South-East Asia - Saul Eslake

1 downloads 0 Views 1MB Size Report
Jul 10, 2018 - Philippines and Vietnam are doing best on the long-term drivers of economic ...... this year China has landed bombers on the Paracel Islands,.

SOUTH-EAST ASIA

PRESENTATION TO ICCBE 2018 THE INTERNATIONAL CONFERENCE OF COMMERCIAL BANK ECONOMISTS NEW YORK, 10TH JULY 2018

CORINNA

E C O NO M I C

ADVISORY

PTY LTD

South-East Asia is one of the world’s more populous regions – but not one of the world’s largest economic regions Population, 2018

GDP at purchasing power parities, 2018

Mns

1,500

30

1,250

25

1,000

20

750

15

500

10

250

5

0 China

India

Sub- MENA South Latin Saharan East America Africa Asia

EU

US

Russia Japan Other

25

0 China

EU

US

India

MENA

Latin South Japan Sub- Russia Other America East Saharan Asia Africa

GDP per capita at PPPs, 2018

GDP at market exchange rates, 2018

30

US$bn

US$bn

25

20

20

15

15

10

10

5

5

0

0 US

2

US$bn

EU

China

Latin Japan MENA South America East Asia

India

Sub- Russia Other Saharan Africa

China

EU

US

India

MENA

Latin South Japan Sub- Russia Other America East Saharan Asia Africa

Note: MENA (Middle East & North Africa) includes Afghanistan and Pakistan. Latin America excludes Cuba. Source: IMF, World Economic Outlook database, April 2018.

CORINNA ECONOMIC ADVISORY

South East Asia comprises a broad spread of large and small countries – and ‘advanced’ vs middle- and low-income developing economies Population, 2018

GDP at purchasing power parities, 2018

Mns

300

4.0 3.5

250

3.0

200

2.5

150

2.0 1.5

100

1.0

50

0.5

0 Indo- Philipnesia pines

Vietnam

Thai- Myan- Mal- Camland mar aysia bodia

Laos

Singa- Timor Brunei pore Leste

1.2

Indonesia

100 90 80 70 60 50 40 30 20 10 0

US$bn

1.0 0.8 0.6 0.4 0.2 0.0 Indo- Philipnesia pines

0.0

Thailand

Mal- Singaaysia pore

Viet- Myan- Camnam mar bodia

Source: IMF, World Economic Outlook database, April 2018.

Thailand

Mal- Philipaysia pines

Vietnam

Singa- Myan- Campore mar bodia

Laos

Brunei Timor Leste

GDP per capita at PPPs, 2018

GDP at market exchange rates, 2018

3

US$bn

Laos

Brunei Timor Leste

US$000s

SE Asia average

Singa- Brunei Malpore aysia

Thailand

Indo- Philipnesia pines

Laos

Viet- Myan- Timor Camnam mar Leste bodia

CORINNA ECONOMIC ADVISORY

There’s enormous diversity in the structure of South-East Asia’s economies Agriculture as a pc of GDP 30

Services as a pc of GDP 80

% of GDP, 2016

70

25

60

20

50

15

40 30

10

20

5

10

0

0 Cam- Myan- Laos bodia mar

Vietnam

Indo- Philip- Timor nesia pines Leste

Malaysia

Thailand

Brunei

Singapore

% of GDP, 2016

60 50 40 30 20 10 0 Timor Brunei IndoLeste nesia

4

Malaysia

Vietnam

Sing- Philipapore pines

Thailand

Malaysia

Laos

Vietnam

Indo- Cam- Brunei Myan- Timor nesia bodia mar Leste

Exports of goods and services as a pc of GDP

Industry as a pc of GDP 70

% of GDP, 2016

Thai- Myan- Laos land mar

Cam- Philip- Singbodia pines apore

200 180 160 140 120 100 80 60 40 20 0

% of GDP, 2016

na

Sing- Vietapore nam

Timor Leste

Thailand

Mal- Cam- Brunei Philip- Indo- Myan- Laos aysia bodia pines nesia mar

Note: ‘Industry’ includes oil and gas. Data for Timor-Leste are for 2015. Source: Asian Development Bank, Key Indicators for Asia and the Pacific, 2017.

