Southeast Asia is proving resilient to global macroeconomic pressures, insulated by a combination of domestic demand, intra-regional trade, foreign direct investment and policy — but the Asean bloc is leading the pack.
The IMF this week revised overall its Asia and Pacific growth forecast for 2022 to 4%, down by 0.9 percentage points, relative to April projections. But it kept its outlook for the 10 members of the Association of Southeast Asian Nations almost intact, down just 0.1% to 5%, highlighting a bifurcation between northeast Asian markets, which are struggling, and the more buoyant economies of southeast Asia.
“In Asean, the recovery is expected to be strong in 2022, because of robust consumption, services and exports in the first half of the year, supported by border re-openings and the gradual removal of pandemic restrictions,” said Krishna Srinivasan, director of the IMF’s Asia and Pacific Department.
Whereas Srinivasan sees “formidable headwinds” for Asia generally, he says “southeast Asia is likely to enjoy a strong recovery.” The IMF expects 7% growth in Vietnam this year, 6.5% in the Philippines and 5% apiece in Indonesia and Malaysia.
There are several reasons for the relatively strong performance in global terms. There is a sense that policymakers in Asia have learned from previous crises dating back to the Asian financial crisis and are much quicker to react to new challenges. The Philippines, Indonesia, Malaysia, Thailand and Vietnam all raised rates in September reflecting an aggressive approach to tackling inflation.
DOMESTIC DEMAND
This week Standard & Poor’s noted that FDI inflows into the region, which hit a record $174bn in calendar 2021, “are expected to be supported by the resilience of Southeast Asia to the slowdown in the US and EU during 2022”.
S&P’s Global PMI data show that manufacturing conditions across Asean improved at the quickest pace for nearly a year in September, with companies signalling steeper increases in output, new orders, purchasing activity and employment amid historically strong business confidence.
“This highlights the increasing importance of domestic demand within the Asean region as a growth driver, which has helped to mitigate the impact of weakening growth momentum in the US and EU,” said Rajiv Biswas, Asia Pacific chief economist at S&P Global Market Intelligence.
Biswas said that in 2020, 21% of total Asean merchandise trade was intra-regional between Asean nations.
FDI is particularly potent in Vietnam, according to Andy Ho, chief investment officer of Vina Capital. “One key area supporting the growth of the economy is FDI, up 16% year-to-date,” he said. “That is sticky money: Apple producing next generation Apple Watches in Vietnam, Samsung producing new phones. These are long-term investors who are going to invest for years to come.”