Asean countries –
particularly Indonesia, the Philippines and Malaysia – have continued to grow
close to or above trend growth in recent years, despite poor external
conditions.
“The growing affluence of the domestic population,
relatively healthy fiscal positions, a largely stable political environment and
strong liquidity inflows are lending resilience to economic activity, even as
external demand falters,” Edward Lee and Jeff Ng, Standard Chartered analysts,
said in the latest Global Research report published by the foreign bank.
Examining sources of growth over the past decade, they
find that the contribution of household consumption increased for Malaysia,
Thailand and Vietnam in the 2008-12 period relative to the 2003-07 period.
For Indonesia and the Philippines, the contribution of
household consumption was relatively stable.
“This is not surprising given their relatively closed
economies,” the report said.
For Singapore, household consumption remains a small
contributor to growth.
“In fact, Singapore’s economy has become even more
open, supporting the case for the continued use of FX as the main monetary
policy tool,” they added.
Both maintained that investment has discernibly
increased its contribution to growth in Malaysia and the Philippines.
“This reflects government efforts to upgrade their
economies and positive domestic investor sentiment. With the exception of
Singapore, domestic sources have been the key drivers of growth in the region,”
they said.
Rising affluence
supports trade
Since 2000, the Asean region has been outgrowing the
world.
Admittedly, the region has plenty of catching up to do,
as it is still relatively undeveloped.
With the exceptions of Malaysia, Brunei and Singapore,
Asean’s per-capita GDP based on purchasing power parity (PPP) is well below
that of the world. The region is catching up – Asean per-capita GDP has grown
faster than global GDP since 2000.
“This growing affluence is a source of resilience for
the region. Intra-regional trade has benefited externally oriented industries,
even amid weaker demand from traditional markets such as Europe and China,” the
report said.
In 2012, Asean exports grew just 1.7 percent amid a
weak global trade environment.
Exports to countries within Asean contributed around
70 percent of that growth.
Had Asean been in a weaker position, externally
oriented industries would have been hit even harder.
“The import profile of Asean countries by end-use
classification provides some interesting insights (here we examine the
Philippines, Indonesia, Thailand and Malaysia). Comparing the amount of
consumer-goods imports with total imports (the sum of consumer goods,
intermediate goods and capital goods), we find that the Philippines has the
highest proportion of consumer-goods imports. It is followed by Indonesia,
Malaysia and Thailand. This is in line with the fact that Indonesia and the Philippines
are more closed economies than Thailand and Malaysia. Because domestic
consumption contributes a larger share of growth, consumer goods make up a
larger share of import content. This is particularly the case for the
Philippines,” Lee and Ng noted.
They said that Thailand and Malaysia are more
export-oriented economies.
As a result, intermediate goods account for a larger
share of their total imports.
Meanwhile, imports of capital goods have been
increasing for Malaysia and Thailand in the past 1.5 years.
“We believe this was driven by flood reconstruction
efforts in Thailand, and by the ongoing Economic Transformation Programme in
Malaysia,” they said.
Interestingly, the report noted the Philippines has
the highest share of capital-goods imports relative to total imports, but has
the lowest investment-to-GDP ratio of the four economies.
“This is inflated by the country’s relatively low
ratio of overall imports to GDP. Given the government’s current investment
drive, we expect the Philippines to import even more capital goods as
investment growth accelerates over the next few years,” they said.
The report also noted Consumer-goods imports appear to
be on a rising trend in all four economies.
This reflects the region’s growing affluence and
increasing reliance on domestic consumption for growth.
The increase has come at the expense of slower
intermediate-goods imports amid weaker external demand.
“We observe three broad trends. First, imports of
intermediate goods have underperformed imports of capital and consumer goods.
This is in line with the broader picture of weak global demand; on a more
positive note, the decline in imports of intermediate goods appears to be
finding a bottom. Second, capital-goods imports have been relatively strong.
This is a positive sign for domestic investment momentum. Third, while
consumer-goods imports have been growing, the pace is slowing (with the
exception of the Philippines),” they said.
Slowing consumption
momentum
While domestic growth drivers have been supporting
Asean growth, consumption is starting to slow, partly due to the high base and
the inescapable correlation between domestically and externally oriented
sectors.
“Growth in imports of consumer goods is already
slowing in all four countries, to different extents. The trend is clearer in
Thailand and Malaysia. The Philippines still appears strong on this count, but
the latest data suggests a slight slowdown. Imports of capital goods also
appear to be slowing, more drastically in Thailand due to the normalisation of
investment after flood reconstruction efforts,” they said.
On a more positive note, imports of intermediate goods
are improving. Generally, the growth multiplier for spending on consumer goods
is lower than for intermediate and capital goods.
Hence, a pick-up in intermediate-goods imports will
mitigate the slowdown in domestic consumption.
“A further pick-up will also signal a recovery in
global consumer demand. At the moment, intermediate-goods imports suggest that
global demand may be bottoming, but the signs are still tentative and we do not
expect a strong near-term rebound,” they said.
Economic growth to
propel spending
As income levels in Asean rise, consumer spending
patterns are likely to change.
“We have compared CPI baskets across Asean with South
Korea and the US, developed economies, to discern the relationship between
consumption patterns and development,” they said.
They found that consumer spending on lower-value items
such as food decreases proportionally as an economy develops.
The Philippines’ proportion of food consumption is 39
percent, much higher than South Korea’s 13.6 percent.
Marginal increases in food demand get smaller as
incomes rise, and spending on higher-value items such as housing rises
proportionally.
In South Korea, consumer spending on housing is 29
percent of the total, well above the simple average of 18 percent for the Asean
-4 countries.
In addition, spending on transport and recreation
tends to increase in absolute terms as incomes rise.
Consumer spending patterns are also driven by cultural
and social factors.
“The implications of this are that consumer spending
will shift from being import-centric towards a balance between domestic and
external sources. As Asean develops, industrial production within the region is
likely to cater increasingly to the rising wealth of its residents. We think
that the increasing commercialization of ASEAN consumers will support
production within ASEAN, while generating domestically driven growth,” they
said.
Business & Investment Opportunities Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Health care and Life Science with expertise in ASEAN 's area. We are currently changing the platform of www.yourvietnamexpert.com, if any request, please, contact directly Dr Christian SIODMAK, business strategist, owner and CEO of SBC at christian.siodmak@gmail.com. Many thanks.
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