CORINNA ECONOMIC ADVISORY

South-East Asian economies have grown faster than North-East Asian economies since the financial crisis – and this looks set to continue Real GDP growth, 2001-2018 10

GDP growth 2013-2017 and forecasts for 2018-2022

% change from year earlier

8 8

6

South-East Asia (ID, PH, TH, MY & SP)

% pa

2013-2017

7

2018-2022 (f)

6

5 4 4 2

0

3 North-East Asia (KO, TW & HK)

2 1

-2

0 -1

-4

-2 -6 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

5

Myan- Philipmar pines

Laos

Brunei Cambodia

Vietnam

Timor Leste

Indonesia

Malaysia

Thailand

Singa- Korea pore

Hong Taiwan Kong

Sources: National statistical agencies and/or central banks; IMF (for Myanmar and Cambodia). Forecasts for 2018-22 from IMF World Economic Outlook April 2018.

CORINNA ECONOMIC ADVISORY

Most South-East Asian economies have experienced steady growth in recent years, with Thailand and Singapore picking up most Real GDP growth, 2001-2018 20

20

% change from year earlier

18

18

18

16

16

16

14

14

12

12

12

10

10

10

8

Philippines

Singapore

8

Malaysia

14

6

4

4

4

2

2

2

0

0

0

-2

-2

-2

-4

-4

-4

-6

-6

-6

-8

-8

-8

-10

-10

-10

Indonesia

Thailand

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

% change from year earlier

Myanmar

8

6

6

6

20

% change from year earlier

Vietnam Cambodia

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: National statistical agencies and/or central banks; IMF (for Myanmar and Cambodia).

CORINNA ECONOMIC ADVISORY

Unemployment rates have been steadily edging down in most South East Asian economies, other than Thailand and Malaysia Unemployment rates, 2001-2018 Thailand

Indonesia 12

% of labour force

7 6

10

3

3

4

2

2

2

1

0

0

14

0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Malaysia

Philippines % of labour force

1

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

% of labour force

4

4

6

6 5

5

8

16

% of labour force

Singapore

5

% of labour force

4

12

3

10 2

8

1

6

0

4 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

7

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Note: except for Singapore, unemployment rates are not seasonally adjusted. Sources: National statistical agencies.

CORINNA ECONOMIC ADVISORY

South-East Asian economic growth has owed surprisingly little to net exports Real GDP growth, 2001-2018 Indonesia 10

15

% pts

8

Domestic final demand

6

Vietnam

4 2 0 -2

Net exports

5

8

0

4

-5

0

% pts

Domestic final demand

5 0

16 12

Net exports

07 08 09 10 11 12 13 14 15 16 17 18

Domestic final demand

Net exports

-4 -8

07

08

09

10

11

12

13

14

15

16

17

% pts

07 08 09 10 11 12 13 14 15 16 17 18

18

Singapore Domestic final demand

16

8

4

4

0

0 Net exports

Domestic final demand

-4

-8

-8

-12

-12 07 08 09 10 11 12 13 14 15 16 17 18

% pts

12

8

-4

-5

8

Net exports

-10

% pts

12

Thailand

Philippines

-10

16

Domestic final demand

10

07 08 09 10 11 12 13 14 15 16 17 18

10

% pts

-15

-4

15

Malaysia

Net exports

07 08 09 10 11 12 13 14 15 16 17 18

Sources: National statistical agencies and/or central banks. Note that inventories contributed +3.1 pc pts to reported real GDP growth in Thailand over the year to Q1 2018, cf. -7.5 pc pts over the year to Q1 2016. Inventories subtracted 2.5 pc pts from real GDP growth in Malaysia over the year to Q1 2018.

