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ASEAN’s Economic Prospects on the 2016: Moderate with Good Fundamental Performance

ASEAN 2016 is forecasted for a host of variable, yet likely to be moderate, economic prospect, varying between 3 categories: slight growth, below-potential growth, and strong growth, whereby Indonesia will undergo below-potential growth. Global growth is expected to boost Asia’s exports, wherein Europe’s and the United States’ economic condition improves while exchange rate throughout Asia depreciates.

These remarks was brought up during the “ASEAN+ 2016 Economic Outlook: Uncertainty or Opportunity?” economic seminar, organized by BINUS BUSINESS SCHOOL (BBS) in cooperation with Learnsharing, at BINUS’ Joseph Wibowo Center (JWC) Campus, Thursday (10/12). The forum had Agost Benard (Standard & Poor’s Advisor-Progressia, FMR Director/Lead Sovereign Analyst), Prawira Atmadja (BASF Indonesia and the Philippines Director CFO), with Tubagus Hanafi Soeriaatmadja (BINUS BUSINESS SCHOOL’s MM Executive Programme Director) as speakers.

Agost Benard depicted a big picture of ASEAN countries’ 2016 economic prospect which is characterized by a number of factors. Firstly, big domestic savings (both at households and government institutions) will build one of ASEAN’s fundamental strengths along with a low fiscal deficit. Secondly, a lower wealth levels, but still has strong growth ability. According to 2014 data, an average figure of ASEAN’s GDP per capita equalled US$12,655 (not including Brunei and Singapore’s US$ 3,615). Real GDP’s 4.6% growth in 2015 is predicted for a rise up to 5% in the 2016 (as per regional average).

Agost Bernard; Standard & Poor’s Advisor-Progressia, FMR Director/Lead Sovereign Analyst; (left) answered questions from seminar attendants held on Thursday (10/12) at Joseph Wibowo Center (JWC) Campus, Senayan.

 

Thirdly, stable inflation and moderate leverage. In most of the countries, inflation is controllable, however the smaller, yet underdeveloped, systems are very susceptible to volatility. Economic lever is at either low or sustainable level. However, it is not applicable for Thailand and Malaysia. Fourthly, a strong balance of payment for nearly all of the country. Current account generally shows a state of surplus or the least deficit, except for Laos and Cambodia that undergo -10% deficit of GDP (2014). ASEAN did a great job attracting foreign direct investment, but plenty of space is left for further investment increase.

Fifthly, manageable external debt with big reserves. Following several years of decline, ASEAN’s external debt ranges between a low to moderate level, except for Laos. Foreign fund reserves makes a major external key to face ASEAN’s frequent economic trembles.

In addition to that, Agost elaborated on a host of possible challenges, both global and regional, to ASEAN’s economy in the 2016. They are the US’ improving exchange rate, its continual tight-money policy through increased saving interest, low commodity prices, China’s further economy slowdown, its unstable financial condition, US’ slowing economic recovery, the risk of European slide, Japan’s Abenomic ineffectiveness, and ASEAN’s regional integration below expectation.

Three Category Growth Prospects

Singapore and Malaysia are the countries with slight growth prospects in 2016. “These countries are developed, having high per capita income. For such countries, sloping growth is a common thing,” said Agost Benard in his presentation. Singapore is forecasted for a moderate growth, between 2%-3%, in 2016. Malaysia too is predicted for moderate growth as it undergoes a downward trend in commodity prices, lower domestic consumption, and political instability.

In Agost’s view, Indonesia’s prospect is classified as below-potential, together with Thailand and Brunei. In this case, both Indonesia and Brunei face similar problem, which is dependency of commodity. Agost judged Indonesia’s 2016 growth prospects to be 5.1%, even though he admitted that it is yet a weak prediction. “At least, Indonesia’s growth prospects in 2016 will reach over 4.7% as expected this year,” stated Agost.

Indonesia’s dependency on commodity exports may result in negative impact in the future because the current downward trend in commodity prices subsist. This, according to  Agost, will trigger depression over investment and consumption sectors due to a low export revenue, besides low consumption and investment as shown in import contraction. Moreover, major obstacle in bureaucracies is reflected in delayed structural reform and infrastructure spending.

Meanwhile, Thailand’s GDP prospect by 3.2% (below the past 5 years’ 4% average growth) in 2016, also below potential, is caused by its unstable political situation. “Thailand’s unfinished domestic political issues impacts business and consumers’ sentiments. These issues include uncertainties in elections and constitutional change, heightened military surveillance over the people, and probability of King Bhumibol’s death that may lead to rough transition as well as civil conflict,” explained Agost.

The Philippines, Vietnam, Laos, Cambodia, Myanmar are the ones with strong growth prospects. This promising forecast is backed by the fact that these countries are on the start of economic growth, particularly Myanmar, and some countries have diversified economic sectors.

ASEAN’s Economic Risks on the 2016

Agost Benard also listed a host of risks ASEAN economy may face in 2016, which is classified into 3 points: wrong policy, external factors, and exchange rate. In terms of policy, economic risks may come from weak and unstable management and macroeconomic institutions in ASEAN developing countries, for instance Vietnam, Laos, Cambodia, and Myanmar. Apart from it, nationalistic or protectionist investment and trade policies may negatively impact economic growth, employment, external position, for example Indonesia and the Philippines. Exchange rate policy or unsuitable responses to external turbulences may aggravate and negatively affect fiscal revenue and growth.

External factors, including US’ interest rate, China’s economy slowdown, and commodities, appears as risks testing ASEAN economies. In terms of exchange rate, further appreciation in US dollar may worsen ASEAN’s financial tight money policy. Flexible exchange rate becomes a pressing need for domestic political purposes. Most of ASEAN countries’ exchange rates flexible, allowing adjusting mechanisms in the face of changes.

Companies Should Grow Ever More Competitive

Meanwhile, representing business sector, BASF Indonesia and the Philippines Director and CFO Prawira Atmadja commented that companies should be more competitive even though business environment is not so competitive in 2016. “Companies must make improvements and should be disciplined in management as more and more competitors from outside ASEAN, especially from China, are coming,” said Prawira.

To illustrate the uncompetitive industry, Prawira pointed out government regulations which are counterproductive to industry. However, this can be overcome through communication and further lobby of government for revisions of counterproductive regulation. “This forms our business community’s biggest test in 2016,” concluded Prawira.


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