Malaysia likely the only country in the region to see faster growth this year


THE economic outlook for South-East Asia has turned less rosy this year, with gross domestic product (GDP) for most major economies in the region, except Malaysia, expected to grow at a slower pace than what was achieved in 2013.

RHB Research, which lumps Malaysia, Indonesia, Thailand, Singapore and the Philippines together as the Asean-5, has recently slashed its 2014 growth forecast for the region to 4.3% from its earlier forecast of 4.7%.

The broker attributes its downward revision of the Asean-5 economy to the weaker-than-expected economic performance in Indonesia, Singapore, Thailand and the Philippines in the early part of the year amid lacklustre growth in exports and political uncertainty in some countries.

Last year, the economy of the Asean-5 expanded 4.9%, compared with 5.1% in 2012.

RHB Research, however, notes that GDP growth in the Asean-5 is expected to accelerate to 5.1% in 2015 after slowing down this year, as exports growth strengthens on the back of continued global economic recovery.

RHB Research’s latest outlook for key South-East Asian economies seems to somewhat reflect the sentiment of the Asian Development Bank (ADB).

The regional financial institution, which includes Vietnam instead of Singapore in its definition of Asean-5, has recently cut its 2014 GDP growth forecast for the region to 4.7% from its earlier projection of 5.2%, citing country-specific factors.

“Recent data suggest that South-East Asia has softened… as growth prospects faltered in Indonesia, Thailand, and Vietnam,” the ADB notes in its latest Asian Development Outlook (ADO) Supplement.

It points out that the first quarter GDP growth of the three economies was weak, with Indonesia being weighed down by soft external demand and low commodity prices, while Thailand and Vietnam were respectively bogged down by political unrest. On a positive note, the ADB says the outlook for Asean-5 will improve next year.

“As the factors slowing growth in 2014 are expected to be temporary, the forecast of growth at 5.4% in 2015 is maintained,” the bank says.

Malaysia stands out

Among the Asean-5 economies, Malaysia will likely be a standout, with its GDP expected to grow at a faster pace this year, while the rest experience slowdown, RHB Research reiterates in its latest report on the regional outlook.

According to the research house, Malaysia’s economic growth is expected to accelerate to 5.4% this year, compared with 4.7% in 2013, before moderating to 5.2% in 2015.

The research house says Malaysia’s growth rate this year will be underpinned by the strong expansion of 6.2% achieved in the first quarter.


It points out that while the spectacular growth in the early part of the year will likely cool off and the country’s economy will likely expand at a slower pace in the second half of the year, amid moderating exports growth and domestic demand and a higher base effect, the overall growth for Malaysia this year remains “commendable”.

RHB Research says it expects Indonesia, Thailand and the Philippines’ economies to rebound in the second half after suffering some setbacks in the early half of 2014.

In the case of Indonesia, whose first-quarter growth came in lower than expected at 5.2%, RHB Research explains, political uncertainties have largely been removed following the election of Joko Widodo as the country’s president.

“The removal of political uncertainty could help speed up government’s disbursement for development expenditure and encourage businesses to invest,” RHB Research says.

“This could mitigate a more moderate growth in consumer and public consumption in the absence of political parties’ spending after the election,” it says, adding that the improvement in political condition, coupled with a recovery in exports, suggests that the Indonesian economy will likely rebound in the second half.

For the full-year, RHB Research expects the Indonesian economy to grow at a more moderate pace of 5.2% compared with 5.8% last year.

In Thailand, some semblance of stability has returned after a military coup in May helped resolve the political impasse between pro- and anti-government groups that had badly affected the country’s domestic demand and tourism industry.

RHB Research says it expects Thailand’s GDP, which shrank 0.6% in the first quarter, to rebound to a growth of 2.3% in the second half. Overall, the country’s GDP is expected to stabilise at 1.2% this year, slower than the 2.9% growth achieved in 2013.

In the Philippines, the recovery from the impact of Typhoon Yolanda that struck in late 2013 and ongoing reconstruction efforts should help boost the economy.

RHB Research expects the Philippines’ GDP growth to slow to 6.5% this year from 7.2% last year due to the impact of the natural disaster on the country’s economy in the early part of 2014.

Singapore’s economy this year, on the other hand, is expected to grow 3.3%, slower than the 4.1% registered in 2013, due to modest pick-up in exports and manufacturing output.

According to RHB Research, Singapore’s economic growth has been falling below its potential output due to, among others, a shortage of labour. Meanwhile, Vietnam, which is not included in RHB Research’s Asean-5, is expected to grow 5.7% this year, compared with 5.4% in 2013. The broker says leading indicators suggest that economic activities in the country are showing encouraging improvement from the aftermath of the anti-China riot that broke out in May.

Manageable inflation

RHB Research notes that while price pressure will likely build up in most of the Asean-5 (except Indonesia), inflationary pressure will likely remain manageable.

The research house expects inflation rate, as measured by the change in consumer price index (CPI), for Malaysia to range between 3% and 3.4% this year, compared with 2.1% in 2013.

The Philippines’ CPI is expected to register strongest growth at 4.2% in 2014, compared with 2.9% last year, while that of Thailand is expected to pick up moderately to 2.5% this year from 2.2% last year.

With the Monetary Authority of Singapore’s gradual appreciation of its currency seen helping to contain price pressure, RHB Research has revised down its inflation forecast for Singapore to 1.9% in 2014, from the 2.8% projected earlier. The country’s CPI last year rose 2.4%.

According to RHB Research, Indonesia’s inflation is likely to moderate to 6.2% in 2014 from 7% last year on the assumption that its government will not change its administrative pricing on the subsidised fuel through the year.

Unsurprisingly, Malaysia and the Philippines became the first Asean countries to raise interest rates last month due to the rising inflation risks that they face, with both countries raising their benchmark rates by 25 basis points to 3.25% and 3.75%, respectively.

Conversely for Thailand and Indonesia, whose inflationary pressure remains relatively manageable, economists expect their benchmark interest rates to remain unchanged through 2014.

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