CORINNA ECONOMIC ADVISORY

That’s because in most cases the upswing in exports has been paralleled by an increase in imports Merchandise exports and imports (US$ terms), 2001-2018 Vietnam

Indonesia 120 100

80

% change from year earlier (3-mth moving average)

60

80 40

Imports

20

Imports

20

-20

-20

Exports

-40

-40 -60

-60

Philippines % change from year earlier (3-mth moving average)

Imports

Imports

Exports

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Singapore

80

50

% change from year earlier (3-mth moving average)

40

Imports

20

20

Imports

10 0

0 -20

% change from year earlier (3-mth moving average)

30

40

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

% change from year earlier (3-mth moving average)

Thailand 60

Exports

60 50 40 30 20 10 0 -10 -20 -30 -40 -50

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

9

Exports

0

0

50 40 30 20 10 0 -10 -20 -30 -40 -50

% change from year earlier (3-mth moving average)

40

60

Malaysia

Exports

-10 -20

-40

-30

-60

-40 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Exports

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: National statistical agencies and/or central banks.

CORINNA ECONOMIC ADVISORY

South-East Asian countries, apart from Vietnam and Thailand, haven’t experienced improvements in their (merchandise) trade balances Merchandise trade balances (US$ terms), 2001-2018 Indonesia 50

US$bn (12-mth moving total)

Vietnam 15 10

40

5

30

0

20

-5

10

-10

0

-15

-10

-20

-20

-25 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Philippines 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40

US$bn (12-mth moving total)

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

10

US$bn (12-mth moving total)

Thailand 30

US$bn (12-mth moving total)

Malaysia 50 45 40 35 30 25 20 15 10 5 0

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Singapore 60

20

50

10

40

0

30

-10

20

-20

10

-30

0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

US$bn (12-mth moving total)

US$bn (12-mth moving total)

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: National statistical agencies and/or central banks.

CORINNA ECONOMIC ADVISORY

South-East Asian countries’ exports to China have been increasing but remain less important than ‘advanced’ economies (or each other) Merchandise export destinations, 1990-2017 Vietnam

Indonesia 100

100

100

80

80

80

60

60

60

40

40

40

20

20

20

0

0 1990 China

1995 Japan

2000 NE Asia

2005

2010

SE Asia

US

2015

2017

EU

Other

na

1990 China

1995 Japan

2000 NE Asia

2005

2010

SE Asia

US

2015

2017

EU

Other

Thailand

Philippines

0 1990

China

100

100

80

80

80

60

60

60

40

40

40

20

20

20

0

0 China

1995 Japan

2000 NE Asia

2005

2010

SE Asia

US

2015 EU

2017 Other

1990 China

1995

Japan

2000

NE Asia

2005

2010

SE Asia

US

2015

EU

2017

Other

Singapore

100

1990

11

Malaysia

1995 Japan

2000 NE Asia

2005

2010

SE Asia

US

2015 EU

2017 Other

0 1990 China

1995 Japan

2000 NE Asia

2005

2010

SE Asia

US

2015

2017

EU

Other

Note: Singapore did not publish data on its trade with Indonesia prior to 2000. Sources: IMF, Direction of Trade Statistics.

CORINNA ECONOMIC ADVISORY

Indonesia & Malaysia still heavily dependent on energy exports, other countries more competitive in high- or medium-technology exports Revealed competitive advantage, 2000-2016

12

Indonesia

Vietnam

Malaysia

Philippines

Thailand

China

Note: ‘Revealed competitive advantage’ is the ratio of the share of a country’s group of products in a country’s exports to the share of the same group of products in total world exports. Source: IMF, Indonesia – Selected Issues, Country Report No 18/33, February 2018.

CORINNA ECONOMIC ADVISORY

Philippines and Vietnam are doing best on the long-term drivers of economic growth Drivers of GDP growth, 1975-2018 Philippines

Indonesia 8 7 6 5 4 3 2 1 0 -1 -2

1975-98 12

8 7 6 5 4 3 2 1 0 -1 -2

% pa

1999-08

2009-13

2004-18

1999-08

2009-13

2004-18

8 7 6 5 4 3 2 1 0 -1 -2

8 7 6 5 4 3 2 1 0 -1 -2

% pa

1975-98 12

% pa

Thailand

1999-08

2009-13

12

% pa

10

10

10

8

8

8

8

6

6

6

6

4

4

4

4

2

2

2

2

0

0

0

0

-2

-2

-2

-2

-4

-4

-4

-4

-6

-6

-6 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Employment-population ratio

05 06 07 08 09 10 11 12 13 14 15 16 17 18 Average hours worked

Sources: The Conference Board, Total Economy Database, May 2018.

