in the Philippines, a social survey conducted in September 2011 showed that self-rated poverty incidence had gone up to 52 percent of the population.
Income share held by the top 10 percent of the population ranged from 29.9 percent in Indonesia to 37.3 percent in Cambodia, while income share held by the bottom 20 percent ranged from 7.7 percent in Indonesia to 4.5 percent in Malaysia.
In response, a number of countries have expanded social programmes. For instance, the conditional cash transfer programme set up in the Philippines was enlarged to cover 2.3 million poor households in 2011.
Increasing the number of quality jobs is also a major challenge for the subregion, where the informal sector accounts for around 60 percent of total employment and the number of working poor (those earning less than $2 a day) are high.
The share of workers earning wages and salaries, as opposed to the self-employed and unpaid family workers, also remain quite low, although countries, such as Indonesia, have seen noticeable improvements in recent years.
One of the ways countries are addressing this issue and could further scale up is support for micro, small and medium-sized enterprises, which account for the vast majority of jobs but much smaller shares in terms of GDP contribution and exports.
Recent measures to improve their access to finance, a key bottleneck for small firms, could be accompanied by measures to enhance their access to markets and information.
Trade facilitation measures could be better tailored to the needs of small firms, and information on opportunities arising from new preferential trade agreements could be more widely disseminated.
Another key challenge lies in infrastructure development, which is a priority in such countries as Indonesia and the Philippines, but also important for the subregion as a whole, as investment rates have remained generally low since the 1997 financial crisis.
The Philippines plans to launch 16 projects under public-private partnerships in 2012, while Indonesia recently passed a land-acquisition bill, which will help speed up the process for acquiring land for new infrastructure projects.
At the subregional level, countries agreed on an ASEAN Infrastructure Fund in 2011, with a total lending commitment of $4 billion through 2020. This fund is expected to help leverage additional financing for infrastructure projects in support of the Master Plan on ASEAN Connectivity./.