05 06 07 08 09 10 11 12 13 14 15 16 17 18

Labour productivity

Population

% pa

1975-98

2004-18

10

-6

13

% pa

1975-98 12

% pa

Vietnam

1999-08

2009-13

2004-18

% pa

05 06 07 08 09 10 11 12 13 14 15 16 17 18

● Per capita GDP CORINNA ECONOMIC ADVISORY

Lower-income countries have considerable ‘catch-up’ potential if they can raise employment participation and productivity Drivers of GDP growth, 1975-2018 Myanmar 12

12

% pa

12

% pa

Singapore 12

% pa

10

10

10

10

8

8

8

8

6

6

6

6

4

4

4

4

2

2

2

2

0

0

0

0

-2

-2

-2

-2

1975-98 14

1999-08

2009-13

2004-18

1975-98 12

% pa

1999-08

2009-13

1975-98

2004-18 12

% pa

12

10

10

10

8

8

6

6

4

4

2

2

0

0

2

-2

-2

0

-4

-4

-2

-6

-6

8 6 4

05 06 07 08 09 10 11 12 13 14 15 16 17 18 Employment-population ratio 14

Cambodia

Malaysia

05 06 07 08 09 10 11 12 13 14 15 16 17 18 Average hours worked

Sources: The Conference Board, Total Economy Database, May 2018.

1999-08

2009-13

05 06 07 08 09 10 11 12 13 14 15 16 17 18

Labour productivity

1975-98

2004-18

% pa

Population

% pa

16 14 12 10 8 6 4 2 0 -2 -4 -6 -8

1999-08

2009-13

2004-18

% pa

05 06 07 08 09 10 11 12 13 14 15 16 17 18

● Per capita GDP CORINNA ECONOMIC ADVISORY

Singapore and Thailand are especially challenged by demography − but most other countries have scope to boost employment participation Proportion of population aged 65 and over, 2017 and 2025 (f) 20 18 16

Employment as a proportion of population aged 15-64, 2017 100

% of total population

% of population aged 15-64, 2017

Change between 2017 & 2025

90

2017

14

80

12 70

10 8

60 6 4

50

2 40

0 Cam- Philip- Indo- Myan- Mal- Viet- Thai- Singbodia pines nesia mar aysia nam land apore

15

South India Brazil China Russia Africa

Philip- Mal- Indo- Thai- Viet- Myan- Sing- Campines aysia nesia land nam mar apore bodia

Russia India South Brazil China Africa

Sources: United Nations Department of Economic and Social Affairs Population Division, World Population Prospects 2017; The Conference Board, Total Economy Database, May 2018.

CORINNA ECONOMIC ADVISORY

One way for many South East Asian countries to lift their employment participation rates would be to remove barriers to women’s employment Female labour force participation rate as a pc of male rate, 2017 120

%

100

SP BN

80

60

40

20

0 IN

TL

ID

MM

PH

BR

ZA

TH RS

CN

VN

KH

LA

Source: The World Bank and International Labour Organization. 16

CORINNA ECONOMIC ADVISORY

Most South East Asian workers work relatively long hours − but there is considerable scope for lifting productivity (except in Singapore) Average weekly hours worked, 2017 50

Labour productivity as a pc of US level, 2017 100

Hours per week

GDP per hour worked as a pc of US level

90

48

80

46

70

44

60

42

50

40

40

38

30

36

20

34

10

32

0

30 Indo- Philip- Viet- Thai- Sing- Mal- Myan- Camnesia pines nam land apore aysia mar bodia

Brazil Russia India China South Africa

Cam- Myan- Viet- Philip- Indo- Thai- Mal- Singbodia mar nam pines nesia land aysia apore

India China Brazil South Russia Africa

Source: The Conference Board, Total Economy Database, May 2018. 17

CORINNA ECONOMIC ADVISORY

Most South East Asian countries are in the second quartile of international competitiveness rankings, except for Singapore, and Cambodia & Laos World Economic Forum Global Competitiveness Rankings 2017 South East Asia

Other Asian economies

Indo- Philip- Viet- Thai- Mal- CamSinga nesia pines nam land aysia bodia Laos -pore Brunei 'Competitiveness Pillars' Institutions Infrastructure Macro environment Health & primary education Higher education & training Goods market efficiency Labour market efficiency Financial market development Technological readiness Market size Business sophistication Innovation Global Competitiveness Index

18

Japan Korea

BRICs

Tai- Hong AusNew South wan Kong tralia Zealand China India Brazil Russia Africa

47 52 26 94 64 43 96

94 97 22 82 55 103 84

79 79 77 67 84 91 57

78 43 9 90 57 33 65

27 22 34 30 45 20 26

106 106 70 101 124 85 48

62 102 114 103 105 76 36

2 2 18 3 1 1 2

40 60 45 31 67 67 47

17 4 93 7 23 13 22

58 8 2 28 25 24 73

30 15 5 15 17 12 25

9 1 6 26 14 2 4

18 28 27 12 9 28 28

3 23 16 6 7 9 5

41 46 17 40 47 46 38

39 66 80 91 75 56 75

109 73 124 96 79 122 114

83 35 53 54 32 80 60

76 61 82 121 85 54 93

37 80 9 32 31

52 83 27 58 65

71 79 31 100 71

40 61 18 42 50

16 46 24 20 22

61 97 84 106 110

75 110 101 89 81

3 14 35 18 9

87 60 110 92 80

20 15 4 3 8

74 29 13 26 18

19 25 20 21 11

5 9 33 11 26

6 27 22 28 27

1 13 64 24 20

48 73 1 33 28

42 107 3 39 29

92 55 10 56 85

107 57 6 71 49

44 54 30 37 39

36

56

55

32

23

94

98

3

46

9

26

15

6

21

13

27

40

80

38

61

Note: the rankings cover 138 countries and are based on a combination of ‘hard’ data and subjective responses to a survey of over 14,000 ‘business leaders’. Source: World Economic Forum, The Global Competitiveness Report 2017-18.

CORINNA ECONOMIC ADVISORY

Corruption is still a problem in most South East Asian countries, though some are showing improvement − as they are on ‘economic freedom’ Corruption perceptions index scores, 2012-2017

‘Economic freedom’ index scores, 2013-2018

20

20 MM

10 LA

5

VN

ID

RS

0

PH TH

KH

BN

IN CN ZA MY

SP

-5 BR

-10

10

5

IN

40 50 60 Index score, 2017

70

80

90

100

TH SP

KH

-5 BR

-15 30

MY

PH

ZA

0

-20 20

LA CN VN

-10

10

ID

RS

-15

0

MM

15 Change in index score 2013 to 2018

Change in index score, 2012 to 2017

15

0

10

20

30

40 50 60 Index score, 2018

70

80

90

100

Sources: Transparency International, Corruption Perceptions Index 2017; The Heritage Foundation, 2018 Index of Economic Freedom. 19

CORINNA ECONOMIC ADVISORY

Some South-East Asian economies have been successfully diversifying into more complex sectors – but Indonesia in particular is lagging Index of economic complexity, 1995-2016 South-East Asia 2.0

BRICS 2.0

Index Singapore

1.5

Index

1.5 China

Malaysia

Thailand

1.0

1.0

Brazil

Philippines

Russia

0.5

0.5

India

Vietnam 0.0

0.0

South Africa

Indonesia -0.5

-1.0

Cambodia

-1.0 Laos

-1.5

-1.5

-2.0

-2.0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

20

-0.5

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Note: The Economic Complexity Index is a measure of the diversity and sophistication of a country’s exports, devised by Cesar Hidalgo and Ricardo Hausman, The Building Blocks of Economic Complexity (2009). Source: Harvard University, Centre for International Development, Atlas of Economic Complexity.

CORINNA ECONOMIC ADVISORY

‘Core’ inflation remains low except in the Philippines; ‘headline’ inflation susceptible to rising energy prices Headline and ‘core’ inflation, 2001-2018 Vietnam

Indonesia 20 18 16 14 12 10 8 6 4 2 0

30

% change from year earlier

'Headline'

'Core'

8

20

6

15

4

10

2

5

0

0

-2

-5 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Thailand

Philippines 10 8 6

10

% change from year earlier

'Headline'

% change from year earlier

6 ‘Core’

4

'Core'

2 0

2

-2

0

-4

-2 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

% change from year earlier

'Headline'

'Core'

-4 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Singapore

8

4

21

10

% change from year earlier

25

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

12

Malaysia

'Headline'

-6 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

9 8 7 6 5 4 3 2 1 0 -1 -2

% change from year earlier

‘Core'

'Headline' 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Note: ‘core’ inflation generally excludes food prices, but in the Philippines and Thailand also excludes energy prices, while in Malaysia also excludes non-alcoholic beverages and in Indonesia excludes ‘government administered prices’. The Singapore ‘core inflation’ measure (compiled by MAS) excludes private road transport and accommodation, but includes food and energy. Sources: National statistical agencies and/or central banks.

CORINNA ECONOMIC ADVISORY

Partly thanks to ‘macro-prudential’ measures, property price inflation has been better contained in South East Asia than in Hong Kong Residential property prices South East Asia 300

North East Asia 300

2008 = 100

Australia & New Zealand 300

2008 = 100

2008 = 100

Hong Kong 250

250

250

200

200

Malaysia 200

Indonesia

NZ 150

150

150

Korea

Thailand 100

Philippines

Singapore

100

Japan

Australia 100

50

50

50

0

0

0

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: Bank for International Settlements; CoreLogic (Australia); Property iQ / RBNZ (New Zealand). 22

CORINNA ECONOMIC ADVISORY

Indonesia aside, South East Asian debt levels (and debt servicing obligations) are relatively high by emerging economy standards Credit to non-financial sectors, September 2017 400

Private non-financial sector debt service ratios, September 2017 30

% of GDP Sep 2017

350

% of GDI plus gross interest Sep 2017

25

300 20 250

15

200

150 10 100 5 50

0

0 Indonesia

Thailand

Mal- Sing- Korea Hong China India aysia apore Kong

Brazil

Russia South Africa

Indonesia

Thailand

Mal- Sing- Korea Hong China aysia apore Kong

India

Brazil

Russia South Africa

Source: Bank for International Settlements. 23

CORINNA ECONOMIC ADVISORY

South East Asia private sector debt is high relative to other EMs (Indonesia aside) − and banks provide nearly all of it Credit to non-financial sectors, by sector September 2017 400

Banks’ share of total credit to private nonfinancial sectors, September 2017 100

% of GDP Sep 2017

General government

350

Households Non-financial corporations

300

95

90

250

85

200

80

150

75

100

70

50

65

0

60 Indonesia

Thailand

Malaysia

Sing- Korea apore

Hong Kong

China

India

Brazil

Russia South Africa

% of total credit to private non-financial sector

Indonesia

Thailand

Malaysia

Sing- Korea apore

Hong China Kong

India

Brazil

Russia South Africa

Source: Bank for International Settlements. 24

CORINNA ECONOMIC ADVISORY

Most South East Asian government are running budget deficits but debt positions are either stable or improving and fiscal policy is neutral General government cyclically-adjusted balance and gross debt, 2008-2023 Vietnam

Indonesia 1

% of GDP

% of GDP

60

0

55

-1

50

1 0 -1 -2 -3 -4 -5 -6 -7 -8

45

-2

40

-3

35

-4

30

-5

Forecast

-6

25 20

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

1

0

55

-1

50

% of GDP

45

-2

40

-3

35

-4

30

60

1

55

0

55

50

-1

50

45

-2

40 35 30

% of GDP

% of GDP

45 40

-3

35

-4

25

-5

20

-6

60

30 25 20 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Singapore 60

14

0

55

12

110

-1

50

10

105

8

100

6

95

30

4

90

25

2

85

20

0

80

% of GDP

% of GDP

45

-2

40

-3

35

-4

-5

25

-5

-6

20

-6

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Cyclically adjusted primary balance (left scale) 25

% of GDP

Thailand 60

% of GDP

% of GDP

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Philippines 1

Malaysia

% of GDP

% of GDP

115

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Gross debt (right scale)

Note: Vietnam general government balance is not cyclically adjusted. Source: IMF, Fiscal Monitor (April 2018).

CORINNA ECONOMIC ADVISORY

Indonesia and Philippines’ external finances make them more vulnerable to global financial shocks – some risks also for Malaysia Current account balances 15

% of GDP Thailand

10 5

Philippines

0 -5

Indonesia

-10

External debt indicators 100 90 80 70 60 50 40 30 20 10 0

Indo- Philip- Vietnesia pines nam

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 40

% of GDP

8

30

Singapore

20 10

7

Thai- Myan- Mal- Cam- Laos land mar aysia bodia

External debt servicing as % of exports, 2016

6 5

Malaysia

0

-10

External debt as % of GNI, 2016

4 Vietnam

-20

3 2 1

-30

0

-40 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Indo- Philip- Vietnesia pines nam

Thai- Myan- Mal- Cam- Laos land mar aysia bodia

50 45 40 35 30 25 20 15 10 5 0

Short-term debt as % of total, 2016

Indo- Philip- Vietnesia pines nam 100 90 80 70 60 50 40 30 20 10 0

Thai- Myan- Mal- Cam- Laos land mar aysia bodia

Short-term external debt as % of FX reserves, 2016

Indo- Philip- Vietnesia pines nam

Thai- Myan- Mal- Cam- Laos land mar aysia bodia

Note: Debt data for Myanmar are for 2015. Sources: Thomson Reuters Datastream; The World Bank. 26

CORINNA ECONOMIC ADVISORY

Indonesian rupiah and Philippine peso are the most vulnerable South East Asian currencies Bilateral exchange rates vs US dollar and real effective exchange rates Thailand

Indonesia 7 8

'000 Rupiah per US$

2010 = 100

110 100

9 10

REER

(right scale)

11 12 Rupiah vs US$

14

33

80

50

Pesos per US$

2010 = 100

56

110

(left scale, inverted)

100 REER

(right scale)

60

90 80 70

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

27

130 120

Pesos vs US$

48

52

(left scale, inverted)

1.10

110

1.20

105

1.30

100 95

REER

(right scale)

43

115

90

48

1.40

Ringgit per US$

Ringgit vs US$ (left scale, inverted)

2010 = 100

S$ vs US$

110

(left scale, inverted)

105 100 REER

1.70 1.80

80

1.90

120 115

1.60

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

2.50 2.75 3.00 3.25 3.50 3.75 4.00 4.25 4.50 4.75

S$ per US$

1.50

85

(right scale)

95 90 85 80

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Malaysia

Philippines

44

Baht vs US$

38

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

40

2010 = 100

60

(left scale, inverted)

15

36

Baht per US$

90

70

13

28

Singapore

Vietnam 2010 = 100

REER

(right scale)

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

110

12

105

14

100

16

95

18

90

20

85

22

80

24

'000 Dong per US$

Dong vs US$

(left scale, inverted)

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: Thomson Reuters Datastream; Bank for International Settlements.

CORINNA ECONOMIC ADVISORY

Low inflation has allowed most Asian central banks to keep interest rates low and stable, but BI & BSP have had to hike to defend their currencies Monetary policy indicator rates and 10-year bond yields Indonesia

Thailand

20 18 16 14 12 10 8 6 4 2 0

7

% pa

10-year bond

BI rate

3

2 BoT policy rate

1

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Malaysia 6

% pa

5

12 10 10-year bond

6 BSP reverse repo rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

1

Overnight call rate

0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Vietnam

% pa

18

10-year bond

14 12

3

10

BNM policy rate

% pa

16

4

2

4

28

10-year bond

3

4

0

14

0

10-year bond

2

16

2

% pa

4

5

Philippines

8

5

% pa

6

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 18

Singapore

SBV discount rate

8 6

1

4

0

0

2

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

3-mth rate 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: Thomson Reuters Datastream; national central banks.

CORINNA ECONOMIC ADVISORY

Snapshot of political developments in South East Asia  Indonesia − − −

The next Presidential election will be in April 2019, and is likely to be a re-run of the 2014 contest between incumbent Joko Widodo (‘Jokowi’) and ex-general (and Suharto son-in-law) Prabowo Subianto Parliamentary elections will be held on the same day (for the first time) regional elections held in late June this year gave few pointers to the outcome of next year’s election

 Philippines − − −

President Rodrigo Duterte (Asia’s Donald Trump) is in office until May 2022 Half the Senate and all of the House of Representatives are up for election in May 2019 Duterte wants to alter the constitution to establish a federal system with 18 states (as opposed to the current Manila-centric form of governance) and to create a French-style Presidential-Parliamentary system of national government (possibly removing the single-term limit on Presidents, or creating an alternative post of PM for Duterte post-2022)

 Thailand − −

The ruling military junta headed by Prayut Chan-ocha has foreshadowed elections in February 2019 (this is the sixth promised election date since the military coup in May 2014) The current National Legislative Assembly comprises 250 members, of whom at least 130 are military or police officers

 Malaysia − − − − 29

Elections held on 9 May 2018 saw the ouster of the Barisan Nasional coalition which had ruled since 1957, by a coalition led by 92-year-old former PM Mahathir Mohamad former PM Najib Razak has been arrested on corruption charges related to $billions missing from the 1MDB fund The new government will scrap the GST (VAT) introduced by the previous government and re-consider proposed Chinesefunded infrastructure investments Mahathir will supposedly hand over to his former deputy Anwar Ibrahim (whom he had jailed on trumped-up sodomy charges 20 years ago) CORINNA ECONOMIC ADVISORY

China’s influence in South East Asia is increasing while that of the United States is waning – making South East Asian nations apprehensive  China has effectively won the struggle for control of the South China Sea −

Since 2013 China has built a string of artificial islands in among shoals and reefs within the ‘nine dash line’ over which it assets sovereignty, installing airbases, radar systems and naval facilities



this year China has landed bombers on the Paracel Islands, and installed anti-ship and surface-to-air missiles on the Spratly Islands



According to Adm. Phillip Davidson, Head of the US IndoPacific Command, “China is now capable of controlling the South China Sea in all scenarios short of war with the US”

 South East Asia is a key focus for ‘Belt & Road’ projects −

Major proposed projects include a road from Kunming (Yunnan) to Bangkok, a China-Laos railway, Thailand’s ‘Eastern Corridor’ project and (possibly) Kra Canal project, Indonesia’s Jakarta-Bandung railway, and a proposed Kuala Lumpur-Singapore railway



The new Malaysian Government is reconsidering that country’s participation in BRI projects Some other countries are becoming more wary about the terms and conditions of Chinese infrastructure loans

− 30

“China is a big country, and other countries are small countries, and that’s just a fact” ─

Yang Jiechi (Chinese Foreign Minister), July 2010

CORINNA ECONOMIC ADVISORY

Summary and conclusions  Economic growth will likely slow somewhat in Indonesia and the Philippines, pick up in Thailand, and remain close to recent rates in Malaysia, Singapore and Vietnam  Inflation will likely pick up in Thailand and the Philippines, decline in Malaysia (due to abolition of the GST), and remain low in other economies (in Indonesia partly due to regulatory caps on energy prices)  South-East Asian economies are less vulnerable to a ‘trade war’ than their North-East Asian counterparts given smaller direct trade exposures – but would still be adversely affected  South-East Asian economies also vulnerable, to varying degrees, to higher US interest rates and a stronger US dollar – with Indonesia and Philippines most exposed given weaker current account positions and higher levels of shortterm external debt  Compared with North-East Asia, South-East Asian economies have more favourable demographic profiles (with the exceptions of Singapore and Thailand), and considerable potential for lifting employment participation and labour productivity  However, Singapore aside, South-East Asia’s longer-term growth prospects are constrained by infrastructure deficiencies, domestic product and labour market inefficiencies, shortcomings in governance, and (in some cases) poorly performing education systems  Philippines, Indonesia and Thailand all confront internal security challenges from regional separatists and/or returning jihadists, and in Indonesia’s case the spread of Wahabiism sponsored by Saudi Arabia  Considerable potential for political surprises in Malaysia, Indonesia, Thailand and Philippines  South-East Asian nations are losing faith in the value of their alliances with the US (especially under Trump) – some are explicitly moving closer to China, but others are becoming more wary 31

CORINNA ECONOMIC ADVISORY